The pathetic picture of that 59-year-old man ambling his way on crutches to tell his tear-jerking tale of FINSAC woes will be etched in the minds of Jamaicans for a long time. If you ever wanted a human face to the disaster of a high-interest rate policy, you got it at that FINSAC enquiry. Another wretched week for Omar Davies.

Mechesk Willis borrowed $480,000 but saw his high-interest debt eventually skyrocket to $7 million, pitching him out of his home and landing him in a one-bedroom house with his family of seven. That's the kind of human tragedy that a high-interest rate policy regime can wreak, and it's why you don't have to be an economist to know that high-interest rates are bad for business and human welfare. But life is not as simple as our emotions sometimes suggest, and the temptation to believe that a low-interest rate regime is the panacea to our problems should be resisted with vigour.

Low interest rate has become the mantra and accepted orthodoxy in Jamaica today, and with the untold suffering we have experienced with a high-interest rate regime over decades, it is understandable if there is impatience with any 'heresy' on this matter. But at the risk of being burnt at the proverbial stake, I decline the invitation to ride the bandwagon.

Important point

The now much-despised former governor of the Bank of Jamaica, Derick Latibeaudiere, made an important point months ago when he was being pressured to lower interest rates artificially. He reminded the manufacturers that interest-rate policy could not operate independent of market forces; that it had a real and tangible relationship with the real economy and that, in effect, he should not be called upon to perform voodoo economics.

This is what this low-interest-rate policy at all cost amounts to, a kind of faith-based, magical, miraculous economics, a secular version of snake-handling. If central bankers and governments haphazardly lower interest rates without paying close attention to market signals, we would be taking daredevil risks with macroeconomic stability.

Of course, the low interest rates proponents will shoot back that the economic fundamentals will never be in proper alignment once we have a continued high-interest rate policy. I admit we are in a deep dilemma, but let us acknowledge that, by its very nature, a dilemma defies quick fixes and simplistic 'solutions'. Dilemmas are hard stuff and call for clear, collected and calm thinking. It does not call for panic reactions. It certainly does not call for fantasy.

Interest-rate policy cannot be divorced from what is happening in the productive sector. In a market-driven economy, as opposed to a command economy, interest rates must be a function of market forces. The former governor used to say to the market, quite rightly, you say you want low-interest rates, then show me the signals that you really want that. I will play ball with you but you must show that you are serious.

Creating artificially low interest rates is giving credence to voodoo economics, and nobody is really fooled. Business people are generally rational and calculating. You can't fool them as easily as you fool believers in magic or obeah. So we must agree that while we have to find a way to lower interest rates, a low-interest rate policy has to be approached prudently.

I wonder whether those who believe that a low-interest rate policy automatically translates into robust production and productivity have heard about a country called Japan. Perhaps their reading on Japan stopped at the 1980s when some were predicting that the 21st century would be the Pacific Century and that Japan would overtake America. Perhaps they are unaware of what has happened to Japan since the 1990s - now known as its 'lost decade'.

Japan, whose interest rate is now close to zero, has seen its rank in per capita GDP fall from fourth in the world in 1989 to 19th in 2007. This is despite numerous stimulus packages and almost an incessant flow of funds into public works projects.

Japan's outstanding balance of government bonds today amounts to 174 per cent of GDP, up from 71 per cent in 1989. A low-interest rate policy is no guarantee of economic prosperity and business growth. Economic development is not as simple as some of our politicians and commentators make out.

Not necessarily a barrier

And we need to listen to and engage more of our serious thinkers and policy-makers like Dr Wesley Hughes who last week told a seminar that the empirical data he has examined has shown that high interest rates are not necessarily a barrier to economic growth. Economic analysis does not support many of the popular notions in Jamaica. That is why I continue to call for a debate between the political parties so that these issues can be illuminated and the public can be informed and sift the wheat from the chaff. Let it all hang out.

The commonly expressed view here that high inflation is always bad economically has actually been exploded by empirical work done by Harvard economist Dani Rodrik.

