Yesterday's announcement by the authorities of a lending facility for Jamaican financial firms that may be stressed by the global credit crisis is a good move. But by their less-than-clear statement on the issue, the authorities run the risk of causing precisely the consequence that the Government would neither intend nor want: panic.
Surely, it would be the most incurious Jamaican who would not know about the global financial crisis triggered by America's subprime mortgage meltdown, and how these have forced governments in America, Europe and Asia to shore up their banks.
In Britain, for instance, Gordon Brown's Labour government is spending £50 billion to acquire shares in banks whose equity is in danger of being corroded by toxic mortgaged-based securities on their balance sheets. France, Germany, Italy and others in the euro zone are doing the same thing, committing US$2 trillion in support. The Bush administration is following suit. Hank Paulson is planning to use US$250 billion of the US$700 billion Congress afforded him to buy up the non-performing assets of banks, to take stakes in them instead.
Central banks
If national treasuries and central banks across the globe are providing lenders with liquidity support in an effort to unlock credit and kick-start stalled economies, no one would assume that Jamaica could be totally immune from this global contagion, as Prime Minister Bruce Golding made so clear in his speech to manufacturers last week.
Indeed, regulators of banks and brokerages, and the institutions themselves, have been at pains to point to their limited exposure to failed or troubled American or European banks, or to their toxic assets. In so far as Jamaican institutions hold assets abroad or have counterpart arrangements on Wall Street or in the city, these mainly involved secure Jamaican government bonds.
Moreover, after Jamaica's domestic financial sector meltdown of the late 1990s, the country's regulatory system is sound and institutions have to operate with sound ratios.
But even in the soundest of environments, institutions, from time to time, require short-term liquidity support, which in part, is why there are such things as inter-bank markets, or, in more extreme circumstances, central-bank support.
Systemic fashion
Given recent assurances, however, few people would expect the latter to be required in any systemic fashion in Jamaica at this time. And it probably isn't.
Indeed, the central bank said that its facility will "provide liquidity to these institutions for overseas margin and repo payments on GOJ global bonds during this period of dysfunctional money markets".
What is not clear is what, if any, specific issue has triggered the central bank's intervention and how much capital the authorities intend to make available, and on what terms.
Such cryptic announcements tend to raise fears, even if unwarranted. It would have been better not to say anything at all than to issue a statement that is likely to raise more questions than it has clarified.
We suggest that Mr Golding send out his economic team to make a full disclosure of all the issues and to answer questions, to prevent a dribbling away of confidence because of an act of good intent. Jamaicans are sophisticated enough to process complex information, whatever the authorities may think.
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