The Addict Economies

...In fact, pursuing its free market philosophy, the Bolivian government has instituted a number of policies implicitly aimed at increasing Bolivia's share of the revenue generated by the international cocaine market...

...UNTIL RECENTLY, THE COCAINE INDUSTRY was considered a marginal phenomenon, the province of drug dealers and agents of the Drug Enforcement Administration...

...Drugs are not traded on any commodity exchange (at least none open to the public) and dealers publish no annual reports...

...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...

...According to financial analysts and economic theorists, the collapse of Bolivian mining is part of a natural cycle, nothing to fret about...

...The mine used to be operated by the government, and tin was Bolivia's most important export...

...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...

...The Peruvian Central Bank now estimates cocaine income at $1.2 billion a year, which would make cocaine the source of a third of Peru's foreign exchange earnings...

...9 The cocaine dollars which circulate in Colombia make up only a fraction of the traffickers' total earnings...

...Within fifteen minutes, the paste will have been paid for with U.S...

...According to economist Samuel Doria Medina, a large proportion of this VOLUME XXII, NO...

...3 Cocaine is truly a South American product: The coca plant is native to the Andean region and is cultivated only in South America...

...Colombia does receive the largest total number of cocaine dollars-estimated at over $2.5 billion annually--and cocaine income has enriched a few Colombians and produced visible changes in some sectors of the economy...

...6 (MARCH 1989) ^^ 33COCA receive no salary...

...The $47 billion Colombian economy is large and quite prosperous in comparison to its neighbors...

...The imports business is one of the few still thriving...

...2 (Summer 1987...

...Rubber, guano, cotton, 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...

...Four out of five of these dollars come from the coca trade (the fifth from tourism...

...Reebok...

...29, No...

...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...

...8. F. Thoumi, "Some Implications of the Growth of the Underground Economy in Colombia," Journal of Interamerican Studies and World Affairs, Vol...

...Already some Colombians are asking if the economic benefits of the drug trade don't outweigh cost-or could be made to do so by legalizing the trade...

...They include 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...

...How loudly they call depends on the state of the market's legality...

...Siglo XX's pay window was nailed shut, and the square in the miners' settlement became nearly deserted...

...government body) estimates 1988 coca production to be between 183.7 and 213.7 thousand metric tons...

...They generally earn just a few thousand 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...

...Puma...

...Vendors also cross the border into Ecuador or Chile to spend their dollars...

...a decision by Colombian traffickers to grow more coca within their own country...

...Although the drug trade is an integral part of today's international economic system, solid information about it is not easy to come by...

...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...

...They aren't stupid-nobody else is doing it...

...When the exchange rate for the dollar goes up, Bolivians pay more...

...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...

...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...

...Hoisting picks and dynamite, they make their way up a narrow vertical shaft...

...That means that the cocaine industry, long a social "safety net" employing part of Peru's impoverished peasant population, has become increasingly important as a source of the dollars indispensable for the country's economic survival...

...3. Estimates of the "retail" and "wholesale" value of annual cocaine production are contradictory and generally unreliable...

...However, they also pushed the official unemployment rate up to 25...

...According to Jos6 Gonzales, a researcher at the Limabased economic consulting firm Apoyo, $3 millon a day changes hands in the Ocofia market...

...The extent of Colombian control appears to vary from country to country...

...unemployment is up and inflation went into four digits in 1988...

...In Peru, Colombians are active at every level of production except for growing coca...

...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...

...But in 1985 the international tin market collapsed, prices for other minerals were already low and the government decided it wanted out of mining...

...dollars in cash and loaded on the plane...

...9. "Informe especial: i,Es posible legalizar la droga...

...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...

...Now we have to break the rocks with our hands...

...I supported my two children by growing coca," says a woman who has lived in Bolivia's Chapare region for 25 years...

...In Bolivia, where the informal economy probably accounts for a majority of the country's economic activity, there is more concern that the influx of cocadollars will stop...

