Université d'Ottawa - University of Omwa

THE POLITICAL ECONOMY OF DRUG TRAFFICKING:

CASE OF PERU

0 XAVIER CORDILLO

-4 thesis presented to the

Department of Economics of the University of Ottawa

in partial fuifÏiirnent of the requirements of the M A dwee

Supervisor: Professor .Michel Chossudovsh~

eco7999

Ottawa, Ontario

December 1997.

Acquisitions and Acquisitions et Bibliographie Setvices seMces bibtiographiques

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ABSTRACT

.+In importunr phenornenon of-the ptr-st titw decudes hus hem rhr rupid rive NI the prochic-rion und trudr in iilegul rhig.~ ut the inrrrnutionul lewl. .-tccording to oyicicrl sotrrccs. hcniwn 1983 und 2 994. prochrction of opitim und rnurihtrunu h m incrrused by more rhun ljO% und c*oc-cl leuf'prodtrcrion bus more rhun doribkd Horwver. since I Y 9j . mujor chunges o c ~ w - r d in the iliicit dnig trude. muny o f it-hich iwre hrought crhnrrt hy cr,~~e.v.sÏ~~e clnig I~nr enfbrcement. .Yo nurion hus hem irnrnrrne to rhe dei-usruring prohlems ccu~r.sed h~ dnrg ubtrse. .-Ir the sume tirne. o hroud sprctnrrn of rhr ii-ork/ cornmrmity hm- Jrmonsrru~etl inrensc cmncern owr rhe prohlttm: the imidiorrs /ong- lm c.ffi.cr.s of'dnrg trsr und it-s impucr on the tiser. the ./irm* rhr commirnin. trnd on socien: Dnrg uhuw is no! LI WH- phenornenon in Lutin .4meric-u. ulthuiigh il hus rwenro- ucy uirc. d new churue-trrisrks. T h proportion ofrhe poprrlurion rhut rrsrs iiiic-it drtr,y.v hr.s gro U R in s i z . Illegui pro& iction uncl Jistriht ition of dnigs u=Irct the c~.onr)rnic.v of . m u ~ v nutions. .-!.s.socicrtr d crimec. rioimw. und polithi riisrtrption hme n:) hisrorÏcul precrdrnts. T3e Ïllicit prrxiucrion. ciisfribtrtion und caon.nimplion of h r g s htrw Ïnt Ïmiduted und corrrrprrd ptMc .senWunts. crnJ lm-e ewn destuhiIize J pi*~~rnrnenri;. This chrg-spon.voreci riolrnce und confionrution with the stutr lcere tr.vso~i~rrc.tl principully rvith rhr Cetdi ttnJ .Clctlrllin m-fets busrd in CBiumhiu. a s ndZ crs oritrr gung.v sirch us the curtrIs ofJuurez und Tijticrnu in .Ilexicco und smullrr grvicps Ni P m r crml Boliriu. In order IO wtder.s~und the irnpuct (?f'rlnrgs throughotrt the .4ndeun cotcnrries of~C*oiomhiu. Boliriu und Pen[ thut hure dcreioped us cenrrrs of prodt~crion ~ritd ~lisrrihrrtion of chrgs und. in purti~dur Penr. idrich i.v considered the it-orId*s lrtrt l i e prodlrcer (fl'cocu 1euf und cocuinr buse. I i d 1 -fbc.tr.s rhh- thesis on Ihc Penn-iun ctr.s~~ În which .vociul. rconurnic ctrirtirui. und poiiticui convequencrs of the producrion und rnrffic*king qf illicit dmgs it-ill hc de-scribrd Hrnce. rhr purpuse of this .mr& i s to tint* =LJ fkvt the dirnension.~ of ' the prohkm und then u.s.sessing poliq- ulternutives of muking u liring- fbr impo~rrished poptriut wns rhut ctrrren@- strpport the cominr murkt LIS t r tncunnv of strpporting rhem.veli.tls.

This rhesis i d he .sirzrctrirecl in the fdIowing r r q . The f i s r section i M rxumine rhe poiiricui und econornic dimrn.sions oj'the nurcCotic-s econoqt- in Peni. Ir i d 1 unu[~=e rhe .sÎ,qnificunc~' of the cocu Iruf'und cocu pusre Ïn the m i n rconornic cispecrs. us wdl us rhc soci<)-ec*onornic impuct of'nurcwic-.Y in Penr. It i d dvo un&e ik dynarnics uj'ihe c - o c ~ r inrlristn: muking rrferenw ru the procCesSs uf'cocu IeuJ cocuinr. irs rise. zones of p t irrction. its clistrhution in the mrrket. rhe strzrcmre und ciÏvi~-ion of Iubozlr. und u i S . Furthermore. Ït ivill rie-scribe rhr e ff'eci of' nurco-clolkrrs. iheir

L-oncurnitunr social und ecoIogicuI impucrs. und the Jnrg-inrzrrgenq nemis. The efforfs t o L-ontrol producrion uf'cucu crnd dnrg [ r u f i hme hrorighr into the scene the direct purtiL'ipu~ion of rhe Lhired Stutrs. Thr polirics of-c-ontrul und erudic-ution trwitiate the rok of-fi)rei,gn uid und poliric*ui pressure r.isu-i.is the infernul rrsis~unce und group ittterrsts in the nurionul socie'~f. ï71erejore. the second section idi trxuminr the prohlrrns. srrutegies und soltrtions to tucklr the zinder[1fnp isnrrs. unultzing the role of g(~i-ernrnents und rhe rnilirc. und the responsihili~ of'supply und demund c-ouniries- If i d oirtlim Prnr's position fucing the dnrg rrufic-hg prohlem. the LIS. intemenrion. riw ci-ultiution und rnemztre of effrctii.rness. und op~ions regurding rimg conrrol und drrrnurÏw tineIopmenr poIicies. FinuI[li. this rhesis rdl conclzide it-irh some opinions r h r rnmt be considerrd in order to dewlop un eflectire economic und cotmfer- nur~-otics progrum with the goal of $king Pem ec.onornic- uternutii.es for its wgenr[t' ncecled nutionui rl'rwloprnm und motlrrnizurion

Contents

List of Tables

List of Charts

1. The Poiin'cai Economy of Drus in Peru 1.1 Economic Trends

I L Pari One Defining the Problem

Significance of the Coca Leaf and Coca Paste in the Main Economic Aspects 2.1. I Production of Coca and Coca Paste 3.1 2 Distribution in the iVarket 2.1 -3 Structure and Division ol' Labour 3.1.3 What Does Coca Offer'?

The Socio-Economic Impact of Xarcotics in Pçru 2.2.1 Money Laundering 2.2.2 Socio-Derno+graphic Impact 2.2.3 Violence and Inswgency 2.2.1 Externaiities of the Coca Industq-

1 1 Part Two Ass&ng Poiicy A i . . & N e s

3 . Problems. Strategis and Solutions to Attack Dmg Traficking 3.1.1 Role of Govermnents 3- 1.2 Role of the Military 3.1.3 Rqns ib i l i ty of Supply Countries 3- 1.4 Responsibility of Demand Coumies 3.1.5 Penitian Position Facing the Drug Trfickin; Roblem 3. 1.6 United States Intervention 3.1.7 United Stàtes Poliq and Strate= Goals 3.1 -8 Evduation and Meastues of Efféctiveness 3.1.9 Options

IV. Conciusion

h n e x : Maps

Table 1. l .a: GDP Growh by Ssctor Table 1.1.6: Coca by-product Export relatsd to Macroeconomic Variables

Table 2.1.1 .a: Worldwide Potential Net Production 1994- 199 1 (rnetric tones). Worldwide Cultivation Totais (Hectares)

Table 2.1. l .b: Basic Indicators on Coca and Dmg Traficking in Bolivia Colornbia and P e n 1975-95

