The Addict Economies

September 25, 2007

DEEP INSIDE BOLIVIA'S SIGLO XX TIN MINE, three men get ready to begin their day's work. Not long ago, this mine was the country's biggest and busi- est; every day some 5,000 miners swarmed through its tunnels. Today, during an hour's walk down the main tunnel, these three are the only miners to be found. Hoisting picks and dynamite, they make their way up a narrow vertical shaft. "We can't work with machinery like before," says one miner. "Now we have to break the rocks with our hands." The mine used to be operated by the government, and tin was Bolivia's most important export. But in 1985 the international tin market collapsed, prices for other min- erals were already low and the government decided it wanted out of mining. Some 20,000 lost their jobs. Siglo XX's pay window was nailed shut, and the square in the miners' settlement became nearly deserted. This square used to be the scene of violent confronta- tions between the authorities and union members. The miners union was Bolivia's most important labor or- ganization, the mainstay of the Bolivian Workers Cen- tral; when the miners struck, it was international news and world metal markets shook. The union was known for its toughness, and it won major gains for its mem- bers. Now a handful of miners, most of them not union members, dig tin and sell it to private buyers. They VOLUME XXII, NO. 6 (MARCH 1989) ^^ 33COCA receive no salary. "If we don't find ore in a vein, we don't make anything," explained one of the miners. "For two months we haven't found any." According to financial analysts and economic theo- rists, the collapse of Bolivian mining is part of a natural cycle, nothing to fret about. Boom follows bust follows boom. So it has been in Latin America-with sugar, rubber and minerals like tin-and so it is in Bolivia. Tin has gone bust, but a new boom is underway. Coca. UNTIL RECENTLY, THE COCAINE INDUSTRY was considered a marginal phenomenon, the prov- ince of drug dealers and agents of the Drug Enforcement Administration. But, like the mining and agricultural booms of years past, cocaine is transforming the nations of Colombia, Peru, and Bolivia-and Brazil, Paraguay, and parts of the Caribbean are not far behind. Our understanding of the breadth of change cocaine has wrought is still limited by the moral perspective adopted by most observers, and certainly by U.S. policy- makers. As Bolivian anthropologist Jos6 Mirtenbaum, an adviser to that country's coca farmers union, says, "It is impossible to understand what is happening here if we don't stop thinking strictly in moral terms." We must "think about coca leaves as a commodity like any other, and cocaine production as a multinational industry like any other." Although the drug trade is an integral part of today's international economic system, solid information about it is not easy to come by. Drugs are not traded on any commodity exchange (at least none open to the public) and dealers publish no annual reports. The available data on prices, profits and production levels is often derived in questionable ways or from unreliable sources.' Statis- tics from governments, law enforcement agencies and international bodies like the United Nations vary widely, sometimes by a factor of two or three. One thing, how- ever, is undeniable: Cocaine is big business, one that has transformed the lives-and the futures--of millions of Latin Americans. FORTUNE MAGAZINE RECENTLY CALLED the illicit drug trade "probably the fastest-growing and unquestionably the most profitable" industry in the world.' Right now, cocaine is the drug industry's most important product, worth many billions a year. 3 Cocaine is truly a South American product: The coca plant is native to the Andean region and is cultivated only in South America. 4 The vast majority of the world's supply comes from Peru and Bolivia, though Colombia and Brazil have recently become important producers. There is also some cultivation in Ecuador, Paraguay and Ar- gentina. The first step in making cocaine-mixing coca leaves with kerosene and drawing off a whitish paste-often occurs near where coca is grown. It is a labor intensive process, in which the leaves and chemicals are mixed by hand (or more exactly, by foot) in a plastic-lined pit. The process requires little skill and no sophisticated equipment-almost any coca farmer can dig a pit and make paste, and an increasing number of Bolivian and Peruvian farmers are doing so because the paste sells for considerably more than unprocessed coca leaves. Turning the paste into cocaine is a more delicate chemical operation, usually carried out in laboratories staffed by trained technicians. Many of the labs are in Colombia, but others have been found in remote parts of the Peruvian and Bolivian jungle, far from the coca producing zones. Like any other industry, cocaine has its entrepre- neurs. They are mostly Colombians-the Ochoas, Lehders, Escobars and others who make up the infa- mous Colombian drug mafia. Colombian traffickers, or narcos as they are called in Latin America, are believed to control the shipment of finished cocaine to the United States and other countries. Colombians also play a major 34 REPORT ON THE AMERICASrole in the organization of cocaine production, from the purchase of coca leaves to the final steps of cocaine refining. The extent of Colombian control appears