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Debating interest rate policy
Gleaner Published: Thursday | February 26, 2009
The Editor, Sir:
The periodic confrontation has erupted once more, in recent days, between the protagonists of a low and of a high interest rate policy. This time round, the stand-off is not merely between the monetary authorities and strident voices in the private sector, but also, most bewilderingly, between powerful elements within the Government itself.
The latter is clearly untenable, and calls for early resolution if public confidence is to be preserved.
Forge consensus
As I understand the debate so far, it seems that only fleeting attention has been paid to a certain basic reality which should be addressed in any effort to forge consensus within the Government, and hopefully between the Government and the broader society. The reality is that neither a low nor a high interest rate policy is without its particular combination of costs and benefits. However, it is not at all clear that either side of the debate has demonstrated convincingly that the costs and benefits associated with its preferred option best serve the broad interest of society. In this, it also has to be borne in mind that it is not only a matter of what option maximises benefits and minimises costs, but what costs are most amenable to ameliorative measures.
The need now is to take the heat out of the debate, and to bring able technical and policy analysts together - of whom there is no shortage in the country - to subject the matter to dispassionate and clinical examination. This should take precedence over precipitate and emotional calls for the head of the central bank governor.
Aware of the issue
In all this, everyone will need to be aware that the issue goes beyond mere economic and financial variables. Deeply entrenched social, cultural, and structural considerations also enter the picture. For example, the right macro-economic fundamentals may be a necessary but not a sufficient condition for a low interest rate policy to actually generate a supply response from the real sector. Jamaican circumstances would call for additional developments in a number of directions. These would include, but not limited to the following: a drastic reduction in crime; orientating the bu-reaucracy to being more pro-production (which the Public Sector Modernisation Pro-gramme has apparently not achieved); substantial improvements in water supplies; lowering of energy costs to a level broadly on par with our main competitors; and enhancement of our transportation infrastructure for the movement of goods and people, including, importantly, substantial upgrading of rural feeder roads.
This seems to be the main thrust of the task for the internal policy making undertakings of Government and for the consultative process between Government and civil society and the private sector. For the sake of everyone, let us hope that the importance of the question of interest rate policy will concentrate the collective minds of all the concerned parties.
I am, etc.,
RODERICK RAINFORD
Maryland, St Andrew
Gleaner Published: Thursday | February 26, 2009
The Editor, Sir:
The periodic confrontation has erupted once more, in recent days, between the protagonists of a low and of a high interest rate policy. This time round, the stand-off is not merely between the monetary authorities and strident voices in the private sector, but also, most bewilderingly, between powerful elements within the Government itself.
The latter is clearly untenable, and calls for early resolution if public confidence is to be preserved.
Forge consensus
As I understand the debate so far, it seems that only fleeting attention has been paid to a certain basic reality which should be addressed in any effort to forge consensus within the Government, and hopefully between the Government and the broader society. The reality is that neither a low nor a high interest rate policy is without its particular combination of costs and benefits. However, it is not at all clear that either side of the debate has demonstrated convincingly that the costs and benefits associated with its preferred option best serve the broad interest of society. In this, it also has to be borne in mind that it is not only a matter of what option maximises benefits and minimises costs, but what costs are most amenable to ameliorative measures.
The need now is to take the heat out of the debate, and to bring able technical and policy analysts together - of whom there is no shortage in the country - to subject the matter to dispassionate and clinical examination. This should take precedence over precipitate and emotional calls for the head of the central bank governor.
Aware of the issue
In all this, everyone will need to be aware that the issue goes beyond mere economic and financial variables. Deeply entrenched social, cultural, and structural considerations also enter the picture. For example, the right macro-economic fundamentals may be a necessary but not a sufficient condition for a low interest rate policy to actually generate a supply response from the real sector. Jamaican circumstances would call for additional developments in a number of directions. These would include, but not limited to the following: a drastic reduction in crime; orientating the bu-reaucracy to being more pro-production (which the Public Sector Modernisation Pro-gramme has apparently not achieved); substantial improvements in water supplies; lowering of energy costs to a level broadly on par with our main competitors; and enhancement of our transportation infrastructure for the movement of goods and people, including, importantly, substantial upgrading of rural feeder roads.
This seems to be the main thrust of the task for the internal policy making undertakings of Government and for the consultative process between Government and civil society and the private sector. For the sake of everyone, let us hope that the importance of the question of interest rate policy will concentrate the collective minds of all the concerned parties.
I am, etc.,
RODERICK RAINFORD
Maryland, St Andrew
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