Tabts 2.1.1 .c: Production of Coca Lemes. Coca Paste and Cocaine, Plus Prices and lncome Genented, For Bolivia. CoIombia and P e n 1985-95

Tabk 2.1.1 .d: Distribution of the Profit From h g Trafficking in the Andean Coutries. 1985-95

Table 2.1.1 .e: Economic Impact of IlIegal Drugs. .Andean Countries. 1994 Table 2.1.1 .fi Peru-Increasingly EfXcient Farmers Table 2.1.1 .g: Prices in U S S K g

Table 2.1 -4.a: Peru-Estimate Net .4nnd Income. 1994. Coca and Legal Crops

Table 2.2.2.a: Population and Population Gromth Rates in the L'pper Hualfaga Valley and Two Clusters Within [t

Table 22.4.a: Cocaine Procrissing

Chart 1.1 .a: Measures of Poverty . 1 991 Chart 1.1 .b: Distribution of P o v q Chart 1 - 1 .c: Macroeconomic Variables Chart 1.1 .d: Social Expendinire in red tems: 1990- 1995 (US$ MM) Chan 1.1 .r: Peru: Export of Coca Leaf. 1985- 1 994 (Kgs. )

Chart 3- 1.1 .a: Cultivation and Production of Coca L d Chart 3.1.1 .b: Cultivation and Production of Coca Leaf Chan 2.1.1 .c: Cuftivation and Production of Coca L d

Chart 5.1 ha: Coca Leaf. Coca Paste and Cocaine Seizures and Dmg Arrests

I am greatly indebted to my supervisor. Professor Michel Chossudovsky. for

his invaluable help. advice. guidance and k e n interest throughout the course of this

investigation and especially in the prepararion and criricd revision of this manuscript.

1 wou1d Iike to express my gratitude to Dr. Huso Cabieses. Coordinator for the

Grman Technical Coopention ( GTZ) Projrct: Consulmcy and Research for 1nte~p.l

hndemi.Arnazon Development ( .AI D IX 1. for providing me research facilitirs and

advice.

1 dso wish to t h d the Information Centre for the Prevention of the .Abuse of

Dmps (CEDRO). the United Nations Drvelopment Pro-gamme (LWDP) and the United

Nations Dmg ControI Programme (UXDCP) for thrir sincere fnçndship and help and

collabontion in one \va>- or mothrr in making possible the completion of this work.

1 wish <O express my immense ~a t i tudc to the most important persons in rny

life: to my father Jorge for his moral and materid support during my graduate sntdies.

to rn? morher. Norma and my brother and sisten whose moral support. inspiration

and encouragement brought me to conclude this study.

Finallu. 1 wish to tharik veF sincerely to Miss Vanessa ?vIazzucchelIi for her

çollabotation. unstinted support and attention dining the course of rny work in Pem.

The Political Economy of Drugs in Peru

The debate about h g control and dmg traficking worldwide is intense. Tensions

ribound. policies clash. human tngrdy and suffrnng continue on o massive scale. The

ohgins of some of these tensions cire clcar npid changes in political alignmrnt. reduced

family and community cohesivencss. incrrased unernployment and underemployment

sconomic and socid rnargindization and increased crime, .At a time dramatic

improvemrnts are raking place in somc srctors such as communications and technolog-.

improvrment of the q d i t y of lifr for man! people has fdlen f i short of the potential that

esists and the rising espectations of people who know life can be better.

.At a timc of rising social and political tensions in the developing countries. the

macro~conomic environment has iùndarnentally changed. In the beginning of the 1990s.

the directors of the International Monetq Fund and the WorId Bank observed that the

strong performance of many developing counuies- retlected in rnarkedly higher savings

rates. grrater int-estment in physical as wrll ris human capital. higher efficiency of

invesunent and stronger overall grottth in productivity. was due to fundamentai çconomic

de\-elopment that had led to more stable and sunainable rconomic conditions. This major

intluence of thinking about development was the phenomenon of globalization. More than

et-er. development inchdes the question of how to compete in global markets. The trend

touards globalization is continuing. helping to accelerate development for many countnes.

Hsnce. more n-idespread and sustainable pro-gms will now depend on building mong

capacities to achieve good govemance. reduce poverty, and protect the environment.

Civil contlict cerrorism, population and miCmtion pressures. epidemic disease.

envimnmental degradation. and international crime and corruption hinder the efforts of

dr\.eloping countries and concem LE alI.

.-\ n w . more open intcmational tnde regimc has been sstablished with the entry

into force of the Lniguay Round and the inauguration of the World Trade Organiwtion.

Li'orld tndr and invcstment have cspanded and hrought to somc areas of the developed and

drveloping world substmtial economic benetits. Capital and goods move much more

frtquentl?. and freely across nation borders than \vas the c î x previously. In many

industries. multinational enterprises opente on a world scale by allocating production

riccording to the comparative advantagr of individual countries or regions. by selling in

rliwrse peognphicai markets and by undenaking tinancial operations where it is most

ndvantageous. Developing countries have been among the most active in shaping these

ncw noms for espanding tnde. Their participation in global negotiations and the market

opening reforms that man- of them are adopting have given developing countrîes new

international intluence. and a ncw st&e in a functioning u-orid cconomic systcm.

Grouth in world trade is continuing to outpacc overall economic g r o w h and

developing counuies are kcominp increasinply active participants in global markets. The

\l*orld Bank projects that world merchandise m d e wiI1 expand by more than 6 percent a

)-ex over the n e a ten vars and that trade in senices wiii expand even faner. Both

economic growh and trade groowrth by the devrloping counüis are espected to esceed the

corresponding g o t h rates in the indusniaiized countrïes ' The globai changes which have allowed goods and money to move from one

country to another cheaply and easily have aiso had other consequrnces. GIobalization

c1r;irly prexnts risks as well as oppomuiities for developing counuies. including the risk

that not only individds. but entire countncrs and regions. may be lefi behind. .A number

of developing countries. sspecially those in .-Ifiica and sèlected counuies in Latin America

and .-\sia. have largely missed out on the bensfits of increases in world tnde and

invatment and consequent economic gro~tth. In some cases. this has been the resuIt of

political instability. cthnic contlict. massive impovcnshment or misrnanagement of the

economy. which are compoundsd by the Iinks of terrorist activities. blatever the reason

in a $en country. the lack of sconomic progress has put such countries in a financiai bind

and tiequently placed severe restrictions on government sen-ices available to the most

t-u1ncrabIe segments of the population. For ssampIe. with the freer and larger movement of

coods and the increaxd volume of mdr. it has becomc easicr for dmg dealers and weapon Z

srnugglers to movr their wares across countries.

ho ther potential cost of globalization is that it has aiso provided the opportunin.

kir drug producers and traffickers to organize themselves on a global scde. to produce in

developing counnirs. to distribute and sel1 in al1 parts of the world. to move drug cartel

membsrs sasily tiom country to countq- and to place and invm their drug profits in

financial centres ofTering secrecy and attractive investment returns. The same dsreguIation

that has allow-ed legitimate businesses to move money around the world elrctronicaIIy with

Isw national controls has dso permitted dmg naffickers to Iaunder illicit drug profits so

that thex h d s appear to br Iegitimate. Thmefore. to malyze the impact of these

probkms becornes especidly relevant

From its o r i ~ h in the A n d a region of Peru. Bolivia and Colombia coca fields to

its final desination primariiy North .heric;i and European urban centres. the coca and

cocaine enterprises form a long chain involving a nide diversi- of links: persons.

* % -

occupations. equipmrn~ transactions. resources and consequences. Wliie in industrial

socirtirs cocaine is a social wil. in the .Andes of Pen. coca production is part of the

tnditional ecological exchange but cocaine prepantion and tTâf'fic has become an important

source of cash integrating f m e r s into the nesus of global uade.

