DeLisle Worrell: Barbados - principles underlying its economic strategy
and aims
Remarks by Dr DeLisle Worrell, Governor of the Central Bank of Barbados, at the
XXXIX Meeting of Network of Central Banks and Finance Ministries of Latin America and the
Caribbean, sponsored by the Inter-American Development Bank, Washington DC, 9 April
2014.
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The key to successful economic policy in small very open economies (SVOEs) like Barbados
is to secure the exchange rate anchor by ensuring the country's reserves of foreign
exchange remain at an adequate level.
A second reality for SVOEs is that they do not produce the consumption or intermediate
goods they use; these are all imported, as are most items of machinery. The reason is that
SVOEs have limited human and physical resources, and they can achieve internationally
competitive scale in only a handful of activities.
A depreciation of the exchange rate therefore serves no good purpose, and it has the
adverse consequences of high inflation and undermining investor confidence. Fear of
devaluation therefore provokes capital flight, because no-one wants to be caught out by the
devaluation.
How should the SVOE stabilise the external accounts to sustain adequate foreign reserves
and to restore adequacy when reserves have been depleted? The answer: by containing
aggregate demand, and thereby limiting the demand for imports, to fall within the supply of
foreign exchange. The tools for aggregate demand management are government revenue,
expenditure and the strategy for financing government's deficit.
These are the principles underlying the Barbados economic strategy.
The global recession has been a challenge for Barbados. Both our principal foreign
exchange sectors (tourism and international business) were hit. And growth stalled in all
three of our main markets: the UK, the US and Canada.
What has been our response? To persist with a strategy for adjustment and growth that has
served us very well in the past. In the short run aggregate demand has to be cut, in line with
the reduced availability of foreign exchange to buy imports. However, our economy has
become more resilient in the face of shocks than we used to be. The cumulative real income
contraction since 2008 is no more than 3 percent, compared to a 14 percent drop in the early
1990s.
Economic growth will not resume until the foreign exchange sectors get moving again.
Barbados remains very competitive in tourism, international business and alcoholic
beverages. In the 2013-14 Global Competitiveness Report Barbados outranks its Caribbean
and Central American neighbours in 10 of the 12 dimensions included in the Report.
But we know we must do even better. We therefore aim to:
• accelerate the growth of worker productivity;
• upgrade the quality of services offered;
• enrich our product offerings and exploit market niches;
selectively penetrate promising new markets, and sharpen our focus within well
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established markets.
The main thing we need from the international community is a better understanding of our
reality, and support for these policies. Instead, the IMF, the rating agencies, the Basel
Committee and the OECD have all taken well-meaning initiatives which have in some way
threatened the success of our adjustment and growth strategy. We are engaging with these
bodies with a view to gaining greater voice to express the realities of economic policy making
in SVOEs. We welcome the establishment of small states fora at the IMF and World Bank,
the regional consultative groups of the Financial Stability Board, and the peer reviews of the
Global Forum. These are all fora we may use to get our message across. This regional
network of central banks and finance ministries is a further opportunity to get the message
across, and we express our sincere thanks for the invitation to share these thoughts with
you.