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Fair trade for narcotics?

6 June 2012

From Monday’s El Financiero (Mexico City) — my translation:

The vast profits generated by Latin American drug smuggling benefits consumer countries like the U.S. and the European Union, returning little to the economies of Colombia and Mexico, says a new study from the Universidad de los Andes, in  Bogotá (Colombia), the most comprehensive of its kind to date.

As an example, the analysis quotes statistics from  Britain’s Sunday Observer, showing that only 2.6 percent of the total black market value for cocaine produced in Colombia remains within the South American country, while 97.4 percent of proceeds go to criminal groups and are laundered through “first world” banks.

Alejandro Gaviria and Daniel Mejía, the study´s authors, emphasize that the lowest possible street value of cocaine (one hundred dollars or 65 euros per gram), even after increased cargo seizures rose in 2008 to 300 billion dollars, of which only 78,800 dollars remained in Colombia.

The figure, Mejia said, “is a miniscule proportion of GDP in Colombia, which has a disastrous impact on society and political life, but not in its economy.  The economic value of Colombian cocaine is outside the country.  The legal restrictions on export transfer the cost of the drug problem of consuming countries to the producers.”

Last year the Guardian revealed that Wachovia admitted to U.S. authorities that it transferred to the United States 110 billion dollars resulting from drug trafficking, in addition to failing to “properly monitor” the sum  of 376 billion dollars over four years that entered the United States through Mexican currency exchanges.  Mejia said that no official was imprisoned and that the institution, absorbed by Wells Fargo, is still in operation.

“Overall, there is tremendous reluctance to go after big business and to attack the links in the chain where there is some much value added.  In Europe and the United States, the money is dispersed through the economy and once it reaches the consumer, it filters into the system of every city and state.   There’s a preference for going after the finances of the little guys, the coca leaf plantations in Colombia, even though the economic impact is tiny,” Mejia said.

The UK, The Observer stated, already exceeds the United States and Spain as the largest per capita consumer of cocaine.  Research showed that Wachovia in the City of London (the British financial district) laundered large amounts of narcotics money.  However, Martin Woods, the official in change of the banks’s anti-laundering division, was ignored by Washington, when he raised the alarm about money laundering.

Gaviria and Mejía assert that the U.S. and British governments know more than they let on; “They discover things about people who might be moving money for drug trafficking, but the DEA (Drug Enforcement Administration in the United States) only acts on a fraction of that information.  It is taboo to move against the big banks, and would be political suicide in this economic climate, given the very high amounts of laundered cash in the banking system.

I’ve speculated what would happen if countries like Colombia and Mexico, rather than fighting a “war” against narcotics producers and exporters, simply gave the exporters and growers amnesty in return for repatriating their proceeds.

Perhaps it’s better to ask what would happen to the consumer countries. With their citizens already in debt, the financial impact of moving billions of dollars from in New York and Frankfort and London and Zurich to Mazatlán or Juárez or Medillin or Bogatá would be potentially devastating. On the other hand, if the consumers of the “rich north” were left with just enough for the bare essentials of life, maybe they’d stop buying luxury items, like cocaine and heroin.

I’m afraid the latter is unlikely (but I DO try to make lemonade out of lemons) given that narcotics, like oil and gas over the previous century and a half, and minerals before that, have become the real units of currency in the “rich north”. Depriving the rich north of their markers (i.e., dollars or Euros or Swiss Francs) would probably not lessen demand for the product. And, they’re in the same pickle they are with metals and oil… having to deal with whomever controls the allocation of the resource.

Dame Rebecca West bravely defended allocation control by those in the “rich north.”  Speaking of the gold and silver looted by the conquistadors, she said:

…This is not altogether the plain peculation that it appears, for [the Conquistadors] had an ingenuous belief that, as the native populations had no monetary system, these were wasted on them, and they were doing the only sensible thing if they took the minerals away and put them to useful purposes. It has to be remarked that these predators were actually conferring a huge benefit on another part of the world, on the Old World, by relieving its currency famine.

Today’s “Old World” being the “rich north” (The U.S. and Canada, Europe, Japan, Australia and New Zealand), and I suppose, not having much of an internal market for narcotics in Latin American producer nations, there is some validity to extending her observation to include “new currencies” like oil and narcotics to the nutrients making up  a rich economic diet.  And that, perhaps, is the truly frightening fact… that narcotics have become as essential ingredient to the banking and financial systems of the rich north.

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