The cultivation of the coca plant in Andean countnes is an indian tradition of

uncertain origin. The chewing of coca lraves cm rrlease an estremely small amount of

cocaine hydrochloridr. and tnditionaily coca I d chewing has b e n popular in Indian

communities to combat hunger and altitude sickness. In addition. coca Ieavrs are used as

part of tnditional herbai cures. to m A e tea. to predict the %turc. and othrr activities. In

tact traditioncil uses of coca leavss for chewing and other purposes remains a Iegal activity

in Bolivia and Peru. However. according to the Institut0 Nacional de Estadistica e

Informatica ( WEI). 95?& of coca Ieaf output in recent years has sened as a base for the

production of retined cocaine for expon2.

Thus. the infiltration of rui underground econorny into the indigenous people's

lifestylr has brought about a new type of economic dependence which is known as die

narcoeconomy.

It was only in the Iast twenty yçars. as cocaine becme the drug of choice amonp

the Young and cornfortable of Western Europe and the United States. that coca farmïng

went trom a cultural artifact to the kt-paying industry in Peru. Distribution -stems vary

according to the drug. Lxgely because production has been concentrated within the

A n d m region, the processing and distribution of cocaine has tàllen under the control of

centraiized organizations, cspeciaIIy the Colombian cartels based in Cali and Medellin.

This international organized crime came to the jungle. adopting the traditional culture of

coca to its own purposes. collapsing the agriculn<ral industry. and creating an underground

cconomy of uncmployed mi_mts. peasants. officiais that now reaches from the jungle

throughout the rest of the country. contributin, to a cuIture of shakedowms. payoffs and

crime.

Crime and dmgs may bc related in sevrnl ways. none of them simple. Illicit

production. manufacture. distribution or possession of drues ma? constitute a crime.

Drugs ma? incrrase the fikelihood of othrr. nondrug crimes occurring. The! may be used

to malit. money. with subsequent money-laundering- and ma: be closely linked IO other

major probkms- such as the illegai use of guns. various forms of violence and terrorism.

.-1 number of terrorists and organized criminal gangs are involved in or have close ties to

the iilicit drug trade. The link betwen the two is otien money and power. One example is

Colornbia. which has cmergcd as 3 ccntre of tnfticking in cocaine. blending h i ~ d y

organized social and economic interests with an underground specializing in drug crime.

Political changes m e affect srnuggling patterns. organized crime and drup abuse.

Yowdays. the sffect of opening the borders tkithin Latin America has raised the issue of

dru, traficking and terrorisn. In the past close links e'risted benveen terrons groups in

several Latin countrîes. Fever control points benveen these countries may make it more

difficult to maintain adequate secun-. Moreover. srveral points desmed mention at the

outset.

F i m mo~ing against the cocaïne uaffc entails serious and politicai cons. This

i n d q has represented a relatively important source of foreip exchange for Andean

countnes. it is an important source of jobs and income in regions characterized by

dsspsraté poverty and widespread unm.plo>ment. People are employed directly in the

5

upstream and do~~nstream phases of the industry-cultivation. initial processing. refininp

and smuggling. 1\11 dong the cocaine production chah people receive subnruitially

higher wages thm they would in the Iicit econorny.

Second. the success of international drug traffickm cm be seen in the sophisticated

nrnvorks of distribution whhich have often adopted the techniques of large. legitirnate.

multinational corporations. Tnttickers keep abrem of p d demand areas and the drug of

choictl in 3 specific geographic location. whiIs maintaining the tlow of narcotics around

the worid. The cocaine indusu' as a whole has accumulated significant political clout.

Cocaine traffickers play the role of power brokers and are a major source of funding for

political ç m p a i ~ i s and terrorist groups. Tmftickm such as Pablo Escobar and Carlos

Lshder of Colombia Luis &ce Gomez of Bolivia, Carlos Demetrio Chiivez Pefiahenera

"El Vaticanog-. the Cachique Rivera brodicrs. and Reynaldo Kodriguez Lopez --El

Padrino- of Peru have also penrtrated and compted nearly e\-m. important national

institution'. The corrupting influence of vast sums of h g money is patently clear at ev-

Ievel. from the local community upward. both in poliûcd and administrative terms. It

hepins with a payoff to a local authorie or police ofticen to ovdook an iltegd crop or

laboratoc. The b n b e ~ is cmied out at various Ievels. stops at no border and recobpizes

the authority of no country. Since the major drug uaffickers have almon unlimited fun& at

thcir disposai. the thousands spent in bribing oficials may be viewed as a good odvestment

to ward otT the threat of being shm down or arrested- Traff?ckers can and do use miIlions

of narcodoI1ars to infiuence horv strict&- an international trac is complied ~ 5 t h and to

sssrciss po\ver throughout entire regions of the rvorld,

Third the war on cocaine is not especially popular in South Americar it is

6

perceived as a pro-- imposed on South America by the United States. In the 1970s. the

Drug Enforcement Administration (DEA) initiated new efforts to address the illicit profits

of drug tnffickin$. -4s an example in the past trn years. they have carried out p r o z m s

such as Opention Bahamas and Turks and Caicos (OPBAT)- Operation SNOWCAP, the

Sonhcrn Border Response Force (NBRF) and Opmtion C.ADE\ICE which have provided

~ h s hrickbont. of the US. Andean Stntsgy for cocaine suppression. Asset removd has

hem a difîïcult objective. but toda) the DEA alone is seizing about US$ 1 billion in

tnffickrr assets each year. These U S . initiated masures include estradition. the s p y i n g

of illicit crops. U S . miIitq- intervention against cocaine Iabontories. and economic

sanctions against cocaine-esporting coun<ries. Alro jether. the Latin Amencan drug tnde

has complicated relations betwern the United States and man? of its southem neighburs

over a variet? of issues. ranying from offshore banking privacy rights related to the

laundering of d i q money. narcotics enforcernent corruption. and the search for

alternative crops4.

Estimating and analyzing the econornic impact of the narcotics indumy on producer

countries are important tasks. Thus. this thesis \vil1 focus on &mates of the econornic

impact on the narcotics economy in Pau. It will examine availabie estimates and pertinent

methodoIogical issues, indicating why resuiting &mates are uncertain and why it is not

possible to determine in a dear m m e r why whether the narcotics indumy has been good

or bad for Peru,

For these reasons, the impact of the narco-industn; on producer countries has

itequentiy been obscured. One thus shodd focus on the moa important dimensions of the

problem and try to quanti. relevant variables. Wnh regard to Peru ir would be desirable

7

to know: ( i ) how much money do Pemvims malce a year in the narco-indus-?. (ii) how

much of that income do the narco-trafickrrs bring back and spend in Peru. and how much

JO t h q keep abroad?. ( iii) what is the net worth of the narco-mffickers. and how much of

it is insidç and outside of Peru*?. (iv) what hris bern the impact of narco-capital flows on

the Prnn-ian sconomy and on the govenunent's policis?. (Y) how does policies impact on

the narco-cconomy'.'. (vi) what is the impact on the balance of payrnent and payrnent of

dçbt sçnices?. and (vii) what are the long-trrm implications Tor Prruvian economic policy

ot' the large rimount of capital accumuIatcd by narco-trattickers'?

C'nfonunately. the information available is not offtcial and proçldes onnly imperfect

incompletr. and indirect responses to thesr: questions. AI1 caiculations about size of the

nrirco-industry begin with estimates by the US. National Narcotics Intelligence Consumers

Cornmincc (an intcr-agency committec rhat coikcts data on drug production and

traficking) whose satellite pictures are used to estimate the area cultivated ~ i t k . . coca.

marijuana and other illicit crops. Howver. these appraids are Iikely to be quite

inaccurate becaux of technicd dificultirs in determining the nature of an agrÏcu1tura.i

enterprise and because marijuana and coca plants are frrqurntfy grown dongside other

crops that hide them from vien-'.