It is also commonly said that since the 1990s Jamaica has been one of the few countries, globally, which have had negative economic growth. This is actually not true. There are a number of countries which have had negative economic growth rates since the 1980s and only 13 which have grown by seven per cent over a 25-year period. It is true that our record is one of the worst over a 25-year period, but it is not true that sluggish growth is unusual in developing economies. (I strongly recommend you read the World Bank's Commission on Growth and Development's 2008 report, The Growth Report).

But in voodoo economics one does not have to appeal to facts or reason. One simply makes statements by faith or fiat.

I have been press secretary/speechwriter for nine ministers of industry across political administrations since 1982 (and for Karl Samuda in PNP and JLP administrations), and so many of the present economic debates are deja vu. I remember Douglas Vaz and manufacturer Charles Henderson-Davis, over vodka on many an evening, bewailing high interest rates in the 1980s, the disincentives to production, and the bias toward trading created by Ministry of Finance policies.

The lament of Claude Clarke in The Gleaner over the last year and a half was just as eloquently recited by him when I was his press secretary and speechwriter in the 1990s. Claude has been putting on the table some critical issues for discussion but he has not been engaged in the way he really should. (I re-read most of his pieces submitted for 2009 before writing this column.)

There is no one who despises a high-interest rate policy more than Clarke. It is not just a theoretical matter for him. He has suffered dearly and deeply because of it, imposed by his own People's National Party, which he now openly flays.

Davies' policies

Indeed, Claude has been bemoaning the fact that the JLP has not broken with the policies of Omar Davies which he says wrecked the Jamaican economy. In his Jeremiad titled 'Whatever happened to change?' (Sunday Gleaner, October 4) he wails: "Why then has the new JLP government so far failed to bring any change to the management of the country's economic affairs? It is puzzling that after 18 and a half years in opposition, with time to assess, plan, organise and prepare for Government, the JLP appears to come to office with no idea of what is wrong with our economy or what is needed to fix it and make it work. There can be no other explanation for the JLP's continuation of the PNP's debt-management strategy, having witnessed the country sink deeper and deeper into the sea of debt under the PNP".

The point, former boss, is that the JLP has learnt that things are not as simple as it imagined in Opposition, that the real world of policy-making and managing an economy is far more complex and nuanced than simplistic either/or 'solutions' suggest. Reality has mugged the JLP.

Hard choices

The JLP in Government realises that quite apart from any mismanagement by the PNP - which it was elected to correct, anyway - there are some hard choices which face any government. Force a low-interest-rate regime in a lopsided economy and see what happens to your exchange rate! In a high-import, high-consumption, open economy like ours, try ignoring exchange rate stability and see what that does to social stability. When there are riots in the streets, see how any foreign investors will be flocking here.

In his piece, 'Competitiveness: the opportunity in the global crisis' (March 1), Claude made this passionately held statement: "No policy has ever been as destructive of our economy as the blind commitment to defending the price of the Jamaican dollar." He said, "Ever since the declared success of the all-night vigil and march on the Bank of Jamaica in 1986 by the then Opposition People's National Party, the exchange rate has become a huge political issue, commanding the respect and fear of both political parties." For good reasons, Claude.

Objective realities

The JLP now understands that despite its rhetoric in Opposition, there are some policies of the PNP which simply must be continued because of the exigencies of our situation and our serious exogenous and indigenous constraints. There are certain objective realities which we simply can't wish away. One of the reasons why so many people who voted for the JLP are disillusioned today and are attacking the Government is that they were led to believe in magic and voodoo economics.

This is why the debate is necessary. Not for the parties to grandstand but for the public to be educated about supposed alternatives and painless paths. One of the greatest forms of corruption in Jamaica is intellectual corruption. People fear to speak the truth because they fear being penalised for their opinions or because they want to curry-favour with the rich and powerful. But we must debate these issues, for we have already seen the incalculable damage that economic misadventures can bring.

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