Transcript The Rationale for Enhancing NEA Economic Co

Poverty Impacts of
Macroeconomic Reforms
The Case of Bolivia
Rolf J. Langhammer
Kiel Institute for World Economics
www.uni-kiel.de/ifw/projects/bolivien.htm
I. The Problem

Structural adjustment impacts very
differently upon income groups due to
large differences in sources of income
generation and income expenditures
between rich and poor house-holds.

Programmes intended to fight poverty
cannot rely on analyses based on
average income data for all households.
I. The Problem


CGE modelling cannot directly take
institu-tional reforms into account and
thus should be complemented by
qualitative country-specific and sectorspecific enquiries.
Both levels of analyses are mostly not the
common base of policy dialogues
between all groups of the civil society.
There is reluctance and even resistance
II. The Objective

The Bolivia-project is intended to
contribute to an empirically rooted
discussion on strat-egies to fight poverty
and to improve the in-come distribution.

More important than the dissemination of
the CGE framework is the dissemination
of reasons why the model produces
specific results.
II. The Objective


Both policy options and policy restrictions
should be reported to domestic actors. In
poor
countries,
fatalism
is
as
inappropriate as an overstatement of own
capabilities.
In concrete terms, can we give an answer
to the question whether or not a country
like Bolivia is able to pursue an anti-shock
policy which compensates for short-term
III. How to proceed

Two-track approach (model plus countryspecific sector-specific enquiries).

What the model should do: the entire
income cycle should be taken into
account; real and financial factors should
be related to each other, different
households
should
be
sur-veyed
concerning income generation and
income expenditure.
III. How to proceed

The model should be suitable for
simulation of monetary stabilization
measures.

The model should reflect the openness of
the economy and should be applicable to
both price takers (small country
assumption) and price setters in
commodity markets.
III. How to proceed

The model should be calibrated with
recent data
to mirror the Bolivian
economy after successful stabilization.
Fresh data are particularly necessary for
the income situation of the various
households.

The model should not only be closed via
price adjustment but should also include
“structural” elements, for instance, via
III. How to proceed

The model should simulate the impact of
internal and external policy variables on
the various households, for instance,
depreciation, terms of trade shocks, and
fiscal expansion.
IV. Structural Rigidities and
Restrictions
of the Bolivian Economy

Export supply is hardly diversified and
thus exposed to international commodity
price shocks. The diversification of export
supply costs time.

Import demand is inelastic. There are
hardly any domestic substitutes to imports
of capital goods and intermediates.
IV. Structural Rigidities and
Restrictions
of the Bolivian Economy

Private capital flows are volatile. High
inflows are rapidly followed by high
outflows.

There are competitive depreciations of
Latin American currencies which because
of Bolivia lagging behind in exchange rate
adjustment led to a real appreciation of
the Bolivian currency and to losses in
export competitiveness.
IV. Structural Rigidities and
Restrictions of the Bolivian
Economy

Internal structural measures like the eradication of Coca production are income
reduc-ing and have procyclical effects in a
situation of an exogenous shock.