Tl~c environment socio-economic. culnual. and po Iitical impact of illicit

cultivation. manufacture. and trafic of narcorics has reached criticai Irvels. The impact of

these actil-ities has altered economic actiii~-. deteriorated the long-term reai exchange rate.

ciistorted the job market and spauned violence and social instability in those areas directly

and indirectly atTscted.

These econornic etTects of the drug tnde have b e n widely debated by economists

in Latin .Amcrica. the United States and elsewhere. Some sharp di fferences in opinion cm

k noted. For instance. Francisco Thoumi argues that the drug industry depressed the

grouth of the forma1 sector of the economy and that the Andean cconomies would do better

without dnrgs. than with thern".

Xnother reIated problem is that the cocaine indus. imlf produces t'ew backward or

ibnvard linkages to the legai rconomy: that is. the induse gsnentes relativdy linle

demand for local products and cocaine cannot be used to feed into other indusuies,

According to schoIars Mario de Franco and Ricardo Godoy. =ch dollar of cocaine

esported requires the purchase of on1y USS 0.03 of goods and senices from the non-

cocainr economy: in contrast. commercial agriculture. mining. energ? manufacninng.

construction and semices rcquirc the purchase. on average. of CS$ 0.27 from the r a t of

the economy. .At the same time. the intlux of hard currency associated with narcotics

esports made possible more imports and Iess extemai debt. Coca and cocaine substituted

for the failure of past formal economy in Peni and Boliria. providing altemate

" t.mployment maintaining income IeveIs and stabiliiring the nationd currency '.

Historically. coca growing has been an important if not a predominant economic

activic in Peru. RegardIess of the Iegd s t a ~ or social eEects of coca growing. it is a way

of sun-ivinp to which hundreds of thousands of poor. landless. and unemployed people

have turned to. For them. it is simply the indus- with the most opportunities.

Participaring in the cocaine economy is the god of the great majority of people in the

Andes.

The case study of Peru shed Iight on these important sconomic issues while

providing interesting lessons about the prospects for alternative devslopment as a suategy

for ~wîning prasants h e n away from producing the coca Iraf. It cm comprise a range

of activities dcjigned to Iirnit or reduce cultivation of illicit drug crops: crop replacement

prognrns. improvsments in physical infiastructure, and introduction of facilities or

semices daipned to improve the quality of Iife of Iocd rtsidents and improve goovemance.

This means to inducc farmers to grow crops otha than coca by providing howledge.

materials and hcilities than rncike other crops more attractive. It cm also mean providing

coca gro~ving areas with roads. schools and other mcnities as a means of inte~ption \\ith

the rest of the sconomy. so as to sncounge non-agricultunI substitute activities. It c m

dso includr: activities that build local governrnent management capacity and other nation-

building acti1.i ties thrit inmesr the govrnunent's access and contrd ovcr zones dominatcd

hy yuerrilla goups and drue producea. In a more broader sense. it means improving the

attnctivrncjs of other areas of the country. u, as to inducc mizgation of people out of areas

u hich have comparative advantage in few crops othsr than coca or opium. In this contea.

the concept requires an alternative rnacroeconomic tiamework that promote diversified

rconomic g r o ~ t h and job creation thoug.hout the national temtory. including empioyment

opportunitics in nuai areas.

It is therefore important to consider solutions which address the imrnediate problem

presented by cultivation whiie employing a Ionper term strate= to address the causative

factors. The response rnust theetore include ekments of sunainable economic reform.

This second component is more complex and long-term in nature both in term of the effort

required and the time for results to be redized. It tviIl deal tvith the broader socid and

10

sconomic issues which contribute to the reasons to participate in illicit cultivation and

explore alternatives in crops or other means to generate income.

I 1 Emnornic Trends

It is clear that coca has alwp-s been prexnt in the Peruvian econorny. However.

today its presencr in the rconomy has been magnitisd to the estent that the cou- found

itself in a situation of p v e socio-econornicd and political crisis. Therefore. an

assasment of the rvolution of the coca economy can be described in the following way:

tiom the 1970s to the rarly 1980s. coca growing concrntrated basically in three valleys:

Muaiion. Hudlaga and La Convention. .kcording to the oficial registry. there were

riround 16.000 ha. pianted with coca in the mid-1970s- In 1978. around 18,000 ha. were

registcred. coca cdtiution had spread to about founeen depments. The rnilitary

zovernrnsnt of Morales Bermudez issued in Frbruary of 1978 the Ley de Drogas ( Decree - Law 12095 ). It became obvious then that illicit coca culüvation had spread to many

remore areas in the country. Conuolling operatives such as -Green S a - wrre started thens.

In these ?cars. given that the activity ivas relativsly unknotvn in the country. systerns of

production and marketing were oriented towrd what one mi& consider mid-size

enterprises. This was possible because an espon orientrd activity had developed in remote

areas of the country without risks of any n-pe of Iau- snforcemrnt It \vas the beginning

of the large mibmtion to the jungle. sspecidly from the h d e a n areas. Coca growers

produced coca leait wholesalers processed the I d into coca paste and cocaine base. It

\vas an econorny where a few rvholesalers marketed the production of rnany agiculturai

producers. In this stage, coca growers used to be ven; close to the cities who where able to

I I

conduct their business very successtùIly nithout governmental interkrence. Firms

esponed coca paste to Colombia. Cocaine w a s also produccd for local consumption for

cities. such as Tmpoto and Tingo Maria (in the Amûzon region).

Within this new structure. the upper jungle became a key gathering point in whose

surrounding coca \vas gathcred and coca base \vas producsd. The illicit by-product w r e

trrinsported by roads or rivers eo get to the esporting points to tindize the transactions.

From sxiy 1980s to IO89 \vas characterizsd by the multiplicity of srnail coca

farming groning units. The Iaw enforcement applied to the coca groning areas triggered

dispersion of the activity to man? ditTerent areas. Andean rnizpnts from Huanuco. San

Manin. Ln Libertad and jungle producers participated in this process. The key city during

this phase uas Tingo Maria. but the producing areas were around Uchiza and Tocache. At

this stagc. thcrc were still man? coca grouers but thsy were already learning how to make

coca paste. it kvas the begiming of their agroindustrial inteption. It \vas stiIl profitable to

seit coca katq.

This second stage \vas fostered by the "Green S a - and -Condoi' operatives

Govrrnrncnt controt forcrd producers to shrïnk the s i x of rhrir operations. Mi_grants

\vorkers came from the upper jungle to the lowr jungle. Production sites multiplied.

Espons to Colombia and B e l were consolidated using dif3erent routes. Marketing

s y s t m with the who tesalers and finns becamç consolidated. This is the coca boom perÎod

n-hm subvmion increased and dmg-smug$ers penenated the valleyt0.

During these two stages. from 1970s to 1989. Peru \vas in the throes of economic

turmoil and near collapse. The inadquate policies applied during those years not ody

prcvented the efficient drvelopment of the plentiful naniml and human resources of Peru.

but Ied the country into a process of stagnation and downright decadence.

Durinp this period. and especially as a nsult of the measured adopted by president

Velasco between 1968 and 1975 of an economic devclopment mode1 of impon substitution.

Peru becme a protected economy. with inward-oriented growth. and a regime of heavy

state inten-rntion. The state controllrd man: of the basic services. mainly through sme

ou-nenhip and management of the productive sectors through statt. monopolies in severd

kcy areas of the econorny. Some rsarnples are large mining concems. chernical.

fenilizen. oit and the petrochemica1 indusuies. snergy and \vater supply. fisheries.

