Coca Denial

September 25, 2007

WASHINGTON'S RAVE REVIEWS OF BOLIVIA'S New Economic Policy almost never consider the country's most important source of revenue and employ- ment: coca, the raw material of cocaine. Bolivia is the second largest producer of coca in the world, behind neighboring Peru. According to Samuel Doria Medina, an economic advisor to Bolivian president Jaime Paz Zamora, coca gener- ates roughly $600 million for the cash-starved economy-an amount equal to the value of all other exports combined. Others place the value at between $400 and $500 million. These dollars help boost the country's foreign exchange reserves, which in turn may be used to finance critically needed imports and service the foreign debt. The Bolivian cocaindustry employs approximately 75,000 families and, in a ripple effect, leaf production has created another 175,000jobs unrelated to the coca business. Accord- Peter Andreas is a research associate at the Institute for Policy Studies in Washington. Miners' wives protest in La Paz's Plaza San Francisco. Neither hunger strikes nor general strikes were able to block the government's radical restructuring of the economy U.S. soldier and Bolivian cargo handler unload 90 tons of ammunition and explosives for the drug war ing to Flavio Machicado, Bolivia's former finance minister, "If narcotics were to disappear overnight, we would have rampant unemployment. There would be open protest and violence." The overwhelming importance of coca-both for the Bolivian financial system and the overall stability of the economy-fails to penetrate the policy debate in Washing- ton largely because any discussion of coca is confined to the narrow realm of drug control policy. Dozens of congres- sional committees and government agencies endlessly de- bate how best to attack the coca supply. Countless State Department reports and congressional hearings document in painstaking detail the number of coca processing labs de- stroyed andcocacrops eradicated in order to show "progress" in the drug war. Meanwhile, across town from Capitol Hill, at the Inter- American Development Bank, the IMF and the World Bank, Bolivia's debt service record, export earnings, inflation levels, and economic growth rates are carefully tabulated. The glossy reports they produce to justify new loans and credits rarely even mention the word coca. In effect, they are rewarding an economic performance that is intimately tied to the coca export economy. When the REPORT ON THE AMERICAS 14New Economic Policy was initiated in 1985, the Bolivian government instituted several measures that facilitated the absorption ofcoca revenues into the financial system, includ- ing loosening the disclosure requirements of the central bank and declaring a tax amnesty for repatriated capital. New laws prohibited official inquiries into the origins of all wealth brought into Bolivia, and tellers at the central bank were not allowed to question the source of dollar deposits. The government also created a daily foreign exchange auction, called the bolsin, which allowed the central bank to compete with the parallel foreign exchange market for coca dollars. "We were bringing the street rate into the official rate by letting the difference between the two disappear," explains former central bank president Javier Nogales. "We knew that the smaller the gap, the greater the influx of dollars..." In other words, as economist Humberto Compodonico puts it, "In effect, the Bolivian state and the banking system legalized dollars from drug trafficking." As planned, these measures boosted Bolivia's foreign exchange reserves, which in turn helped stabilize the cur- rency and stop hyperinflation. Compodonico notes that, "The IMF's neoliberal recommendations for exchange rate policy coincide with the government's need to capture dol- lars from the drug trade." The coca economy has also cushioned the impact of the New Economic Policy by absorbing many of those left unemployed as a consequence of the government's harsh austerity measures. While the official unemployment rate jumped to twenty-five percent, employment in the coca industry tripled between 1980 and 1986. Unemployment has since risen still higher, providing a steady source of cheap labor for the coca economy. Although the austerity-induced impoverishment of the work force helps fuel the coca trade, in 1987 the World Bank's Bolivia officer called that nation "a country that for the first time is functioning in an orderly and logical man- ner." The IMF wears equally powerful blinders: When asked how the Fund is dealing with the links between poverty and drugs, a spokesperson responded, "We haven't looked at poverty in Latin America in this context." Bolivian officials who manage the New Economic Policy are equally willing to perpetuate this game of coca-denial. In an attempt to woo foreign credit and investment, the Bolivian government ran a special advertising supplement in the New York Times in early May. The two-page spread was filled with graphs, charts, and dozens of quotes from prominent officials applauding Bolivia's economic performance. The coca industry, the quintessential expression of the market- driven private enterprise the advertisement so lavishly praises, is predictably ignored. Though Bolivia's free market cheerleaders are silent about coca, the future of its much touted economic model will continue to be closely tied to the fate of the coca export industry. "For Washington, Bolivia has become a showcase of what other countries in the region could accomplish if free market principles are allowed to run their economies," says political scientist Eduardo Gamarra. But, he warns, "several prominent economists have argued that...any downturn in the coca-cocaine economy could have grave consequences for the continued success of the New Economic Policy." Luckily for the promoters of the Bolivia model, the anti-drug campaign has barely dented the coca trade.

Tags: Bolivia, coca economy, austerity program

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