Moataz El-Said

Rice policy, trade, and exchange rate changes in Indonesia: A general equilibrium analysis

This paper presents an agriculture-focused computable general equilibrium model that can be used to analyze the economy-wide impacts of changes in technology, market structure, and the foreign exchange rate on resource allocation, production, and trade in Indonesia. The model includes a specification of the rice market and the government price-support, stocking, and trade policies for rice. Using a mixed complementarity approach, the model incorporates inequalities and changes in policy regime as prices and/or stocks move within specified bands. The model is used to examine the impact on the Indonesian economy of changes in rice yield and exchange rates given different assumptions about the operations of BULOG (National Logistic Agency). An important result is that there is inefficient allocation of resources within agriculture and the rest of the economy if BULOG operates to maintain the rice price when there are significant increases in rice productivity or changes in the exchange rate. With increased productivity in rice, the price support scheme retains resources in rice production that would be better used in other, high value, agriculture. With devaluation, maintaining a low rice price discriminates against rice producers and hence slows the process of structural adjustment. In addition, the price support program is costly and strains the government accounts, even if the administrative costs of operating the program are ignored.

Food subsidies in Egypt: reform options, distribution and welfare

Abstract Egypts food subsidies (in 1996/97 5.5 percent of government expenditures) cover rationed cooking oil and sugar (23 percent of subsidy cost) and unrationed bread and flour (77 percent). The subsidies enhance food security but are nontargeted and have substantial leakages. This paper uses a Computable General Equilibrium (CGE) model to simulate the short-run effects of alternative food-subsidy scenarios. Government savings from reduced spending finance uniform cuts in direct tax rates across all household types. The model uses a 1996/97 database with detailed household information. The targeting of cooking oil and sugar subsidies to “the needy” (the bottom two quintiles in rural and urban areas) has a progressive effect while elimination of this subsidy is regressive. Disaggregated household consumption changes are small (±0.3 percent). The targeting of all food subsidies is pro-needy, partly due to important indirect effects. The consumption of the needy increases by 0.5 percent with little change for the nonneedy. Food subsidy elimination is regressive: the needy suffer a consumption loss of 1.1 percent. If the government savings instead are transferred to the needy, the impact is reversed: consumption increases by 4.2 percent for needy households while the nonneedy register a small loss. The overall policy implication is that food subsidy reform can benefit the needy with at worst only a modest negative impact on the nonneedy. If the subsidy is entirely eliminated, targeted government programs would be necessary to protect the needy from the negative impact.