THREE DEVALUATION OPTIONS have been presented to the Caribbean by the Inter-American Development Bank (IDB), which has hailed Barbados as having successfully implementedone over two decades ago.
In its latest policy brief on the Caribbean group, the Washington-based IDB listed external, internal and fiscal devaluation as the main choices in the face of reduced competitiveness and a sustained current account deficit across the region, while noting that Barbados had successfully implemented the internal option in the 1991 economic recession.
In the brief entitled The Question Is Not Whether To Devalue Or Not To Devalue, But Rather What To Devalue, IDB senior economist Inder Jit Ruprah stated that “the typical example of success, given by proponents of internal devaluation, is Latvia. Rarely is Greece or Barbados mentioned”.
Ruprah added that before 1991 Barbados’ external position had begun to rapidly deteriorate but after the implementation
of an internal devaluation programme – featuring an eight per cent cut in civil servants’ wages – that year, the fiscal deficit was reduced from eight per cent of Gross Domestic Product (GDP) to two per cent by 1992, capital expenditure diminished by 50 per cent, output and imports fell, and the current account improved.