...even, Bolivian farmers say, remembering what happened to the rubber trade, the development of synthetic cocaine...

...The smugglers will take only dollars...

...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...

...And without reliable estimates of how much cocaine is produced and shipped each year, calculations of profit are no more than approximations...

...The sellers bring dollars to the banks where they are exchanged, quite legally, for Peruvian currency...

...Increasingly, however, Colombian narcos are investing in agriculture, real estate and other local business...

...From 1980-1984 Colombia was the only Latin American/Caribbean country whose gross domestic product did not experience decline for a single year," writes economist VOLUME XXII, NO...

...Bolivian researchers working 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...

...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...

...They VOLUME XXII, NO...

...The paste-sellers' dollars are converted into intis, and channeled into the rest of the economy in several ways...

...2. "The Drug Trade," Fortune Magazine, June 20, 1988...

...And in Peru, it appears that cocadollars, like dollars from every other source, are being used primarily to earn quick profits speculating on the booming Ocofia market...

...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 cocadollars that came in...

...If this trend continues, or if Colombian coca production continues to expand, the "benefits" of the drug trade may become more widely distributed...

...Back in Lima, the money-changers resell the dollars at a slight markup...

...7. Bruce Bagley, "Colombia and the War on Drugs" Foreign Affairs, Vol...

...In every Peruvian city, imported goods ranging from Chilean chocolates to Korean tape players are sold in huge open air markets...

...They brandish pocket calculators and call to passers-by, "Dollars...

...Most coca farmers cultivate less than five acres of land...

...The free market policies of the current Bolivian government, 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...

...But, asks a Bolivian analyst, "Why should the narcos put their dollars in Bolivian industry...

...We must "think about coca leaves as a commodity like any other, and cocaine production as a multinational industry like any other...

...One thing, however, is undeniable: Cocaine is big business, one that has transformed the lives-and the futures--of millions of Latin Americans...

...The dollars most often come from Ocofia, and they leave the country with the smugglers...

...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...

...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...

...Tin has gone bust, but a new boom is underway...

...The National Narcotics Intelligence Consumers Committee (a U.S...

...There was a coca industry in Java at the turn of the century, but the Japanese destroyed it in World War II...

...says "drugs now rank above coffee ($2-2.5 billion) as the country's principal foreign exchange earner...

...DESPITE THE OBVIOUS BENEFITS FOR many, drug dollars may undermine existing economic structures in the producing countries, some analysts warn...

...Nadelmann's chart shows how many people would be involved in turning 100,000 metric tons of coca into cocaine...

...At the next, a young man in shabby pants and T-shirt counts out the price of a hefty boom box...

...The plane will then take off for a cocaine lab in the Peruvian Amazon or Colombia...

...For two months we haven't found any...

...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...

...D OES THE COCAINE BOOM OFFER POOR coca producing countries a golden opportunity for development...

...Rock music blares and plastic-draped wooden stalls are filled to overflowing with the latest television sets, video players, stereo equipment and kitchen appliances...

...One of the key factors influencing the exchange rate is, of course, the supply of dollars in Bolivia, and that, in turn, is determined to a great degree by the cocaine industry...

...I'll give you a good rate...

...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...

...As the most accessible source of dollars for travel abroad or purchase of imported goods, the Ocofia market plays an important role in the lives of many Peruvians...

...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...

...There is also some cultivation in Ecuador, Paraguay and Argentina...

...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...

...4. According to botanist Timothy Plowman, an expert on coca, "some form of coca will grow practically everywhere in the tropical latitudes and below about 1500m elevation...

...Bagley, "Colombia...

...6 (MARCH 1989) Francisco Thoumi...

...1988, pp...

...We can't work with machinery like before," says one miner...

...The drug trade, however, is deeply rooted in the poverty of the producing countries and in their traditional role as cdmmodity suppliers for the wealthy nations of the world...

...Now a handful of miners, most of them not union members, dig tin and sell it to private buyers...