High dollarization and a high fiscal deficit
reduce the efficacy of domestic anti-shock
measures.
Classification in the Bolivia CGEModel
Sector/Goods
and Services
Factors
Institutions
Households
Indicators
Trad. agriculture
Rural labor
Households
Smallholders
Macroeconomic
Modern agriculture
Urban unskilled labor
Private corporations
Agr. workers
Sectoral
Coca
Urban skilled labor
State enterprises
Non-agr. workers
Factoral
Oil & gas (nm)
Informal (un-incorp.) capital Government
Employees
Institutional
Mining
Formal (corp.) capital
Rest of the World
Urban informals
Households:
Consumer goods
Financial institutions
Employers
Nom. income
Intermediate goods
Commercial banks
Real income
Capital goods
Development banks
Cost of living
Utilities (nt)
Central Bank
Share of dispos-able
households
Construction (nt)
Pension Fund
Poverty :
Inf. services (ne)
Incidence
Formal service
Poverty gap
Publ. services (nt)
Policy Variables and Simulation
Parameters
Government
Central Bank
Rest of the World
Income/corporate taxes
Minimum reserves (in relation to
imports)
Development aid
Export subsidies
Central Bank interest rate
Foreign portfolio investment (FPI)
Import tariffs
Nominal exchange rate
Foreign direct investment in public and
private enterprises (FDI)
Excise taxes
Net credit to government
Value-added taxes
Debt relief (HIPC)
Transfers to house-holds
and corporations
Foreign interest rate
Total real consumption
Factor income from abroad
Total real investment
Remittances from abroad
World export prices
World import prices
Grant element on concessional credits
Three Assumptions in the Model
1. Perfectly elastic export supply, high
import substitution elasticity.
2. Perfectly
elastic export supply, low
import substitution elasticity.
3. Price elastic export supply; low import
substitution elasticity.
Assumption (3) is closest to reality
Three Simulations
1. Constant wages, employment volume
adjusts, unemployment
2. Full employment, passive fiscal policy
3. Active expansionary fiscal policy
Short-term Macroeconomic Effects of a Reduction of Export Prices for
Agricultural and Mineral Commodities by 10 per cent (deviation from baseline
scenario in per cent)
Simulation 3
Full employment/
Expansionary fiscal policy
III
II
I
-0.06
0.00
0.00
41.644
I
-0.43
II
-0.47
III
-0.62
Simulation 2
Full employment/
Passive Fiscal policy
III
II
I
-0.10
-0.16
-0.18
36.903
-0.45
-0.50
-0.42
-0.37
-0.40
-0.25
1.68
1.58
0.59
5.790
8.175
0.0(Ex)
-1.76
0.0(Ex)
-2.02
0.0(Ex)
-2.79
0.0(Ex)
-1.40
0.0(Ex)
-1.55
0.0(Ex)
-2.25
0.0(Ex)
7.33
0.0(Ex)
6.90
0.0(Ex)
3.84
Absorptiona
2.086
45.078
0.0(Ex)
-0.69
0.0(Ex)
-0.77
0.0(Ex)
-0.85
0.0(Ex)
-0.55
0.0(Ex)
-0.61
0.0(Ex)
-0.61
12.35
2.71
12.62
2.55
7.55
1.18
Export volume
Export value (US$)
Import volume and import value (US$)
Trade balance (US$)b
8.791
1.675
2.329
-0.654
-2.82
-6.53
-3.10
-0.648
-1.06
-4.92
-2.02
-0.676
-1.87
-5.78
-2.42
-0.673
-2.04
-5.83
-2.89
0.678
-0.08
-4.04
-1.76
-0.676
-0.41
-4.45
-2.22
-0.673
-8.46
-11.98
3.92
-0.939
-7.91
-11.22
3.91
-0.927
-3.48
-7.27
2.05
-0.819
Macroeconomic indicators
GDPa
Consumptiona. of which:
Publica
Investmenta. of which:
Publica
Nominal exchange ratec
Simulation 1
Underemployment/
Passive fiscal policy
