But should he have lapsed, we offer Mr Golding a reminder, relating to recent events, whose profound consequences he inherited and over which he is greatly exercised.

A decade ago, in an inflationary environment, investors chased super-high interest rates and commercial banks - partly induced by government policy - obliged by taking risks beyond what would be considered rational in an orderly and properly regulated market.

When the Government shifted its policies, banks and insurance companies faced demands for the short-term funds they had put into long-term laibilities to create mismatched portfolios. Some wobbled, most collapsed.

The government of the day was faced with the dilemma of whether to allow the depositors who sought the super-high interest rates to lose their money, or to bail out the banks. Sensibly, the Patterson administration chose the latter.

But then, it did something rather silly. It created a moral hazard.

Assuming the crisis was not systemic and easily contained, they agreed to give back the first-round depositors not only their principal, but also their 'earned' interest. The administration was morally bound to do the same for each succeeding round of depositors, as more banks and insurance companies collapsed.

rescuing the financial institutions

In the end, it cost taxpayers around $140 billion to rescue the financial institutions, creating a debt that reached over a fifth of gross domestic product (GDP). Had the Government forefeited payment of interest, or paid a smaller proportion of it, the dynamic of the fiscal crisis now faced by Mr Golding would have been different - and easier to manage.

Now, Mr Golding may be creating a moral hazard of his own: his promise not to cut public-sector jobs, which he repeated in a television interview last Wednesday night.

This year, the Government's wage bill will be nearly $126 billion, or just under 11 per cent of GDP. The administration hopes to reduce that to nine per cent of GDP over the next three years.

The best, and least painful, way to achieve that target is, of course, via economic growth. But Jamaica's near-term growth prospects are not strong. In the current fiscal year, the economy is projected to decline by as much as four per cent.

Clearly, the administration will have to engage a mix of strategies to keep its wage bill in check and achieve its fiscal targets, including a balanced budget by 2015. The Government is already struggling to hold this year's deficit to 5.5 per cent of GDP, despite imposing a freeze on public-sector salaries.

Without that cap, the Government would have been obligated to a wage hike of seven per cent, which would cost another $8.7 billion. Alternatively, it could cut 15,000 public-sector jobs.

Slashing jobs in the current environment is, admittedly, politically difficult. But wage freezes merely postpone the real fix, and, as the recent past has shown, usually add nothing to public-sector efficiency.

Moreover, the certainty of employment is no inducement to hard work or reform. As tough as it is, our advice to Mr Golding is to keep all options open, and spread the burdens widely.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.