...It seems they come from Panama by boat, into the port of Callao, outside Lima...

...every day some 5,000 miners swarmed through its tunnels...

...Ocofia runs off the Plaza San Martin, in the heart of the city's downtown...

...Semana...

...But the economy has since fallen into crisis...

...drug policy will continue to wage a losing battle...

...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...

...In Colombia, the most popular investment outlet for drug dollars has been real estate, especially large ranches...

...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...

...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...

...drug users...

...Coca is hardly the first Latin American commodity that has sparked a brief glimmer of prosperity while doing little to ensure future growth...

...10...

...State Department estimate of cocaine earnings...

...OLIVIA IS PROBABLY THE COUNTRY MOST deeply in thrall to cocaine dollars...

...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...

...Scanty government import and foreign exchange 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...

...If bought legally, such goods draw steep duties-sometimes as much as 100%-in accordance with government attempts to preserve foreign exchange...

...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...

...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...

...I suspect coca has been restricted to South America mainly due to historical accident and ignorance of the nature of the crop...

...T HE INDUSTRY HAS BECOME AN IMPORtant source of jobs and income in the three countries most directly involved: Colombia, Peru and Bolivia...

...11...

...government body), the wholesale value of 1986 cocaine production can be calculated to be somewhere between $6.7 and $17 billion...

...5 A far greater number count on the industry for simple survival...

...See "Informe Especial...

...By channeling activity away from the "formal" (taxed and regulated) economy," 7 the "informal" (untaxed, though not always illegal) economy grows, and government revenues decline...

...Nadelmann, "Latinoamdrica...

...Because so little is produced in Bolivia's own factories, almost everyone buys imported goods ranging from noodles to radio batteries, laundry soap to rubber boots...

...1 (Fall 1988...

...Dollars...

...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 projects like sports teams and new housing in the slums...

...Today, during an hour's walk down the main tunnel, these three are the only miners to be found...

...based on official U.S...

...Peru's share of cocaine income is said to be some $600-$700 million a year...

...The expenditure of these "narcodollars" (the income repatriated by traffickers), though visible, is not yet crucial to the success of the Colombian economy...

...A former adviser to the Garcia government says economic planners "don't like the source of the dollars-but they come in handy," and can hardly be ignored...

...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...

...Boom follows bust follows boom...

...67, No...

...For example, there's a huge market in gym shoes," says researcher Jos6 Gonzales...

...While inflation soars, Peruvians of all classes have been turning their savings into cash dollars from Ocofia, since dollar bank deposits cannot be withdrawn...

...Such may well be coca's fate, though that will depend more on policy than the nature of the product itself...

...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...

...The income produced in the coca fields is important to many Bolivians other than farmers...

...But the vendors manage to get around these constraints by buying in the vast contraband network...

...In 1986, Bolivia's coca income was put at $600 million dollars-nearly double the $345 million produced by sales of natural gas (Bolivia's most important legal export since the 1985 collapse 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 luxury...

...In reference to Colombia, economist Francisco Thoumi argues that the growth of an economy which undermines social cohesion and brings violence in its wake "presents the main challenge to the government and to the development of the country...

...Supported Efforts in Colombia and Bolivia," U.S...

...Another channel is Peru's parallel foreign exchange market, centered on Lima's Ocofia Street...

...One series of measures allows Bolivians to repatriate income earned abroad with no questions asked...

...Most U.S...

...Cocaine revenues actually returned to Colombia accounted for just 2-3% of GDP in 1985...

...This square used to be the scene of violent confrontations between the authorities and union members...

...In Bolivia, some cocaine dollars have gone into construction and the import trade...

...4 The vast majority of the world's supply comes from Peru and Bolivia, though Colombia and Brazil have recently become important producers...

...Then Colombians will discover that their country has become truly hooked on cocaine...

...Coca...

...Copper, Peru's most valuable legal export in 1987 generated only $449 million...

