La Comunicación institucional en la Junta de Andalucía

G raph 4.4: U ganda - Export, Im port Prices, and th e B a rte r T erm s o f Trade (1995=100) o in o o □ w 1987 1989 1991 1993 1995 1 997 1999 2001 2 003 1988 1990 1992 1994 1996 1998 2000 2002

= Export P rice Index — O— Import P rice Index ---2--- B arter T e rm s of T ra d e Index S ource : A u th o rs calculations, b a s e d on WDI d a ta

G raph 4.5 plots the index, It, calculated as the ratio of U g an d a's term s of trade to its

m oving average (assum ing a three-year lag structure). By indexing the scheme t o / ,,

debt service is to adjust to both TOT fluctuations aro u n d the tren d and to the trend

itself. Together, these forces cause the index to fluctuate b ro ad ly betw een -40 and +60

per cent, and the strong d o w n w a rd p ressure from w orsening term s of trad e is show n

to restrict the index m ostly to the negative area of the graph.

Graph 4.5: U ganda - Term s o f Trade Index o m o o 1987 1989 1991 1993 1 995 1997 1 999 2001 2 003 1988 1990 1992 1994 1996 1998 2000 2002

> TO T — 0— TO T MA(3) I - TO T - TO T MA(3) Ratio Saunca: A u th o rs calculations, b a s e d on WDI d a ta

Table 4.5 lists the results from sim ulations over alternative p erio d s and lag structures.

C ontrary to the GDP indexing schemes, calibration of X to the objective of variance-

m inim isation is achieved by all the scenarios, an d is highly effective in reducing

volatility in the TDS-XGS ratio. The latter is show n to fall by betw een 8 and 80 per

cent, and, overall, X at u n it value w ou ld app ear to be the optim ising calibration

value of the schem e's key p aram eter across the various scenarios. The average value

of the index is consistently negative, reflecting a situation of generally w orsening

term s of trade, an d takes m ore negative values w hen the peak year of 1995 is

excluded. The index triggers substantial debt service adjustm ents, b o th on a yearly

basis an d in term s of total changes to d ebt service over the various periods of

application. For exam ple, d ep en din g on the lag structure of the index, the application

of the schem e over the period 1986-2003 w ould have led d ebt service to fall by

betw een 12 an d 16 p er cent as ratio to total debt service due, despite the inclusion of

the TOT u p sw in g d u rin g 1994/95.

Table 4.5: Uganda - Terms of Trade Indexing Simulations Lag Structure Period 1995-2003 n=5 1996-2003 1986-2003 1995-2003 n=3 1996-2003 1986-2003 Index: Mean -0.08 -0.15 -0.17 -0.05 -0.13 -0.11 Standard Deviation 0.28 0.19 0.23 0.28 0.13 0.22 Min -0.35 -0.35 -0.38 -0.28 -0.28 -0.36 Max 0.52 0.13 0.52 0.61 0.07 0.61 Calibration X (8) 0.9 1.1 1.0 1.1 0.6 1.1 Var (TDS7XGS) Original 19.9 21.8 97.4 62.3 65.2 113.7 Var (TDS/XGS) Revised 100.0 59.7 180.3 135.5 71.4 182.2 Difference in Variance (%) -80.1 -63.5 -46.0 -54.0 -8.6 -37.6

Total Sum of TDS Savings 12 92 356 13 57 288

Total Sum of TDS 1006 871 2264 1006 871 2435

TDS Savings (% ofTDS) 1.2 10.6 15.7 1.3 6.5 11.8

Source: A u th o rs' calculations, b ased o n W DI a n d GDF data. N otes: (#) V ariance-m inim ising v a lu e of lam bda.

In sum , the U g and a case stu d y dem onstrates that term s of trade indexing d early

outperform s its G D P-anchored variant. A pplying o ur ow n specification as a hybrid

version of the proposals of V ostroknutova (2005) and Tabova (2005), and defining an

alternative index optim ally cap turin g tren d variations, w e show th at the schem e has

the potential to effectively reduce the volatility of the debt servicing-to-exports ratio.

M oreover, the schem e show s itself to be less vulnerable to the type of incentive issues

ad dressed by the IDA, w hile also fulfilling ou r ow n criterion in relation to its ability

to link debt service p ay m ents to a proxy th at is far closer to representing the state of

nature, th an is GDP.

4.3.3.2 Terms of trade indexing along the Gilbert and Tabova (2005) scheme22

In an interesting stu d y un d erly in g the IDA report, G ilbert and T abova (2005) conduct

an investigation into the potential benefits of term s-of-trade insurance schemes. W ary

of p otential incentive distortions introduced by indexing to u n it values, w hich could

induce d ebtor governm ents to over-report im port prices and u n d er-rep o rt export

prices, the autho rs o p t for the em ploym ent of an alternative term s of trade index,

reflecting w o rld prices instead of country-specific u n it values. H ow ever, by

em phasising the benefits of w orld prices over export and im p ort u n it values, G ilbert

an d Tabova (2005) app ear n o t to fully acknow ledge th a t u n it values, such as those

u n d erly in g the TOT Index u sed in the previous scheme, h av e the great benefit of

reflecting country-specific attributes of particular p rim ary exports, such as quality

characteristics an d specific grades. Since these characteristics have a decisive bearing

on the price a specific com m odity com m ands in the international m arkets (e.g. coffee,

cocoa, tobacco), an index based on u n it values offers b ro ad er protection against a

cou ntry's susceptibility to exogenous shocks affecting prices th ro u g h altered

com m odity characteristics (e.g. as a consequence of climatic shocks).

Essentially, the authors com pute their index follow ing a m etho d identical to that

applied in the sem inal contribution by D eaton and M iller (1995), b u t decide to

exclude from the index all those prim ary com m odities for w hich w o rld prices are no t

w ell-defined (e.g. iron ore and oils), as well as m etals exports.23 The index is thus

defined as:24

purpose of this study.

23 Since metals exports fail to explain growth in the regressions, Gilbert and Tabova perform to estimate