While the Caribbean watched this year and wondered whether this troubled island's economy might go up in smoke, the people here came to realize that smoke -- specifically marijuana smoke -- was just about all that kept the economy going.

The intoxicating herb is called ganja here. Some of the world's most potent cannabis sativa is cultivated on this island, all over this island, as a matter of fact and exported all over the world, especially to the United States.

Jamaica's marijuana trade is illegal, vast and vital.By many estimates, including those of U.S. officials, the island's marijuana is worth about $1.1 billion a year, almost equal to the government's entire foreign debt and greater than all other exports combined.

Although marijuana is tacitly accepted here, it certainly is not in Washington, and the trade could become a major problem between the new government of Jamaica and the new administration in the White House.

No one knows this better than Edward Seaga, the new prime minister who faces a long uphill battle to revive the economic life of a nation he contends was staggered by eight years of mismanagement and socialist rhetoric.

Seaga came to power Oct. 30 in a landslide rejection of former prime minister Michael Manley's government. There is no doubt that Washington was happy to see him win. Seaga's victory handed Manley's friend, Cuban President Fidel Castro, the biggest political setback he has had in the region for years.

Seaga is considered pro-Western, procapitalist and, in some quarters, politically closer to Ronald Reagan than to Jimmy Carter. He is a churchgoing man who says he has never smoked marijuana.

But Seaga is not inclined to compromise on the survival of his country in order to stamp out what Washington considers a problem. Above all Seaga is a tough and pragmatic government financier, and no one here, least of all the new prime minister, can afford to overlook the tremendous revenues Jamaica receives from it illicit agriculture.

For most of this year Jamaica has been officially almost devoid of foreign exchange. The day before Seaga's election, reserves in the Bank of Jamaica reached zero. If the official markets were all that Jamaica had to work with, imports would have stopped altogether earlier in the year.

"The ganja trade in the last several months was virtually what was keeping the economy alive," said Seaga as he sat in his modest office at the prime minister's mansion last week. "It supplied black market dollars which were then used by industrialists and other persons in the economy who wanted to import raw materials for which they could not get bank of Jamaica dollars. On that basis they were able to avert a lot of closures and very substantial layoffs."

As far as Seaga and many other Jamaicans are concerned, including otherwise highly conservative business leaders, the problem facing this island is not whether to try to eliminate the marijuana business, but whether to decriminalize it.

"The question of legalizing it so as to bring the flow of the several hundred million dollars in this parallel market through the official channels and therefore have it count as part of our foreign exchange -- which would mean an extremly big boost to our foreign exchange earnings -- is not just an economic one. It is a moral one and requires a lot of study," Seaga said.

But he added that moral question as far as he is concerned is basically one of corruption rather than consumption.

"Medical reports seem to suggest there's no conclusive evidence that ganja is harmful, and therefore the extent to which it can be considered a moral problem in that respect is not as clearcut," he said. "But there is a moral problem of a different type, and that is the bribery that runs with illicit traffic. And in at least two cases, we know of gun trafficking that has been associated with it. All of this just adds to the complexity of the whole matter."

Seaga states flatly, however, that it would be impossible to eliminate the marijuana trade.

"Regardless of whether we want it or not, the industry as such is here to stay. It is just not possible for it to be wiped out, and if it is here to stay then we have to make up our mind from that point as to how best to deal with it."

One way is to use it as a bargaining tool in negotiating with the United States. Seaga needs a great deal of international aid, and he needs it fast. sBesides resuming negotiations with the International Monetary Fund, which were broken off last spring by Manley, who claimed the terms could not be met, Seaga wants to see the United States lower tariff barriers and trade restrictions with the Caribbean.

The United States has a clear stake in seeing economic revival in this largest English-speaking Carribbean island, but Seaga wants that interest translated into massive support of a kind at which a conservative administration and Congress might easily balk.

As yet, Seaga said, the marijuana traffic and the aid he wants have not been linked.

"We have not brought together these things as a quid pro quo, and I would hope to avoid that," he said. "But I believe that if you're going to analyze Jamaica's problems at any depth at all at this stage, you are going to run into the fact that this huge traffic is going on -- which you may not consider to be to the advantage of your country -- and you are going to raise that question, and I in turn am going to have to say, well, it's keeping us alive. How else do we get kept alive?"

To the policymakers in Foggy Bottom and on Capitol Hill -- not to mention the newly influential Moral Majority -- this may seem just so much bluff on Seaga's part. But here in Kingston one realizes quickly just how deeply marijuana reaches into Jamaican life.

Although it is technically criminal to possess or consume it, any large gathering very likely will be held beneath a virtual thunderhead of markjuana smoke as Jamaicans light up pipes and spliffs -- marijuana cigarettes as big as cigars.

As one official in the U.S. Embassy put it, "Seaga is walking a tightrope. When the planes fall out of the sky they will have to go out and arrest people. But that's about it."

During the mid-1970s, efforts were made to crack down on the growing and selling of marijuana, but these were short-lived and the effects remarkably short term. The main result was the augmentation of the Jamaican Coast Guard and Air Force with vehicles seized from smugglers. Otherwise the trade is stronger than ever.

At present it is estimated there are at least 28 illegal landing strips on the island used for smuggling. Countless little inlets and coves shelter boats transporting the "herb" by the ton. In recent months it has been easier to buy marijuana on the streets than rice or flour in the stores.

Some Jamaicans, short of food, are said to smoke the herb in the morning and drink water all day as virtually their only sustenance.

Marijuana is also used to make a "bush tea" with widely reputed medicinal properties, and its oils are used as liniments.

Small farmers depend on the money marijuana brings them to survive, while scions of Jamaica's best established families have become marijuana entrepreneurs.

Even businessmen who claim to have no current interest in the trade are speculating about its potential in the years to come.

"When there was prohibition in the United States," reminisced a senior official in one of the island's distilleries, "we knew that ships stopped here, and we didn't ask where they were going."

Meanwhile, production just keeps going up. According to Jamaican police officials, the amount of land in marijuana cultivation has increased by as much as 50 percent this year alone.