Does Bulog Stabilise Rice Prices in Indonesia? Should It Try?

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Abstract
The intuition of economists is likely to be a poor guide to the social value of food price stabilisation, because of problems in modelling the impact of stabilisation on consumer behaviour, producer behaviour, and the macro economy, including the impact on economic growth. The potential for stable food prices to contribute to economic growth is especially relevant to the poor countries of Asia, where rice is important in macroeconomic terms. Indonesia's experience since 1959 presents an opportunity to test hypotheses about the design, implementation, and impact on social welfare of food price stabilisation. The model presented here explains Bulog's activities, and confirms that its interventions stabilise rice prices. Should Bulog try to stabilise rice prices? The answer is a clear yes in the 1970s and 1980s, but is less clear in the 1990s as Bulog's costs have risen and the share of rice in the economy has fallen.

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