GOVERNMENT'S dithering about entering into a standby agreement with the International Monetary Fund (IMF) does itself a great disservice. It does an even greater disservice to its citizens. Delay could jeopardise Jamaica's return to private markets in the long run. This dithering and delay is compounding the cost in jobs, income, investment, confidence and, ultimately, is a threat to social stability.

The immediate issue is one of securing credit now that access to international capital markets is closed. The longer the delay in securing new credit lines, the tighter the closure and the lingering doubt.

The IMF is now the only creditor open to economies considered high risk and the terms are not as onerous as in the past, when its experimentation, along with the World Bank and others, did such harm to borrowing countries.

We are all the wiser if sadly bruised, more so after observing the debacle at the centres of finance. So, there should be no stigma attached to the IMF's return.

Jamaica, as a member of the IMF, remains in 'good standing' and perfectly entitled to draw on its resources. After all, it is seeking a credit line on a precautionary basis. In short, Jamaica is not a distressed borrower.

Should the IMF credit be called on and, in large part, used to finance debt repayment, capital outflows and unnecessary consumption imports, the stand-by arrangement will solidify the structural weaknesses of a mismanaged economy in which capital is misallocated and wasted, and income distribution and consumption unequal in the extreme.

GOOD FOR 25 YEARS

The Jamaican institutional holders of Government debt have had it good for some 25 years, ever since the supply-side, monetary fads of 'globalisation' took hold. Financial markets were 'liberalised' with limits on interest rates removed and free movement on the capital account. Legislation to control capital flows in emergencies, a feature still maintained in the United Kingdom, was abolished overnight and with little fanfare. Truly exceptional marked-up spreads on loans charged by commercial banks, high administrative charges on householders accounts and interest paid on their deposits kept well below the inflation rate. Banks, near banks and unregulated investment schemes flourished.

The Government is well within the bounds of orthodox fiscal policy and its IMF rights and obligations to ensure the sustainability of the country's debt exposure. This includes renegotiating terms with its creditors. Even more so when the creditors, recognising their own risk exposure, come voluntarily!

The IMF has no say in this matter, except to commend the Government for freeing resources to finance their expressed commitment to a safety net for the poor and a basis for medium-term balance in the national accounts.

Jamaica entered the private international financial markets where premiums charged measured risk. The country paid dearly for the privilege and absorbed the loss when the Jamaican dollar depreciated and the debt in local currency ballooned. So too, when it issued indexed debt in the domestic market.

It is the way of markets in the major market economies, for huge gains and losses as the price for risk taking. The prices of this systemic market failure are fiscal deficits of enormous proportions and now an important part of their policy mix.

The cost to Jamaica of the IMF credit, when drawn on, will be close to three per cent, an additional charge on the budget and cost to the Jamaican taxpayer. Is there any real justification for this cost to be taken on the burdened budget, if it is used to repay asset holders feasting on high-priced government paper, for close to a generation?

Reasonable 'haircut'

A three per cent plus 'haircut' seems reasonable, as the returns will still be well beyond the declining inflation rates on all markets.

Other firmer measures are certainly going to be necessary. Debt repayment limits, without discrimination between local and foreign creditors, consistent with a declining level of international reserves (at interest rates reset at even lower than the rates on debt) are among sensible options. The Government should be ahead on the curve, much like Usain Bolt.

The dramatic cut-off of export credits to Jamaica and other developing countries must be kept in mind.

The very high return on Government Treasury Bills, the benchmark for the high interest rate regime was a boon to holders of Government paper. Additionally, they were protected during the financial market crash of the early '90s. On the other hand, that regime drove manufacturing and other productive enterprises from the formal economy.

The high and onerous interest rate regime is one important cause of the poor state of the Jamaican economy, notwithstanding its role in dampening the escalating devaluation of the exchange rate of the Jamaican currency.

The central bank, as circumstances warrant, will continue to influence the lowering of interest rates prevailing in markets through its open market operations. It will take its cue from the Government's fiscal measures and the response from market actors. It can do nothing else in its role as master of monetary policy.

Government, for its part, has the wider economy of job creation and growth for sustainable development as its overriding purpose. It cannot be beholden to any group or sector and sacrifice the public interest nor to misinformed dogma.

The time for decision is well past. Dithering is a dumb option.