to vary from country to country. In Peru, Colombians are active at every level of production except for growing coca. Bolivia, in contrast, was a small-scale cocaine exporter even before the Colombians organized the international market in its present form, and local entrepreneurs main- tain control of a large part of production. Colombian narcos compete, often violently, for con- trol of producers and markets, though they reportedly loan each other cash and share stocks of drugs as well. Although there is much vertical integration-that is, traffickers are able to control many levels of production from the purchase of raw material to the distribution of the final product-the degree of cooperation among nar-- cos has been insufficient to control prices on the world market.' A cocaine cartel, per se, does not exist. T HE INDUSTRY HAS BECOME AN IMPOR- tant source of jobs and income in the three coun- tries most directly involved: Colombia, Peru and Bo- livia. At a rough estimate (very rough, to be sure) over 600,000 people in these countries are directly employed in the production and distribution of cocaine. They in- clude nearly 450,000 coca farmers and about 150,000 people employed in making paste-the majority of whom are pisadores ("stompers") who mix leaves and chemicals with their feet. Then there are the almost 15,000 people who transport the paste, the over 2,500 people who refine it into cocaine, and some 1,000 people who work in the import-export end of the business, including the big traffickers. 6 Many more people indirectly owe their livelihood to cocaine because the income it generates, like the income from any other export industry, circulates through the economy, creating jobs unrelated to the drug trade. Ex- actly how many jobs fall into this category depends on the percentage of total cocaine revenue returned to the producer country, how that income is distributed, and how it is spent. Colombia is the South American country which, much to the chagrin of most of its citizens, has the most firmly entrenched image as a nation hooked on the drug industry. Colombia does receive the largest total number of cocaine dollars-estimated at over $2.5 billion annually--and cocaine income has enriched a few Co- lombians and produced visible changes in some sectors of the economy. Yet Colombia is probably the producer country least dependent on drug income. The $47 billion Colombian economy is large and quite prosperous in comparison to its neighbors. "From 1980-1984 Colombia was the only Latin American/Car- ibbean country whose gross domestic product did not experience decline for a single year," writes economist VOLUME XXII, NO. 6 (MARCH 1989) Francisco Thoumi. "In 1985 the country's per capita income approximately equalled that of 1980 while the average for Latin America had dropped 8.9%."' Cocaine revenues actually returned to Colombia accounted for just 2-3% of GDP in 1985. Cocaine only recently be- came Colombia's most valuable export. In 1985 and 1986, Colombia's repatriated cocaine income was put at something less than a billion dollars, while coffee sales were $1.8 billion. 9 The cocaine dollars which circulate in Colombia make up only a fraction of the traffickers' total earnings. Most of their profits are stashed away in off-shore banks in the Caribbean, as well as financial institutions in the United States and Europe. And the better part of what the narcos spend at home is squandered conspicuously on the kind of houses, cars and clothes celebrated on "Miami Vice," or on high-profile, friend-winning proj- ects like sports teams and new housing in the slums. The expenditure of these "narcodollars" (the income repatriated by traffickers), though visible, is not yet cru- cial to the success of the Colombian economy. Other sectors continue to be profitable and, because Colom- Chewing coca on a break from foraging for scrap tin outside the closed state-owned mine == oCOCA bia's role in the drug industry's international division of labor is primarily entrepreneurial and managerial, the livelihood of relatively few Colombians are economi- cally dependent on drugs."' Increasingly, however, Colombian narcos are invest- ing in agriculture, real estate and other local business. If this trend continues, or if Colombian coca production continues to expand, the "benefits" of the drug trade may become more widely distributed. Then Colombians will discover that their country has become truly hooked on cocaine." A S IS THE CASE WITH MOST PRODUCERS OF raw materials, Peru and Bolivia are far more de- pendent than cocaine-processing Colombia on the dol- lars the industry brings into the economy. Peru's share of cocaine income is said to be some $600-$700 million a year. Copper, Peru's most valuable legal export in 1987 generated only $449 million. Cocaine income was equivalent to perhaps 20% of the total value of legal Peruvian exports and equalled about 4% of the $17 billion Peruvian GDP in 1986.12 During that year, as a result of President Alan Garcia's "heterodox" policies of economic stimulation, Peru's economy was one of the fastest-growing in Latin America. But the economy has since fallen into crisis; unemployment is up and inflation went into four digits in 1988. Garcia's policies aimed at increasing Peru's legal export trade never took hold, and Peru's foreign exchange reserves dropped to a negative balance of some $400 million dollars by mid-1988. That means that the cocaine industry, long a social "safety net" employing part of Peru's impoverished peas- ant population, has become increasingly important as a source of the dollars indispensable for the country's economic survival. A former adviser to the Garcia gov- ernment says economic planners "don't like the source of the dollars-but they come in handy," and can hardly be ignored. This money is generated in the first place by the thousands of Peruvians who grow coca and make co- caine paste, the majority of whom live in the Huallaga Valley region on the eastern slopes of the Andes. Each day, at several spots around the valley, paste-sellers wait anxiously with their wares for a small plane to land on a clandestine runway cut into the jungle. Within fifteen minutes, the paste will have been paid for with U.S. dollars in cash and loaded on the plane. The plane will then take off for a cocaine lab in the Peruvian Amazon or Colombia. With his proceeds, the paste-seller must pay his sup- pliers. Because of past experiences with counterfeit dol- lars, valley residents now insist on being paid in Peru- vian currency, intis. The paste-sellers' dollars are con- verted into intis, and channeled into the rest of the econ- omy in several ways. One is the banking system: Several Peruvian banks operate busy branches in Huallaga towns. The sellers bring dollars to the banks where they are exchanged, quite legally, for Peruvian currency. Once in the banking system, these dollars, like those earned from any other export product, can be used to meet Peru's foreign exchange needs. Another channel is Peru's parallel foreign exchange market, centered on Lima's Ocofia Street. Ocofia runs off the Plaza San Martin, in the heart of the city's down- town. Dozens of men and women often crowd the side- walk and sometimes spill onto the roadway itself. They brandish pocket calculators and call to passers-by, "Dol- lars! Dollars! I'll give you a good rate!" How loudly they call depends on the state of the market's legality. Over the past three years, Ocofia has sometimes been legal, sometimes illegal, but it has always been busy. According to Jos6 Gonzales, a researcher at the Lima- based economic consulting firm Apoyo, $3 millon a day changes hands in the Ocofia market. Four out of five of these dollars come from the coca trade (the fifth from tourism). "Ocofia money-changers discovered that they could go to the Huallaga with a briefcase of Peruvian intis, go right to the runway, wait for the Colombian plane and buy the paste-sellers' dollars." Back in Lima, the money-changers resell the dollars at a slight mark- up. "I guess the plane from Tingo Maria was rained in," Lima residents say, in reference to the Huallaga's largest town, when dollars grow scarce on Ocofia. As the most accessible source of dollars for travel abroad or pur- chase of imported goods, the Ocofia market plays an important role in the lives of many Peruvians. While inflation soars, Peruvians of all classes have been turn- ing their savings into cash dollars from Ocofia, since dollar bank deposits cannot be withdrawn. OLIVIA IS PROBABLY THE COUNTRY MOST deeply in thrall to cocaine dollars. Its economic fate, to a large extent, has depended on cocaine since the early 1980s, when the drug was recognized as "by far the country's most important business"" 3 and its primary source of foreign exchange. In 1986, Bolivia's coca income was put at $600 million dollars-nearly double the $345 million produced by sales of natural gas (Bo- livia's most important legal export since the 1985 col- lapse of the tin industry) and 15% of the country's tiny $4 billion GDP.14 A few Bolivians, like Roberto Suarez, the notorious "Cocaine King," do live lives of cocaine-funded lux- ury. 5 A far greater number count on the industry for simple survival. At least 70,000 Bolivian farmers and their families are involved in growing coca-some 350,000 people in all, a significant figure in a nation of barely 7 million. Most coca farmers cultivate less than five acres of land. They generally earn just a few thou- sand dollars a year, and their income can fall to only a few hundred dollars when coca prices are low, as they were in 1987 and much of 1988.16 AtEPR ON-- THE-- AMERICAS 36 REPORT ON THE AMER SChapare coca farmers unions demonstrate against the Villa Tunari massacre where DEA agents were accused of firing on the crowd. The sign says "Throw out the Yankee murderers!" In good years, this is more than the $80 a month minimum wage earned by many Bolivian workers, and significantly more than the per capita share of Bolivia's GDP, $721, but it is hardly enough to buy villas and sportscars. "I supported my two children by growing coca," says a woman who has lived in Bolivia's Chapare region for 25 years. "We've gotten used to eating yucca cooked in fat, nothing more." Bolivian researchers work- ing in the Chapare say coca farmers spend most of their income on basic items of food and clothing, and, if they're lucky, on a radio, TV set, or motorbike. The income produced in the coca fields is important to many Bolivians other than farmers. Former finance minister Flavio Machicado estimated that cocadollars have allowed for the creation of some 300,000 jobs that have no direct connection to the drug trade. "I've said very clearly, every time I've had a chance, that there