Reference run
5.25
0.0(Ex)
0.0(Ex)
0.0(Ex)
0.0(Ex)
0.0(Ex)
0.0(Ex)
0.0(Ex)
0.0(Ex)
0.0(Ex)
Real exchange rate index d
–
102.79
-1.60
102.98
-1.97
102.63
-2.41
102.29
-1.62
103.03
-2.0
102.68
-2.96
101.85
0.0(Ex)
104.77
0.0(Ex)
104.77
0.0(Ex)
104.98
Employmente (real wage)
Agr. workers
Employees
Non-agr. workers
989.6
667.7
626.4
296.5
–
-9.71
-0.39
-0.30
–
-10.13
-0.46
-0.79
–
-8.25
-1.17
-1.82
–
(-10.56)
(1.13)
(1.53)
–
(-10.80)
(1.40)
(1.23)
–
(-8.33)
(0.68)
(0.24)
–
(-11.74)
(1.22)
(-1.68)
–
(-12.48)
(1.18)
(-1.41)
–
(-11.09)
(1.71)
(-0.85)
0.991
0.993
0.993
0.992
0.994
0.989
0.990
0.992
Domestic inflation
External terms of trade p$m/p$e
0.954
0.994
I: Perfectly elastic export supply and high import substitution elasticities. II: Perfectly elastic export supply and low import substitution elasticities. III: Price elastic
export supply and low import substitution elasticities. aIn bill. Bolivianos at prices of 1997. – bIn bill. US$ at 1997 exchange rate. – cPrice notation: Bol./US$. – dIMFnotation: Index rises/declines with real appreciation/depreciation. – eIn 1000 man/years. Figures in parentheses refer to real wage changes (producer wage rate).
Source: Wiebelt 2002: Own calculations.
Short-term Distribution Effects of Reduction of Export Prices for Agriculture
and Mineral Commodities by 10 per cent (deviation of real per capita income
from baseline scenario in per cent)
Price elastic export supply
Perfectly elastic export supply
High
import substitution elasticity (I)
Low
import substitution elasticity (II)
Low
substitution elasticity (III)
1a
1a
2
3
1a
2
Small holders
-4.85
-4.41
-9.32
-6.57
-5.98
-10.77
-3.39
-7.69
-7.67
Agr. workers
-8.47
-10.75
-11.55
-8.52
-10.96
-12.13
-8.92
-10.93
-10.94
Non-agr. workers
0.14
0.15
-2.33
0.24
0.02
-2.11
-0.84
-1.61
-1.54
Employees
0.40
0.14
7.28
0.64
0.28
6.98
-0.25
1.50
4.45
Urban informals
0.93
1.87
4.46
0.79
2.02
5.98
1.15
2.87
2.90
Employer
-1.04
-0.83
7.34
-0.90
-0.67
6.91
-0.54
3.66
3.59
All households
-0.75
-0.65
1.02
-0.84
-0.73
0.81
-0.84
-0.75
1.91
GINI-coefficient
0.60
0.60
0.63
0.61
0.61
0.63
0.60
0.62
0.62
3
2
3
1 and 2: Under passive fiscal policy. 3: Active fiscal policy (public expenditure expansion). 1: Nominal wages are constant, employment volume
adjusts. 2 and 3: Employment is constant, wages adjust.
aIn calculating real income, it is assumed that employees support the unemployed.
Source: Wiebelt 2002: Own calculations.
Terms-of-trade shock
Share of disposable income
1,5
1,0
CapOwn
GINI
RurWork
0,5
0,0
UrbSkill
-0,5
UrbUnsk
Smallhold
-1,0
UrbSelf
-1,5
0
1
2
3
4
5
6
Source: Wiebelt 2002: Own calculations
7
8
9
10
Devaluation
Share of disposable income
2,0
Smallhold
1,5
1,0
UrbSelf
0,5
UrbSkill
RurWork
UrbUnsk
GINI
CapOwn
0,0
-0,5
-1,0
0
1
2
3
4
5
6
Source: Wiebelt 2002: Own calculations
7
8
9
10
Fiscal Expansion
Share of disposable income
2,0
GINI
Smallhold
UrbSkill
CapOwn
UrbSelf
1,0
0,0
-1,0
-2,0
-3,0
RurWork
-4,0
UrbUnsk
-5,0
0
1
2
3
4
5
6
Source: Wiebelt 2002: Own calculations
7
8
9
10
Fiscal Expansion and HIPC
Share of disposable income
3,0
2,0
GINI
UrbSkill
CapOwn
Smallhold
UrbSelf
1,0
0,0
-1,0
-2,0
-3,0
RurWork
UrbUnsk
-4,0
-5,0
-6,0
0
1
2
3
4
5
6
Source: Wiebelt 2002: Own calculations
7
8
9
10