The Addict Economies

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.