"The successive interest rate increases observed this year, seeking to stabilise foreign exchange markets and to reduce inflation expectations, have been timely and appropriate," said Strauss-Kahn, managing director of the International Monetary Fund (IMF), during a pass through visit to Jamaica en route to Costa Rica.

Jamaica's debt to GDP ratio is now estimated at 111 per cent, and while this is down from last year's 132 per cent, the IMF chief said Jamaica was left with limited options for economic stimulus because of the high ratio.

Government subsequently announced a stimulus package that is at least $28 billion in value, with some items left to be costed.

The BOJ this year has hiked signal rates five times, but it was the drastic nature of the last adjustment two weeks ago that had private sector bosses concerned.

The central bank signals the direction for interest rates through open market instruments that it sells to financial houses.

On December 1, the rates on BOJ certificates of deposit were increased by as much as 7.3 points on the longest tenor, pushing the one-year instrument to 24 per cent. The three-month sold for 17 per cent, up by more than two percentage points.

But the Private Sector Organisation of Jamaica (PSOJ), which represents a wide cross section of businesses in Jamaica, including the most powerful, has warned that holding rates high would increase the cost of capital and in turn be bad for business in a situation where several were already struggling to keep afloat.

But imbedded within corporate Jamaica's position was a realisation that the authorities had to act to bring stability to the system, where companies are dependent on a stable currency to properly predict their cost of doing business.

"We are of the view that this move will inevitably raise interest rates across the financial system, putting more pressure on an already weak real economy at a time when a global crisis is taking severe pressure on us," said PSOJ president Christopher Zacca at the business grouping's annual Christmas luncheon.

Keynote speaker

Strauss-Kahn was keynote speaker at that event.

There has been no public statement on whether the central bank is willing to compromise on the timeline, but four years ago when it took similar action, the downward adjustment of signal rates began shortly after.

However, loan rates did not adjust at the same pace.

Edward Chin-Mook, president of the Small Business Association of Jamaica - an affiliate of the PSOJ, last week described the interest rate hike as "scandalous, retrograde and consistent with poor fiscal leadership".

However, Strauss-Kahn said decisions at this time could not be based solely on the interest of businesses, but on what the country could afford in order to protect its current and fiscal accounts.

Tassistance

The IMF is already providing technical assistance to Jamaica in the reform of its accounting and fiscal monitoring systems.

Strauss-Kahn promised that his agency would continue to provide assistance and work closely with Jamaica on its policy responses to the crisis.

While in Jamaica, he met with Prime Minister Bruce Golding, BOJ governor Derick Latibeaudiere, minister without portfolio in the Finance Ministry Don Wehby and Finance Minister Audley Shaw, with whom he also shared a joint press conference.

"We fully support the authorities' timetable for achieving a balanced fiscal budget over the medium term, which is one of the key ingredients towards that goal," said the IMF head. "The authorities' intention to rationalise public entities while moving forward with reforms to include these in the budget is a key initiative that will add credibility to budget and public debt reduction targets."

john.myers@gleanerjm.com