would be a social and economic catastrophe here," if the cocaine industry were wiped out without first creating something to replace it. The free market policies of the current Bolivian gov- ernment, headed by President Victor Paz Estenssoro, were lauded by the International Monetary Fund for bringing inflation down from 23,000% in 1985 to double digits in 1986. However, they also pushed the official unemployment rate up to 25%. In fact, pursuing its free market philosophy, the Bolivian government has insti- tuted a number of policies implicitly aimed at increasing Bolivia's share of the revenue generated by the interna- tional cocaine market. One series of measures allows Bolivians to repatriate income earned abroad with no questions asked. In La Paz's huge central market, just a few streets over from the displays of potatoes, cooking pots, women's shawls and medicinal herbs, is a section known as "Miamicito"-Little Miami. Rock music blares and plastic-draped wooden stalls are filled to overflowing with the latest television sets, video players, stereo equip- ment and kitchen appliances. At one stall, a well-dressed matron studies a food processor. At the next, a young man in shabby pants and T-shirt counts out the price of a hefty boom box. Because import controls are loose and duties are low, Bolivian markets and shops are always well-stocked with foreign goods. The imports business is one of the few still thriving. According to economist Samuel Doria Medina, a large proportion of this VOLUME XXII, NO. 6 (MARCH 1989) v. 37ReCOCAt o Ameia COCA business--difficult to calculate precisely-is connected to the drug trade. Using the proceeds of cocaine sales in Miami, Panama or other cities, says Doria Medina, drug dealers buy electronic gear, appliances and even cars, and ship them back to Bolivia. The imports violate no Bolivian laws and, says the economist, "Sometimes you can buy a VCR in La Paz cheaper than you can in Japan." Because so little is produced in Bolivia's own facto- ries, almost everyone buys imported goods ranging from noodles to radio batteries, laundry soap to rubber boots. When the exchange rate for the dollar goes up, Bolivians pay more. One of the key factors influencing the ex- change rate is, of course, the supply of dollars in Bolivia, and that, in turn, is determined to a great degree by the cocaine industry. "Every time there's a big anti-drug operation, the dollar goes up and everything gets more expensive," says La Paz researcher Susanna Rance. "Many people breathe a sigh of relief when the opera- tions are over and things get back to normal." DESPITE THE OBVIOUS BENEFITS FOR many, drug dollars may undermine existing eco- nomic structures in the producing countries, some ana- lysts warn. By channeling activity away from the "for- mal" (taxed and regulated) economy," 7 the "informal" (untaxed, though not always illegal) economy grows, and government revenues decline. In reference to Co- lombia, economist Francisco Thoumi argues that the growth of an economy which undermines social cohe- sion and brings violence in its wake "presents the main challenge to the government and to the development of the country." In Bolivia, where the informal economy probably accounts for a majority of the country's economic activ- ity, there is more concern that the influx of cocadollars will stop. Scanty government import and foreign ex- change controls, and historically lax enforcement of tax and investment laws, make it possible for cocadollars to flow freely between the formal and informal sectors and reduce the importance of such distinctions. In every Peruvian city, imported goods ranging from Chilean chocolates to Korean tape players are sold in huge open air markets. If bought legally, such goods draw steep duties-sometimes as much as 100%-in ac- cordance with government attempts to preserve foreign exchange. But the vendors manage to get around these constraints by buying in the vast contraband network. "For example, there's a huge market in gym shoes," says researcher Jos6 Gonzales. "Reebok. Adidas. Puma. It seems they come from Panama by boat, into the port of Callao, outside Lima. The smugglers will take only dol- lars." The dollars most often come from Ocofia, and they leave the country with the smugglers. No duty is paid. Vendors also cross the border into Ecuador or Chile to spend their dollars. Gonzales claims $500 millon flowed out of Peru by means of the contraband trade last year, an amount equal to nearly three-quarters of the cocadol- lars that came in. The Garcia government has responded by imposing strict border controls, but these measures have met with little success. D OES THE COCAINE BOOM OFFER POOR coca producing countries a golden opportunity for development? That question has been asked about past commodity booms in Latin America-usually after the booms had ebbed and it became apparent that the stream of income from guano, rubber or minerals had been squandered. Such may well be coca's fate, though that will depend more on policy than the nature of the prod- uct itself. So far, there seems to be little evidence that the dollars generated by the drug trade will do much to help the long-term development of the producer countries. Unless the drug industry's reinvestment in labs, planes, boats and the like is included, relatively few of these dollars have gone toward improving the