In the heat of the general election campaign, it is easy to lose sight of the turbulence which unfolded on the global financial markets last week.

On Thursday, the main global stock markets declined sharply - with the Dow Jones Industrial Average falling by 387 points. The European Central Bank and the United States Federal Reserve felt compelled to pump about US$300 billion into the market in a frantic attempt to ease the liquidity crisis. Many are nervously awaiting developments this week.

It would be a serious mistake to imagine that this has nothing to do with us. Jamaica is a small open economy whose fiscal deficits are financed on the international financial markets. It depends heavily on its exports and remittances, as well as on foreign investment for its development. If the current turbulence continues unabated, and credit continues to dry up as it did last week, this would have very serious implications indeed for our own economic prospects.

For this reason, both Government and Opposition, and in particular Dr. Davies and Mr. Shaw, need to follow the current events on the global scene closely and prepare to take defensive measures. Regardless ofwhat may be written in manifestos or said in political debates, financial decisions taken in New York, London or Frankfurt, arguably have more impact on our economic health than anything which may transpire in Kingston.

The crisis derives from the defaults in the U.S. subprime mortgage market. This is the market in which mortgages were granted to persons beyond their capacity to pay. It is estimated that about US$600 billion of such defaults will come on the market over the next two years as a result of this folly.

The problem is that in today's globalised financial markets, these subprime mortgages were repackaged as mortgage-backed securities and then repackaged again as so-called collateralised debt obligations (CDOs) and sold onwards globally. It turned out that Bear Stearns had billions of dollars of these worthless CDOs as did BNP Paribas and, apparently, so did several German banks. They have been severely punished by the markets. On the weekend it was reported that Citigroup was facing a loss of US$700 million, as a result. The problem is that nobody knows for sure who holds this paper or how much they are really worth, if anything, as CDOs are generally not actually traded in real-world market transactions.

There is uncertainty about exactly who is exposed and to what degree is the root cause of the rush for the exits. Panic behaviour of this kind, of course, only intensifies the crisis and puts the entire system at risk. There is not much Jamaica can do about this situation, but we can set up some defences. We should tighten our seat belts. There is much turbulence ahead.