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This paper develops a simple model to show the composition of public expenditure affects growth. The cointegration method is employed on data for Barbados over the period 1969-1993. This paper argues that, in the light of the Barbados experience, the International Monetary Fund's orthodox recommendation of devaluation is not necessarily a first best solution to foreign exchange crises in small open economies. It takes a look at the merits and demerits of a devaluation and presents an overview of the two foreign exchange crises in Barbados. The paper reviews a select theoretical and empirical literature and, in the process, identifies the key variable necessary to analyze these two periods of foreign exchange hardship.