çcment. paper. ce1IuIose manufacturing. iron and stee1 production. and the expon of raw

materirials. This nationdized and co-operativitiscd regime restricted Foreign investment

and took mm) other measures th31 hindered the cconomic and social development of Pcru.

During the 1980s. under the govcmmrnts of president Fernando Belaunde and .qan

Garcia. the Pemvian economy contionted hypenntiation, serious distortions in the

structure of relative prices. recession. unemployment and the reduction of worker's real

incornes. decreased a u revenues and a persistent fiscd imbaiance. increasins financiai

disintermediation. and the increased flow ofdrug traficking. In addition. the decay of the

state's i nsti tutiond apparatus. the deterioration of living standards- and increase in poli tical

\-iolsncr were social correlates of the economic crisis. The state apparatus displayed

crowing inçfficiency. and the govemment as a whole \vas progressively weakened Î n i<s - capacit). to respond to the economic decay.

From the analpsis of the management and performance of the Pennian economy

the Iast nvo decades specitic conclusions can be derived- F i m in the eady 1980s.

13

the Peruvian economy was advrnely affected by several externat shocks. including a sharp

drclinc in the terms of trade and rising internationai interest rates. which si_enificantly

increxd the nation's foreign drbt burden. Peru's problsms were compounded by the

ineffsctivri policies of the government of Fernando Belaunde ( who \vas rlected president in

1980 aRrr 12 y a r s of military mie) and by a series of naturat diustea. including Woods.

droughts. and changes in the x a currents which affected severai hectares of crops

nationnide (Phenornenon of El Siiio). A 1981 Standbu agreement nith the [MF failed ro

stem the tidc of cconomic declinci. 90r did a Iast-ditch orthodox economic program by the

Belaunde govenunent succeed in rcsroring stabitity. The political result of this vas a

wssping victory by the APRIST.4 social democnt .Alan Garcia in the 1985 etection.

Second. .Alan Garcia's decision to resvict its foreign debt payments to 10% of the

country's exports was not cost fier. Relations uith its creditoos especially with the

rnultilaterat organizations. detcrionted and isolated it fiorn the international financial

çommunity. Therefore. as part of a drastic change in the economic policy. Peru had to

negotiate with its foreign crediton a susixainable way of rejoining the international financial

community .

By 1988. the government \ a s banknipt and it began to pay its expenses by

printing more money. For a while. Pem WZK virtuaily blackiisted by public and private

international lenders. Exports and national rexrves declined 1%-hile average income

plummeted. In sum. the Garcia administration adopted a policy it thought wouid

encourage npid economic growth and more quitable distribution of income. But by

avoiding tiscai stabitization, it threw the country into deeper crisis and made it more

d iEcdt for the poor to live berter lives.

Final lu. Perds successive stabilization attempts faiIed because they did not

consistentk confront the causes of the rnacroeconornic irnbalances. These failures in the

Belnundc and Garcia's administrations incrrased the inflationq efTect and prevented

nominal devaluations and nominal adjustments in conmlled pnces tiom eliminating the

inisalignment in relative pricrs. In fact the stabilization attempts at the end of the 1980s

had an unnçct.ssariIy hi$ inflationary and recessionaq cost.

In fact according to the INEI. estirnates of unrmployment and underemploynent

nent tiom a 50% lcvel in 1980 to alrnoa 80% in 1990. On the other hand. Pem's gross

domestic product declined by ovsr 30 percent during that rime. Lhprecendented triple-digit

intlation trrly in the decade was followed by staggenng four-digit Ievels. which rose to a

peak of 7.650% in 1990~ l . Dunng this period. the acceleration of inflation abruptly

rtduced the total Iiquidip of the banking systrrn and the red Ievels of credit îvailable to the

public and the pnvate secton. The formal banking system began to Iack funds to loan.

forcing businesses dso to reson ro curbside credit markets for working capitai. This

reduction in red credit and increax in its cost had a suong recessionary impact. At the

samc timr. the tluctuations in the pardiel eschange rate impeded a complete dollxization

of the tinancid system". Lrnder these circurnnances. îÏms codd not make financial plans

and the invenment and financing options were limited. The banking -stem's reduced

interrnediation and the nse of informal financial institutions limited the Central Bank's

contrd on aggregate money supply. The loss of conno1 was accompanied bu the

detenoration in the ability of the Superintendence of Banks to supercise the bchaviour of

tinanciai institutions and by an increased risk of bank insolvency.

It \vas evident that when the govenunent of president jLIberto Fujimori was

inaugurated on Julp 18. 1990. Pem was suffrring the worst cnsis in its modem history.

Hencc. Peru urgently nctedsd a consistent rconomic stabilization pro-gmt that

riddresscs a11 causes of its economic crisis. In addition. the exmerne deterioration of social

u.elfxt' and the esplosive increax of terrons violence that killed more than 25.000 people

and was responsiblr for well over USS20 billion in propmy damage has demanded that the

rcstontion of rnacroeconomic order be accompanisd oy a social assistance pro, "ram to

ensure an squitable distribution of the swbilintion effort. The design of the program must

implrrnent policies requiring comples -stems of controlling and monitoring economic and

social conditions in order to undertake the structurai reforms required to pull the country

out of its Isthargy.

Lk1t.n Fujimori assurned the presidency- he inkrited an rconomy in its third y w r

of four-digit hypennflation. dong with a prolonged recession that had plunged Perutians'

per capita incomç back to the Ievels of the late 1 950s. In response. he imposed a package

of neolikral reforms with three principal components. Tht- first step was a stabilîzation

program adopted in August 1990 to control inflation and capture revenues needed to renew

pqrnrnts of the debt senice. Price subsidies. social spendinp and public sector

ernployment were slashed. intera rates and taxes on govermnent senices were increased.

and rschmge rates were unified producing a de facto devaluation of the currencp. .4

second set of institutional reforms. bqm in Frbruq- 199 1. \vas designrd to move beyond

stabilintion toward a market-based remucninng of the Pemian ecooomy. These refonns

included the deregdation OF financial and labor markets. a reducUon and unification of

mritTs. the pnvatization of public enterprises. and efforts to broaden the ta.-.- base and

16

rrduce t a s rvasion. FinaIIy. these market refonns. improving i'îscd hralth. and the

resumption of debt-service paymcnts aIIowed Penis reintegration into intmationd

tinancial circuits".

Lnda president Albeno Fujimori. Peru has begun to address thesr major stmcnval

problems. .-\ package of reform msasures. known collectivcly as the "Fujishock" program.

h a anemptrd to ease the heavily regulated econornic environment as well as open the

cconorn?. to more foreign tmde and investmrnt. Fujimori also espanded the property

rcgistntion program begun by his former advisor Hcmando de Soto to legitimize peasant

landholden in the rurai areas. xeking to confer incentives for growing alternative crops.

This initiative represented a signi ticant breakthrough in attrmpting to intez-rte the inforrnal

sector into the formal econorny. Progress has been achieved. but major problems remain.

This structural adjusunent was harsh mrdicinr for an econorny that had already

suiEred through a prolonged cnsis. with devastath2 ctTects upon popular living standards.

