Both Sides of The Coin: The Story of The Central Bank of Barbados 1972-2017

226 retrenchment, lower transfers to state enterprises and increased taxation. Suggested changes to monetary policy included higher interest rates and lower bank financing of Government’s operations. It was felt that this policy should be maintained through the end of fiscal year 1992/93. Significantly, although the team felt that the Barbados dollar was overvalued by between 10 and 20 per cent, it agreed that devaluation should not be considered as an alternative to fiscal consolidation. The cash flow situation deteriorated in the first quarter of 1991. Accordingly, Barclays advanced the Bank £6 million (about $24 million) against the final tranche of the BZW loan which was due for drawdown in March. At its meeting in March, the Board described the foreign exchange situation as “critical” and recommended that a programme with the IMF should be negotiated since that would allow greater access to institutional and private lending. By early May of 1991, the Bank’s working balances were only $9 million and it was necessary to withdraw money from the £7.5 million Retention Fund for the BZW loan. The feeling in the Bank was that the country was facing its last opportunity to approach the IMF voluntarily, that is, with some bargaining power. At a special meeting of the Board on May 9, Governor King was mandated to inform the minister of finance, that a Fund programme should be requested as soon as possible. By the end of May, the Bank’s liquidity stood at $18.7 million, a cause for concern. Due to heightened anxiety about the government’s ability to defend the exchange rate there were unusually large requests for foreign exchange by the public and the first interest payment on the BZW facility (about $5.3 million) was due in a month’s time. Over the next several weeks short-term credit lines helped to save the day as the Bank successfully IMF Headquarters in Washington, D.C.