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

72 the Compensatory Financing Facility. Boosted by these inflows, the foreign reserves stabilised and grew steadily for the next three years. The 1981-82 economic crisis The 1981-82 economic downturn was a much more serious affair and was the first real test of the Bank’s policy-making, advisory and operational apparatus since its formation. The domestic response was quick, but the decision to seek external accommodation was somewhat delayed. Interestingly, economic conditions had already started to improve when assistance from the IMF was secured. Early signs and responses The first indications that all was not well appeared early in 1980. Higher-than-expected economic growth in the previous year (nearly eight per cent compared to the six per cent earlier estimated) had led to increased import demand and inflationary pressures, particularly in the construction sector. Slower growth in some major economies was also beginning to impact adversely on tourism and export manufacturing. Moreover, during the first quarter of 1980, foreign exchange earnings had grown by only $9.2 million, compared to an average of $23.4 million in the corresponding period between 1976 and 1979. During 1980, the Bank tightened its monetary policy. The minimum savings rate was raised from three per cent to seven per cent, and the average loan rate from 10 per cent to 12.5 per cent. The bank rate was also increased from 10 per cent to 11 per cent and a limit placed on the amount of credit extended for the marketing of sugar. These tight monetary conditions and high world sugar prices removed some of the anxiety regarding the external sector as the year progressed. However, the generous income tax concessions in that year’s budget and a pending wage settlement in the public sector caused some concern 43 .