...Colombian narcos compete, often violently, for control of producers and markets, though they reportedly loan each other cash and share stocks of drugs as well...

...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...

...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...

...Like any other industry, cocaine has its entrepreneurs...

...Dozens of men and women often crowd the sidewalk and sometimes spill onto the roadway itself...

...Mary Cooper, "The Business of Illegal Drugs," Editorial Research Report (May 24, 1988...

...Adidas...

...See "Drug Control: U.S...

...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 productive capacity...

...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...

...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...

...No duty is paid...

...Over the past three years, Ocofia has sometimes been legal, sometimes illegal, but it has always been busy...

...Many people breathe a sigh of relief when the operations are over and things get back to normal...

...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...

...Bolivia, in contrast, was a small-scale cocaine exporter even before the Colombians organized the international market in its present form, and local entrepreneurs maintain control of a large part of production...

...Undated letter to author...

...Every time there's a big anti-drug operation, the dollar goes up and everything gets more expensive," says La Paz researcher Susanna Rance...

...Because of past experiences with counterfeit dollars, valley residents now insist on being paid in Peruvian currency, intis...

...General Accounting Office, Nov...

...Some 20,000 lost their jobs...

...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...

...One is the banking system: Several Peruvian banks operate busy branches in Huallaga towns...

...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...

...Semana, June 28, 1988, (Bogot...

...when the miners struck, it was international news and world metal markets shook...

...If we don't find ore in a vein, we don't make anything," explained one of the miners...

...The sign says "Throw out the Yankee murderers...

...12-13...

...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...

...So it has been in Latin America-with sugar, rubber and minerals like tin-and so it is in Bolivia...

...We've gotten used to eating yucca cooked in fat, nothing more...

...The miners union was Bolivia's most important labor organization, the mainstay of the Bolivian Workers Central...

...The first step in making cocaine-mixing coca leaves with kerosene and drawing off a whitish paste-often occurs near where coca is grown...

...a precipitous drop in coca prices due to overproduction...

...At one stall, a well-dressed matron studies a food processor...

...This money is generated in the first place by the thousands of Peruvians who grow coca and make cocaine paste, the majority of whom live in the Huallaga Valley region on the eastern slopes of the Andes...

...Yet Colombia is probably the producer country least dependent on drug income...

...Because import controls are loose and duties are low, Bolivian markets and shops are always well-stocked with foreign goods...

...Cocaine only recently became Colombia's most valuable export...

...5. Author's Interviews with law enforcement officials...

...A S IS THE CASE WITH MOST PRODUCERS OF raw materials, Peru and Bolivia are far more dependent than cocaine-processing Colombia on the dollars the industry brings into the economy...

...Exactly 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...

...With his proceeds, the paste-seller must pay his suppliers...

...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...

...and Colombian government figures...

...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...

...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 producing areas...

...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...

...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...

...Turning the paste into cocaine is a more delicate chemical operation, usually carried out in laboratories staffed by trained technicians...

...Using wholesale prices and maximum cocaine production estimates of the Narcotics Intelligence Consumers Committee (a U.S...

...policymakers...

...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...

...Other sectors continue to be profitable and, because ColomChewing 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 economically dependent on drugs...

...The Garcia government has responded by imposing strict border controls, but these measures have met with little success...

...The available data on prices, profits and production levels is often derived in questionable ways or from unreliable sources.' Statistics from governments, law enforcement agencies and international bodies like the United Nations vary widely, sometimes by a factor of two or three...

...The union was known for its toughness, and it won major gains for its members...

...9, (Sept-Dec 1986, Bogotd...

...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...

...In 1985 the country's per capita income approximately equalled that of 1980 while the average for Latin America had dropped 8.9...

...6 (MARCH 1989) v. 37ReCOCAt o Ameia COCA business--difficult to calculate precisely-is connected to the drug trade...

...They are mostly Colombians-the Ochoas, Lehders, Escobars and others who make up the infamous Colombian drug mafia...