The managing director of the International Monetary Fund (IMF) had to travel all the way from Washington to lecture us on some basic economics. It was sorely needed. For all the media had been reporting and commenting that, inexplicably, while developed countries were cutting interest rates, we were raising ours.

But Dominique Strauss-Kahn had to remind some and teach others that "when the real economy has stalled, loosening monetary policy does not remove uncertainty that firms face regarding their investment decisions. Therefore, lower interest rates might not necessarily act as an accelerator the way higher rates act as a brake".

Vastly different conditions

Here is a good reason the developed countries are lowering interest rates and why we are raising ours: Because our conditions are vastly different and the base of our real economy is hollow and seriously distorted.

What the lowering of interest rates does in developed economies is not what they would do in our context of deep structural deficiencies. Professor Don Robotham, whose absence in the local media is painful, offered a few thoughts on an online forum moderated by the Marxist Trevor Campbell. He pointed out that the main problems we have are "the deep deficits in the real economy".

Robotham went on to say: "To put it simply: the material resources (bauxite, tourism et al) plus the human resources are way below what is needed to support our population at a decent level. It is this reality which finds expression in our budget and balance of payments deficits etc."

Structural problems

We in Jamaica not only face the global meltdown, but we have some deep structural and historical problems with our economy, which cannot be remedied by conventional textbook prescriptions.

We have a serious production and productivity problem and that, coupled with our high-import dependence, including for basic foods, means that we have to pay particular attention to our exchange rate. Our policies, for years, have been oriented around the exchange rate and while we do face Hobson's Choice where that is concerned, we are really on the horns of a dilemma, with no desirable alternative.

The Government had to raise interest rates for the reason that the former PNP Government had to raise them: to support the exchange rate, however temporarily, as other policy instruments would not work in the short term. Part of our problem for the poverty of analysis in this country is an intellectual corruption which makes it difficult to analyse issues dispassionately and impartially, outside of our crippling partisan environment.

The fact is that the JLP in Opposition simplistically and propagandistically fought against the use of interest rate policy to defend the dollar and was constantly screaming about Omar's "wicked" high interest rate, high debt-incurring policies. I warned them about playing to the gallery on this important issue. Stark reality has now forced the JLP Government to do the very thing which they staunchly opposed out of government.

Importance of a free press

But it is not enough for us to say, "I told you so" and then score political points. It is the PNP's time now to talk nonsense and to propagandise while issues go unaddressed.

This is why it is so important not only to have a free press, but an informed and educated press. Journalists have to learn financial and economic issues, and fast, to carry out properly their role as watchdogs. We must be able to unpack the fallacies in what passes for economic analysis by the political parties, financial analysts and people in the private sector. We need to have a serious, non-partisan dialogue in this country on economic issues and we must do so without the fear of victimisation and political malice. This is a time for courage.

Somebody must forget about JLP, PNP and put the cards on the table. I submit that it is foolish and a sign of economic ignorance simply to say that everybody else is lowering interest rates while this silly government is raising them. Yes, higher interest rates mean higher mortgages, increase in cost of living, more difficulty in accessing credit and other horror stories. Higher interest rates are not good. But we are not talking about a smooth, painless path versus one that is painful. We are talking about two painful paths and we have to make a judgment as to which is more opportune at this time.

Allowing the exchange rate to careen away in our economic context with such a high level of imported inflation and with our high degree of trade openness is more detrimental in my view, than a high interest-rate regime as a short-term measure.

Severe predicament

The journalists and financial analysts who are wailing about higher interest rates must put before us the costs of allowing the Jamaican dollar to slip. Now the fact that the dollar has continued to slide despite the new measures is another matter, showing us how severe a predicament we are in, but to say that the interest rate policy instrument should not have been tried at this time is not convincing to me.

Let's hear someone outside of our narrow partisan political context, the IMF managing director: "This is why a looser monetary policy is often likened to pushing on a strong: Until the fundamental underlying engines of the economy begin to exert a pull, looser monetary policy may have only a limited effect."

Having low interest rates when the fundamentals of your economy are out of kilter does not maximise your opportunity. We have been tinkering with all kinds of monetary policies over the years and have been failing under successive administrations because our real issues on the fiscal and production side are not being addressed adequately. The structural deficiencies of this economy must be dealt with. What we need is not tinkering but a fundamental overhaul. But until then, we have to do the tinkering. It is not just politics which is the art of the possible. Economics is, too.

The problem is that we have too many idealists in Jamaica; too many people with that infantile impulse to see the best of both worlds; to eat their cake and have it and who want, as Rex Nettleford likes to say, to have their omelette without breaking eggs. Some have yet to learn that the world is not tailor-made for us and our fantasies and that in the real world we face hard, very hard, choices and dilemmas.

Every sector is now calling for a "stimulus package". (We can watch CNN and Fox and so we pick up these catch phrases.)

But, as the IMF boss advised the Jamaican private sector here last Wednesday, "counter cyclical fiscal policy is not necessarily advisable in all countries, particularly in those with greater vulnerabilities or where debt sustainability is a major concern".

The man is talking to us, in case you don't get it. Various demands are being made for this or that number of billions of dollars (nobody is talking hundreds of millions anymore) and yet in another breath we talk about the need for fiscal discipline, to control government expenditure and cut fiscal deficits.

After we have given various stimulus packages to various sectors and interest groups, and swell the budget deficit and are then downgraded further by the rating agencies and chided by the IMF, what will we do? How can we contain the debt by spending more?

Commitment to fiscal consolidation

As the IMF chief says, "Countries with the strongest fiscal policy frameworks are those best able to finance new fiscal efforts and those with clearly sustainable debt positions should take the lead in supporting global demand." He went on to praise the Jamaican Government - and take the hint - for its " commitment to its fiscal consolidation and reform programme", though observing that "this will not be an easy task in the current weak domestic and external economic environment but it is necessary given the underlying tasks associated with Jamaica's large debt burden". I don't usually agree with IMF chiefs but when they are talking economic sense I am forced to.

The Government, of course, has to do something to protect the productive sectors as well as Jamaican workers. I believe in a developmentalist, not a minimalist, state. But we can't distribute what we don't have and we have to engage the entire country so that people know what the options are and what are the consequences of each option. We must stop giving people the impression that there is some painless path but for the wickedness or dim-wittedness of the Government. We have played this game for decades now. We must stop it.

We are in a serious financial tsunami and pretending otherwise is not shoring up confidence. All the major international reports are gloomy.

The United Nations has pre-released the first chapter of its World Economic Situation and Prospects 2009 report which says that for developing countries, "the cost of eternal borrowing has risen considerably and capital inflows are reversing ... Export growth is decelerating and current account balances of many countries have shifted back into a rising deficit". The latest World Economic Outlook report (October) put out by the IMF is similarly glum.

And just last week the World Bank released its major Global Economic Prospects (2009) report which says, "since September 2008, the intensification of the banking crisis, the collapse of several global financial players and the sharp increase in emerging market bond spreads have dramatically altered the outlook for developing countries."

The November issue of Harper's magazine has a cover feature with people like Joseph Stigltz debating "How to Save Capitalism". This is not just a temporary glitch in capitalism. It is a deep, systemic crisis which opens up unchartered territory.

The least we can do in Jamaica is to cut the propaganda and the grandstanding and seriously engage the issues. We should be happy that due to the struggles of progressive people, institutions like the IMF, the World Bank and the IDB are reforming themselves and are responding to demands for innovative ways to support developing countries in a crisis not of their own making.

Ian Boyne is veteran journalist who may be reached at ianboyne1@yahoo.com or columns@gleanerjm.com.