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Caribbean Islands-Role of Government





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In general, the Barbadian government has taken a strong stand against government interference in the operation of the national economy. During his second term as prime minister, Barrow favored a minimal role for government in managing economic enterprises and emphasized the supportive nature of the government in promoting the development of the economy. Nevertheless, government spending has been a major tool of economic growth. The government has conducted its economic policy by employing fiscal and monetary measures and by supporting the social and productive sectors of society with public sector investment. Public sector investment, however, was also inextricably linked to outcomes of fiscal policy.

In fiscal year (FY--see Glossary) 1986, the government introduced fiscal policies aimed at enhancing the purchasing power of the private sector. Tax concessions to individuals and businesses were expected to stimulate the economy and minimize demand for wage increases, whereas increased consumption duties were designed to regulate consumer activity. Indirect taxation was to offset the loss of direct revenue from income and business tax concessions.

By late 1986, however, it was clear that the realigned tax structure would cause a large deficit. In December 1986, the CBB recorded a 118-percent increase in the national deficit compared with the previous year. The increase stemmed from the government's inability to control capital expenditures and public wage increases. Such control was a necessary precondition for the success of the new fiscal policy.

In the mid-1980s, analysts raised concerns about the potential effects of the Barbadian deficit. In spite of gains in aggregate productivity, the budget imbalance could not be corrected, and increased foreign borrowing appeared to be imminent. International concerns revolved around Barbados' ability to meet debt payments in the near future, as well as its ability to finance the public sector investment in the out years.

Although fiscal policy was a dominant economic tool of the government, monetary control played a relatively significant role when compared with operations of other Eastern Caribbean islands. The government coordinated economic policy with the CBB, rather than allowing it to develop a completely independent program. Their mutual goal was economic stability for the island, which implied controlling the money supply so that credit markets remained nonvolatile yet were sufficiently liquid to meet the demands of a developing economy.

Government influence over the economy was exercised more directly through public sector investment, which was developed and coordinated in conjunction with the five-year economic development plan. Historically, Barbados has concentrated public investment in three areas: economic infrastructure, such as roads and ports; social infrastructure, including health, education, and housing; and productive sectors, particularly agriculture and tourism. Funds for the 1986-88 period, which coincided with the last two years of the 1983 five-year economic development plan, were allocated mostly to transportation; the social sector received 26 percent of capital outlays, however, split mostly between health and education programs. Agriculture and tourism received a combined total of 30 percent of investment funds available from public sources.

Infrastructure constituted almost 36 percent of the total public sector investment for that period, which was reflected in the excellent communications and transportation networks that were available in the late 1980s. The Barbados Telephone Company operated an entirely automatic system of 75,000 telephones. Tropospheric-scatter links to Trinidad and Tobago and to St. Lucia and a satellite ground station operating with the International Telecommunications Satellite Corporation (INTELSAT) Atlantic Ocean satellite provided high-quality international service. The government-owned Caribbean Broadcasting Corporation broadcast from the capital on 900 kilohertz and had FM service at 98.1 megahertz. Two commercial stations also broadcast from St. George's, Grenada, on 790 kilohertz and 90.7 megahertz. Evening television service was available. The Nation and the Barbados Advocate were the local daily newspapers.

Transportation infrastructure was good and comprised almost 1,500 kilometers of paved roads, a major international airport, and a deep-water port. One highway circled Barbados, and numerous other roads crisscrossed the island; buses served most towns. Grantley Adams International Airport, on the southern tip of Barbados, handled direct flights to points in North America and Western Europe. Bridgetown boasted a manmade deep-water port, which was completed in 1961 and expanded in 1978. The island had no railroads or inland water transportation.

In 1986 informed observers estimated that the next five-year plan would allocate additional capital to productive sectors (tourism, agriculture, and manufacturing) in the form of direct credit. This would take place at the expense of reduced investment in physical infrastructure. Because many of the road projects were scheduled for completion within the decade, a reallocation toward sectors that would directly assist national economic development was considered necessary to enhance the overall performance of the economy.

Foreign sources of capital, which from 1982 to 1986 had included loans or grants from development banks and government agencies, composed 40 percent of the public sector investment budget. This figure was expected to increase to 50 percent for the 1986-88 period, a situation that could further exacerbate a growing foreign debt repayment problem.

Data as of November 1987



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