country's pro- ductive capacity. In Colombia, the most popular invest- ment outlet for drug dollars has been real estate, espe- cially large ranches. In Bolivia, some cocaine dollars have gone into construction and the import trade. But, asks a Bolivian analyst, "Why should the narcos put their dollars in Bolivian industry? They aren't stupid-nobody else is doing it." And in Peru, it appears that cocadollars, like dollars from every other source, are being used primarily to earn quick profits speculat- ing on the booming Ocofia market. Coca is hardly the first Latin American commodity that has sparked a brief glimmer of prosperity while doing little to ensure future growth. Rubber, guano, cot- ton, sugar and tin, to name a few, all provided jobs and income for a time, and left little in their wake when world markets dried up. In Bolivia, farmers are already talking warily about what could bring the current coca boom to an end: a change in the taste of U.S. drug users; a precipitous drop in coca prices due to overproduction; a decision by Colombian traffickers to grow more coca within their own country; even, Bolivian farmers say, remembering what happened to the rubber trade, the development of synthetic cocaine. Most U.S. policy-makers still view coca production as an isolated phenomenon, one that can be "surgically removed" with tough law enforcement and perhaps a small dose of aid to mitigate job loss in the coca produc- ing areas. The drug trade, however, is deeply rooted in the poverty of the producing countries and in their tradi- tional role as cdmmodity suppliers for the wealthy na- tions of the world. Unless these issues are seriously addressed, along with the social factors that have led to increased demand for cocaine in the United States, U.S. drug policy will continue to wage a losing battle. The Addict Economies 1. Police reports on the amount of drugs seized, for instance, are commonly used to calculate the tonnage of cocaine entering a country---even though increased seizures could mean either greater total imports or improved vigilance. And without reliable estimates of how much cocaine is produced and shipped each year, calcula- tions of profit are no more than approximations. 2. "The Drug Trade," Fortune Magazine, June 20, 1988. 3. Estimates of the "retail" and "wholesale" value of annual cocaine production are contradictory and generally unreliable. Us- ing wholesale prices and maximum cocaine production estimates of the Narcotics Intelligence Consumers Committee (a U.S. gov- ernment body), the wholesale value of 1986 cocaine production can be calculated to be somewhere between $6.7 and $17 billion. See "Drug Control: U.S. Supported Efforts in Colombia and Bo- livia," U.S. General Accounting Office, Nov. 1988, pp. 12-13. 4. According to botanist Timothy Plowman, an expert on coca, "some form of coca will grow practically everywhere in the tropi- cal latitudes and below about 1500m elevation." There was a coca industry in Java at the turn of the century, but the Japanese de- stroyed it in World War II. "I suspect coca has been restricted to South America mainly due to historical accident and ignorance of the nature of the crop. But given the history of rubber and cacao, it is surprising to me that illicit coca has remained restricted for so long to South America." Undated letter to author. 5. Author's Interviews with law enforcement officials; Mary Cooper, "The Business of Illegal Drugs," Editorial Research Re- port (May 24, 1988). 6. These employment figures are derived from a chart in Ethan Nadelmann's excellent article "Latinoamdrica: economia political del comercio de cocaina," in Texto y Contexto, No. 9, (Sept-Dec 1986, Bogotd). Nadelmann's chart shows how many people would be involved in turning 100,000 metric tons of coca into cocaine. The National Narcotics Intelligence Consumers Committee (a U.S. government body) estimates 1988 coca production to be between 183.7 and 213.7 thousand metric tons. Using the round figure of 200,000 metric tons, I have doubled the number of coca farmers and processors shown in Nadelmann's chart (under the assumption that the average size of an individual farmers coca plot and the productivity of processors has not changed significantly over time) but kept the number of distributors constant. 7. Bruce Bagley, "Colombia and the War on Drugs" Foreign Affairs, Vol. 67, No. 1 (Fall 1988). 8. F. Thoumi, "Some Implications of the Growth of the Under- ground Economy in Colombia," Journal of Interamerican Studies and World Affairs, Vol. 29, No. 2 (Summer 1987). 9. "Informe especial: i,Es posible legalizar la droga?" Semana, June 28, 1988, (Bogot.), based on official U.S. and Colombian government figures. Bagley, "Colombia..." says "drugs now rank above coffee ($2-2.5 billion) as the country's principal foreign ex- change earner." 10. Nadelmann, "Latinoamdrica..." 11. Already some Colombians are asking if the economic bene- fits of the drug trade don't outweigh cost-or could be made to do so by legalizing the trade. See "Informe Especial..." Semana. 12. U.S. State Department estimate of cocaine earnings. The Peruvian Central Bank now estimates cocaine income at $1.2 bil- lion a year, which would make cocaine the source of a third of Peru's foreign exchange earnings.

Tags: Coca, addiction, industry, drug trade, drug money

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