Colombia - External sector and agriculture policies for adjustment and growth (Vol. 2 of 2) : Technical Analyses

Report No. 4981-CO Colombia: External Sector and Agriculture Policies for Adjustment and Growth (In Two Volumes) Volume I: Technical Analyses April 20,1984 Latin America and the Caribbean Regional Office FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Colombian Peso (Col$) Exchange Rate As Of January 1, 1984 US$1 = Col$88.770 Col$1 = US$0.01127 Average Exchange Rate 1980 1981 1982 1983 US$1 = Col$47.280 US$1 = Col$54.491 US$1 = Col$64.102 US$1 = Col$78.861 Col$1 = US$0.0212 Col$1 = US$0.0184 Col$1 = US$0.0156 Col$1 = US$0.0127 WEIGHTS AND MEASURES Metric System GOVERNMENT OF COLOMBIA FISCAL YEAR January 1 - December 31  FOR OMCIAL USE ONLY PART IV - 7ECHNICAL ANALYSES TABLE OF CONTENTS Page No. Annex 1: A Simple Model of the Interaction of Coffee and the Rest of the Economy ........ .. ......... ........ 1 Annex 2: Coffee, Money and Inflation in Colombia: Empirical Results.. 11 Annex 3: Exchange Rate and Non-Coffee Exports ......................... 19 Annex 4: Exchange Rate Policy ... .. .. ................... 28 Annex 5: Behavior of CAT .... ............. ...... .... . 34 Annex 6: Rate of Devaluation, Money and the Interest Rate. 39 Annex 7: Colombian Import License System: Towards Greater Efficiency. 50 Annex 8: Welfare Impact of Reducing Import Restrictions on Wheat, 54 Annex 9: Stability and Predictability of Prices, Producers' Income and Profitabilityo.......... ......................... 59 Annex 10: Effectiveness of Buffer Stocks for Stabilization, 65 Annex 11: Welfare Cost of Price Stabilization .67 Annex 12: Non-Financial Costs of Storage 69 Annex 13: The Organization and Management of the Coffee Economy 73 Annex 14: International Coffee Agreement ............................... 87 Annex 15: Trends in Production of Major Agricultural Categories 90 Annex 16: Agricultural Statistics ........................... 94 Statistical Tables ...,.......... ........ ..... ................... 96-156 i This document has a restricted distribution and may be used by recipients only in the performance of | their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Annex 1 A SIMPLE MODEL OF THE INTERACTION OF COFFEE AND THE REST OF THE ECONOMY* This annex presents a simple model showing the effects of changes in the price of coffee on the competitiveness of the rest of the economy. In order to simplify the exposition, the model is first derived assuming away monetary effects of changes in the price of coffee; this assumption is relaxed later by introducing a money market. The model traces quite closely the behavior of the price level and of the relative producer prices of non-coffee tradeable goods in Colombia, which is central to the analysis presented in Chapter 1. Changes in the Coffee Price and Competitiveness Consider a small open economy with a fixed exchange rate that produces three goods: coffee (C), other (i.e. non-coffee) tradeables (T) and nontradeables (N). Also assume for simplicity that the exchange rate is equal to one; this assumption is relaxed later. The excess demand for nontradeables is assumed to depend on prices and income. Consider first the case where this excess demand is not affected by the relative price of coffee. As a first approximation, this can be justi- fied by assuming that domestic residents do not consume coffee-or consume negligible amounts relative to exports-and that factors used in the produc- tion of coffee are sector-specific both in the short- and long-run. These assumptions are relaxed subsequently. In equilibrium the excess demand for nontradeable goods will be equal to zero, and under these assumptions it can be written as: (1.1) N N( qTN Y) =