A f cr Iosing 800.000 jobs in the 1988-89 economic cr isk employment declined by another

13.9 percent in industry. 13.7 percent in semices- and 21.8 percent in commerce in the

tirst riphteen months under ~ujimori '~. Inflation. which had b e n m i n g at about 40

percent psr month. shot up to 398 percent in August 1990. before declining sharply to 3-5

percent per month in Iate 1992 and 1-1 percent per month in 1993. The number of

Prruvians IivÏng in poverty rose to 55 percent of the population in the afiermath of the

"Fujishock" ( s e Charts 1.1 .a and 1. l .b: poverty is falling since 1 991): the percentage of

the w-orkforce consîdered underemp Ioyd or unemployed rose fiom 8 1.4 percent in 1990 to

87.3 percent in 1993: the informal sector grew fiom 45.7 percent of the workforce in 1990

to 57 percent in 1992: and red wqes fell by 30 percent betm-een 1990 and 1993 to 33

17

percent of the 1980 Irvel in the private wctor and 9 percent in the public sector. A decade-

long trend toward increasing inequality also continued: the share of the national income

representrd bp w g e s declined from 46.7 percent in 1980 to 19.9 percent in 1990 and 13

percent in 1992. whereas the share represented by protirs rose from 25.9 percent in 1980 to

49.3 percent in 1990 and 54.5 percent in 1992"

Chart I . 1 .a: 'vlsasures of Poverty. 1 994

Yot Poor Poor Estrems Son-Estrems Source: Institut0 Naciona

1985 199 1 1993 62% 45% 52% 38% 35% 48% 15% 24% 1 8% 23% 3 1% 30%

de Estadistica e Informatica. Peni. Reporte rlnual, 1996.

.-\s such. the only signiticant economic gain for popular sectors in the ex ly years of

structml adjustmrnt was the sharp decline in the inflation ntr. which fel: from 7.650

percent in 1990 to under 20 percent in 1994. This sain k v a s significant as popular sectors

nrre especially vulnemble to hyperinflation. givcn the inefficacy of wage indesation and

the inability of the poor IO protect income Ievels by holding foreign currency or sending

çapitd abroad. But if stabilization reduced rconomic uncerwinty. it was achieved at the

con of signi ficant economic contraction and reduced conmption.

Despite an enhanced government socio-crconomic cornmimient in 1990. the

government's political %+II into action in narcotics producing areas \vas slow and uneven.

Its rtbiiity to controt coca cultivation processing. and export was limited by temot-ism-

lack of resources. economic depression, the got-ernment's implementation of the drastic

economic reforrn and stabiIization pro,"-- the debilitatioii of official institutions,

especiallp. the judiciq-. and widespread corruption that irnpedes his reform p r o C m and

narcotics law enforcernent in order to disrupt Pem's ilkgal drug industn; and the e s ~ d a ~ g

18

threat of the terrorist movement.

Therefore. on A p d 5. 1992. president Fujimori. with the support from the

milit-. pulkd off a sclf-coup. The coup \vas a direct response to the institutional

paralysis of Penivian democracy and retlected the absence of institution building in the

Chart 1 . 1 . b: Distribution of Poverty : 1 994

Nationwids 48% Metrop. Lima 37.6%

38a/o murban Jungh

a Rural 62% Jungle

Source: Instituto Nacionai de Estadistica e Informatica. Perii. Reporre .&nual, 1996.

He at once announced the dissolution of the national parliament and regional govemments

and a reorganization of the judiciq -stem. threw several opposition leaders and senaton

in jail or put them under house arrest. and nispended the Constitution As head of an

Emergency and National ReconmuctÏon Government. he ruied by decree tmtil the élection

19

of ri Constituent Democratic Congres (CCD). which would framc a new constitution.

Eventually. he said. the country would retum to democncy. but that in a contes of a

tvorsrning sconomic situation and growïng temorist violence. diis w a s a necessary evil

rquirtid to put the country back on <rack? Democncy. according to Fujimori. as well as

to ovrr 65 percent of the population that supported the coup. had proven inadequate in

handling the problems of corruption. drugs. terrorism. the economy. and ineffective

govcrnrnrnt. Furthsrmore. his neolibenl program ws supported bu a coalition of interens.

incl uding the militap. civilian technocnts. international tinanciai agrncies. and domestic

business yroups. The underlying consensus arnong these intrresrs \\;as that neoliberd

policies had to bc adopted and that such an action required a strengthened me apparatus to

be effecrive'".

Strong support continued in Peru. especially in Srptember 1992 when the founder

and leader of the Shining Path. Abimael G m h . !vas captured dong \cith other Sendero

leaders. Fujimori also shored up additionai suppon by advocating a more hard-line

npproach to terrons and dmg vafficking crirninds. Fujimori's solution of imposing the

death pendty and Iife sentences to criminals aiter trials that c m be as short as three hours is

hailed as a direct reason for the decline in terrorin violence by man! Peruvkns.

.As promised Fujimori called a Constituent D e m o d c Congres in 1993 to drafi a

nex Constitution. which \vas approved on October 31. 1993. The new constitution

suen-ghened Fujimori's authonty and alIows him to run for re-slection in 2 995. The vote

\vas seen by ma? to be a retèrendurn on Mr, Fujimon's three-year ruie as well a3 a vote of

confidence for his actions of April 1993'!

LVas the coup a netessary s e p as Fujimori has insisted? Francisco Sqasti, a

30

respected commentritor. argues that Fujimori's self coup was unjustified because the Iaws

nerdsd to tïght terrorism and inflation were already in place. h o t h s r observer commented

that the Congress. in order to demonstrate i u confidence in the Fujimori's new govemment

in 1990. had already granred him esujordinary Iqislative powers which enabled him to

lnunch his Fujishock. or stabilization pro_enm'9.

Fujimori h d found democntic institutions. such as the Congress. a hindrance. and

showrd obvious disdain for democntic procedures: !et. due to international pressure.

di\-isions within his oun coalition. and the failure to solve pressing sociai and economic

problrms. hr has also discovered that developing formai authonmian b-tnictures are

i m i d Pressured into creatinr a ncw constitution. Fujimoti nonetheless oriented the new

constitution to funher solidie his powr. The new constitution strengthened the powers of

the esecutivc created a unicarnerd legislature rhat c m be dismissed by the president.

increased necutive connol over the judiciary. included a clause ailowing presidentid

reelection. and dso. implemented al1 of Fujimori's decrees that had not been passed by the

former Congress. In other words. Fujimori created an institutional void by destroyins

drmocratic institutions -et built nothinj in its place. Ieaving the underlying causes for

poverty. u n e q d distribution of income. and other social problems unaddressed. In fact

some scholars argue that even rvaluated in strictly economic temis. Fujimori's p r o - m has

largsly tàiIed to achieve its mtzd goals: povem; and inequdity had worsened. MeanwhÎle

politicai institutions were rendered incapable of hdping the situation2*.

In general terms. growth in GDP. which had been negative by the end of the 1980s

in the order of -8.4%. - 1 1 -8% and 4 . 1 %. was positive in 199 1 and re@aered and increase

of 2.6% and then feI1 to -1 -8% in 1992. By 1993. however. Fujirnori's srrategies began to

2 1

change slowly. as a resumption of sconomic growth and ta. reform. which has

encouraged an increaxd in the activity lrvels through higher corporate and consumer

confidence. the attraction of more foreign invernent and the srart of the privatintion

program. as well as a restontion of ties to international lending institutions. alleviateci

tiscal constraints. .As a result Pçni's econorny grsw 13.0% in 1994. 6.9% in 1993 and

2.S06 in 1996:'. The sectoral hrecikdom of the sconorny shows the cireas in which the

tumaround from recession has ben most notable (sec Table 1.1 .a).

Taking a duec years virw. P m has had the h i f h m GDP growh in the region.

Althouph this represents a signiticant recovery tiom current levels of growth. the

covernmrnt is confident about the future because of the high level of invament ( over +

23?6 of GDP) and the Iikelihood of a recupirration of some secton rhat did relatively poorly

in his tirsr three years in po~er".

Chart 1.1 .c: Macroeconomic Variables

1 I I 1 1

Exports (USS m) 3.323 3.391 3.534 3.515 4,555 5.580 5,785 lmports (USS m) 2.930 3.530 4,090 4.085 5.575 7.690 7.890 Trade Balance (USS m) 1 393 1-139 -556 -570 -1,020 -2.110 -2,105

I I I 1

Social €xwnditure-(% O~GDP) i 3.2 i 4.5 i 4.5 i 5.0 i 6.0 i 7.5 i 7.8 1

13.0 15.4

Real GDP Growth (%) Infi ation ( O h )

1 1 1 t I t I 1 Source: Institut0 Nacional de Esmdistica e Informatica. Peni- Reporte Anual, 1996.

Balance of Payment (USS b) Net Foreign Reserves ( U S b) External Debt (USS b) Foreign Investment ( U S b) Devaluation (%) Unemployment (%) Real Minimum Wages(USS)

Just as in 1994. construction \vas the leading setor of the sconomy in 1995. uith

6.9 10.3

-2.3 7.650

I

-1.52 -143m 22.85 1.3

3.748.50 8.3 48.1

an expansion of 17.6%. There has. hoviever. been a siLpÏficant slowhg down and growth

- - -

2.8 11.8

- - -

41m 8.8

33.51 9.9 10.8 9-2 53.9

t I 1 1

2.4 139.2

33rn 1.93

25.44 1.4

86.7 8.7

31.80

-1.8 56.7

6.5 39.5

-310m 2.4

26.61 1.5

62-3 9.4

97.25

647m 2.9

27.48 2.4 32-6 9.9

45.12

1.9 1 528m 6.0

30.22 6.1 -0.7 8.8 59.5

6.7 33.51 7.6 8.5 7.4 56.4

in 1996 [vas negative. Semices have also had a good year. qa in uith a notable

deceleration at the b e g i ~ i n g of this ?ex. .-\ simihr scenario has occurred in

manufactunng and a~giculture. but they have been accenntuatrd by the poor performance of

tisheria and cheap food policitis. respectively. With the îïshing xctor contracting by

14.6% the main Peruvian esporting producr fishmeal has seen a 7% drop in GDP.

Zloreo\-er. mining has had a disappointing years in 1995 and 1996 because the decline of

oïl producrion but meral output has risen slightly. Detinitivrly as it cm be seen in Table

1 . 1 .a- the rate of expansion of GDP has slowed both because of the deliberate efforts to

restmin demand. but also beccause of specitic sectoral trends that are unrelatrd to the

Table I -1 .a: GDP Growth by Sector

The favourable economic trend wil1 be reinhrced by a drop in inîlation from 1 1.9%

in 1996 to an approximately 10.0?6 in 1997. Projections for this year's grow-th is

npprosirnately 5%. Iead by higher mining output and increase construction and @culture

Due to this growth trend the goovement began to spend on social emqency

prograns (ser Chart 1.1 .d). The govemment had initiated ten thousand mail-scale projects

agriculture. health care. education d t a t i o n nutrition transportation and

microenterprise promotion in an cffon both to provide public services and to geneate new

rmployment. A new residential infksuucture program \vas dso expanded to begin housing

construction. and Fujirnori sharply increased the pace of his visits to poor communities to

inaugurate public works projects'".

The question here is also to determine how the impact of the stabilization pro, oram

and the structural reforms have ai-fected the narcoeconorny in Peru.

Chart 1.1 .ci: Social Expenditure in r d terms: 1990- 1995 (USS MM) Social Expenditure' i GDP "s of GDP 1 ",O of Total Expenditure* '

I

a i 1990 ' 980 i 50319 3 1 1 20.9 1991 , 1877 i 41995 ! 4.5 I 23 -4

I

1992 1902 1 O 1-5 1 27.3 1993 2036 ; 10953 j 5 .O I 32.0 1 994 2899 i 50083 i 6.0 I 1 35.3 - - 1 1995 4264 i 56532 ; 1-3 I 40.9 j

* It includes IPSS Source: hl inistry of Finance. Budset OtTice. 1996.

.-Iccordin j to Humbeno Campodonico. membsr of the Csntro de Eaudios y Promocion del

Drsannllo ( DESCO). the libdization process accompanied by the suppression of credit

to the a~giculture smor. a lack of land refom. budget austerity. and unconsolidated

tinancid reform process occurred since the çarly 1990s have had direct effects on the coca-

h? product espon (see Chan 1.1 .t). whrn the dollars obtained From the higher illicit

esports are now easily cashed \vîthout an' control and used by drue-mffïckers to bu?

coods and senices. such as trucks and automobiles. clectronic and clectricai appliances. - red estate and companies. or else the illicir coca proceeds can be monetized into other

tinanciai assets or securïties (see rnoney laundering)?

Chan 1.1 .e: Peru: Esport of Coca Lsaf. 1985- 1 994 (kgs. )

i b k n the esports of the coca by-product are cashed into dollars, incrme the

money supply. and these dollars are channcled into the real productive and financial

sectors of the crconomy. it becornes more dificult to rneasure the full impact of exports of

illicit dmgs in the capital accounts. This is so because it is not easy to determine the

perccntagr of the money suppl? that cornes from cashing dollars related to coca exports.

The mesurement of the impact is made more diticult because those dollars that corne into

the productive xctor of the economy are multiplied into other demands for other poods and

senkes that are supplied in different markets. Furthemore. the rest of the drugdollars

that are cashed into the financial senor are also multiplied through the money multiplier

proccss into larger money supplies that atvhçn monstizcd feed q i n the multiplia process

through new demands of goods and services.

How fàr has the impact of the macroeconomic changes aKect the illicit production

and tratticking of coca by-product industry? This is an important question which is not

rasy to answer. However. it stresses an aspect of the illicit sector that needs to be fdly

maiyzed. There is not much inthnation convqed in the approach based on the ratio coca

by-product value added and GDP. Information is poor because of measurement errors. and

becaux it only gives a very rough indication of direct effects. Consider the followkg

scenario in Table 1.1 .b.

- Year 1985 1986 1987 1988 1989 1 1990 1991 1992 1993 1994 CO= Leaf . Source: ENACO S.A., Mçmoria 1993 (Lima 1993 ). and Budget and Operative Plan 1993.

23.700 45,400 46,400 2.000 - - 46.000 46.000 63.000 69.000

Table 1. l .b: Coca by-product exports related to rnacroeconomic variables

Drug En forcement Administration. L'NDCP Office in Pcm. E S : Espons of coca by-product in million of dollars. C' Y : Ratio ("01 of coca bv-product rsports over GDP. A : intlation nte in P m B : Inflation rate in the CS. C : Diffrrrnce benvern rates of intlation in Pem and C S . D : Prrcentage change of the nominal exchange nte=ntr of devaluation E : Diffirince benveen the rate of devaluation and the rate of inflation in Pen, F : Srlling procceds fiom privatintion of enterprises (million of US dollars) G : Direct foreign invament (million of US dollars)

Table 1.1 .b shows that coca rsports and its share ( C R ) to GDP fell sipificantly

tiom 1987 to 1990 while there was substantial inflation (A) and a large difference (C) with

regards to US. intlation that heled devaluation (D) in the Penrtian economy. The

increasing difference of inflation \vas partly due to monetintion of coca exports proceeds

On the other hanci. the rate of devaluation lacged weIl behind that of the Peruvian

intlation during the years 1988-1991 of higher coca exports inducing the so-called

appreciation of the real eschange rate as shown bu the negative d u e of the variable (E).

This happened again in 19941 995 notuithstanding the relatively large capiral intlow from

privatintion (F) and direct foreign invesunent (G)?

Foreign direct investment never reached a value higher thau that o f foreign

eschange corning from coca experts, except for the y m 19944995, However. the 26

impact of foreign invernent was not strong enough to dominate the alleged real

appreciation of the Penivian unit currency that appears associated to coca exports proceeds.

The importance of the illicit sector can neither be detcrmined nor assessed bp

simply looking at a declining coca by-product sector ratio (CiY). There are indirect effects

of coca esports tratrtcking realizrd through the derivcd demands of trafickers. Traffickers

dsmand other goods and senices uïth cleaned dolIars. These indirect etFects unfotd and

multiply ovrr time but are not openly revealed in the market nor duly registered as demands

of good and semices induced by coca esport impact.

There is a debarr in Prru that the capital intlows from direct foreign invatment and

privarization are the main factors causing the real appreciation of the eschange ratr in the

1 s t two years. There is howevcr not enough dam to prove such claim. Real appreciation

st.xms to be decreasing ;~s show in Table I .I .b cornpared to the levcls obtaincd in 2 989-

1 990. There is an estirnate of USS 3.670 million of proceeds Iiom privatization versus USS

1-20 million of cocainc exports for 1994. Howvevrr. that does not mean that privariration

proctirds are a main determinant of the eschange rate since these tlows are channeled to

public work povem prozpms and the construction sector. In contrast. and dthough a

smaller amount as compared to previous years. cocaine exports are transformed through

the process described above into clean liquid monemry espansion and securitized assets

that are cvennialIy dso monetized and injected to the ?stem-

;\pan fiom capital infiows due to privatization that reached US$ 2.619 million in

1994. thtrre were other important capitai i d o w in the wme year. Direct foreign

invrstment accounted for USS 3.084 miIIion: portfOIic investment reached USS 465

million and long-term capital via baiance of payments. USS 5 - 6 2 million These flows

27

yivr 3 total of LES 9.830 million. Obviously. such tlows had an impact on the

accumulation of foreign exchange and thus on the exchange me. However. total

international resemes in 1991 onlu reached CS$ 6.025 million. Where did the remaining

I 'SS 3.795 million go? Ob~iously. thrre \vas important capital tlight which offset the

intlow of forsign investmsnt which supports the argument that the impact of the coca

txport is not negIigib1e in Pcm.

According to an official source". the cumnt account deticit- a masure of its mde

in goods. senices and investments - u.as nearly 6.0% of gross domestic product last year.

and the country is one of the most indebted in Latin .America. The projçctrd current

account deficit of 5.6% of GDP in 1997 ma: nor be sunainable and wi1l require havy

reliance on rstmai capital. rspecially as the procerds from the highly successfùl

pri vatization p r o b m shrink. The govemrnent has recentl y imp lemented the so-cal Ied

Foreign I n v m r n t Status. which. amonp other things. secure equd treatment for

Penn-ian and non-Penitian investors and dloa. Foreign investment in any tom as well as

the repau-iation of profits. The government also announced an accelsration of its

prkatimion efforts. principdIy in the mining sector. Thus. P m should continue to

sspericnce abundant inflows of forrign capitûl expected to reach between US$ 1 and US$

1 -5 billion throughout 1997 and 1998".

in this conte= since Apd the tit'th to the present nith the new anti-narcotics and

mti-tmorist IegisIation different lawvs. decrees and other Iajs1atit.e instruments have b e n

approved aimed at controllhg money laundering. diversion of chernical substances. s m d -

scde h g pushing. poppy cultivation. and other relatai acti~iti&~. The Fujimon

covernment approved several dames and resollmons r e c o g g g aitemative development as - 38

the appropriate mechanism for the conuol of coca cultivation and export. specifi-ing that coca

t 'men are the valid interlocuton in die rurai rehabilitation process. In this sense. the

National Plan for h g Prevention and Control. 19942000. \vas officially approved in

Octolxr 1991. and envisages. inter dia a new institutional fiametvork and a central

~ovcimmental cornterpart for the coordinarion of drug control. The sening up of the new b

institutionai f i e w o r k is the tim step the sovernmrnt is currently taking to implement the

I'ationai Plm. A woking commission conformed by the Ministries of the Presidency.

Defence. Economy and Finance. Interior. Justice. H d t h .ACculture and Education, was

instdled through a Supreme Resolution in July 1993 for that purpose. The countq+'s strate9

as rrtlected in the Plan focuses on the follouing tive key priorities areas: (i) effective legal and

institutional I'rame\vork. (ii) prioritization of aiternative development to d u c e coca

production, ( iii) law enforcement activitiss in coca producing mas. (iv) community

mobilization for cimg demand reduction and ( v ) provide a proper national institutional setting

t'or drug control'".

This section has focusçd on economic development and its relationship with drug

traftickine issues in Peru. Itî strategic txonnrnic roles in the illega! industry have made the

nation a principal focus for anti-dmg policies in the Western Hemisphere. Discussion of

t h subjrct should not be limited to an ethno~gaphic account of the processes. thus. this

research niIl critically explore in the ne17 two sections the sih@ficance of the coca leaf and

coca paste in the main economic aspects and the problerns. strategies and solutions to

attack cimg trafftcking in Pem.

' -tilohul Economic Prmpects and the Dseiloping Countries ", The World Bank ( 1995). S e aiso Inrernutionuf Trudc- Trend und Sraristics. World Trads Organ kat ion ( 1 995). ' WEI. - - P m : SturLFIics of Proch<ction. Tr@ckutg d Cc~mumprion of Dmgs. 1994-96.- Lima. F e b w 1 997. ' Carlos E. Percovich. "Monq Lourdering '*. Lima 1 996.

Oficr: of Nationaï h g Conuol PoIiq, -.Vutionul Druq Conrrol SrrateLgv. 1990 ". U.S. Deparmient of State. Washingon D.C. . See Ethan A. Nadelmann, ~Latinocrmt+ica: Economia Poiirica ciel Comercio cler Cocaina- . Septanber- December 1956. p. 27-49. " Francisco Thoumi: -&conamia. Politica y .Varcorr@co.- Bogota: TM Editorrs. 1994.

Mario de Franco and Ricardo Godoy. -The Economic Cimmequmces of Cocuine Production: Hisrorical. LKUI und .tluc-rueconornic Perspeic.~iw.- Harvard Universi-.. 1 99 1. ". Osnayo. "El Culrivo de la Cocu tm e'/ Pmi. " Lima 199 1. " J. Nufiez and Reitegui. "La Ecnnornia Cocaiera en el -4lto Hurilfclga: Impucto Econ8mico. " liniversidad del Pacifico. Lima 1990. Il, R. Osna'o. p. 55. ' ' Instituto Nacional de Estridisticri e Informatica. "Peni. Reporte . - i 4 ". 1996. " Carlos E. Paredes md Je- D. Sachs. - P m ' s Puth to Rrc0r.t- .-i Plun for Econornic Stabilcu~ion and Grotr.th " (Washington. D.C.: The Brooklings Institution. 199 1 ). p. 83. '' Ovemiçws of Fujimori's economic reforms can lx found in Efrain G o ~ l e s de Olartc "Pm's Economic Prugrum un&r Fujirnori." Journal of Interam&can Studies and Worid Affairs (Summer 1993): and Carol Wise. 7 h r Politics of Pemian Econornic Refonn: Overcorning the Legacies of State-Led Developmeni, " Journal of Intmerican Studies and World Affain (Spring 1994). I4 Prru C'mntn Profile. 1992-93 (London: Economist Intelligence Unit 1992). f Data are tahm from the C o m p d i o Eaadistico de1 Banco Central de Reserva 1993. "' Hobart A. Spalding. "Pem T*: SIill on the Brink " Monthly Review. Vol. U (March 1993). 1- Philip Mauceri, Ttartr Reform. C'oulitions. und the Scrdiheral .-Iutogolpe in Pem " Latin American Rrsearch Review. Vol. 30, No. 2 (1995). 1 X James Brooke. " t hte for Conscirution in Pem Buttresses fts Lciuder. " New York Times. November 1. 1993. 1 '1 E. Gonales. " Econornic Stabi/i=urion und S~mcturul Acljusfment C'nder Fujirnori. " Jomal of Interamencan Studies and World Affairs. Vol, 35, '103 (Summer 1993). '" Ibid. p. 75. " