Poverty Impacts of Macroeconomic Reforms The Case of Bolivia

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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
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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.

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I. The Problem

• CGE modelling cannot directly take institu-tional
  reforms into account and thus should be
  complemented by qualitative country-specific and
  sector-specific 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 of NGOs against dialog-ues primarily
  based on data and models.

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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.

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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 negative external
  shocks.

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III. How to proceed

• Two-track approach (model plus country-specific
  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.

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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.

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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 adjustment in labour
  markets through unemployment.

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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.

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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.

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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.

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Structural Rigidities and Restrictions of the
Bolivian Economy

• Internal structural measures like the
  eradi-cation 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.

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Classification in the Bolivia CGE-Model
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Policy Variables and Simulation Parameters
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Three Assumptions in the Model

• Perfectly elastic export supply, high import
  substitution elasticity.
  
• Perfectly elastic export supply, low import
  substitution elasticity.
  
• Price elastic export supply low import
  substitution elasticity.
  
• Assumption (3) is closest to reality

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Three Simulations

• Constant wages, employment volume adjusts,
  unemployment
  
• Full employment, passive fiscal policy
• Active expansionary fiscal policy

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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)
Source Wiebelt 2002 Own calculations.
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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)
Source Wiebelt 2002 Own calculations.
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Terms-of-trade shock Share of disposable income
Source Wiebelt 2002 Own calculations
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Devaluation Share of disposable income
Source Wiebelt 2002 Own calculations
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Fiscal Expansion Share of disposable income
Source Wiebelt 2002 Own calculations
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Fiscal Expansion and HIPC Share of disposable
income
Source Wiebelt 2002 Own calculations