THE MACROECONOMIC IMPACT OF IMF-SUPPORTED PROGRAMMES IN SMALL OPEN ECONOMIES: THE CASE OF BARBADOS

It is often argued that the IMF plays an important role in international financial affairs, particularly in providing support to countries experiencing macroeconomic imbalances. At the same time, critics claim that the conditionalities imposed on the countries caused much hardship and often fail to achieve their intended objective. Based on the analysis of IMF-supported programmes in Barbados, this paper evaluates the macroeconomic effectiveness of fundsupported stabilization program with both its criticism and its advocates. Barbados presents an interesting study as it is one of the few cases where an exchange-rate devaluation was not part of the programme. Trend analysis along with the generalized evaluation estimator technique is used to assess the macroeconomic impacts of the IMF supported programmes on four target variables; economic growth, inflation, the current account balance and the overall balance of payment position. The empirical model also accounts for other policy variables that might have been adopted in the absence of programmes and foreign exogenous variables, in order to isolate the effect of Fund-supported programmes. The results lend favourable support for the programmes. Specifically, the current account balance improved and growth was stimulated on account of being in a fund programme.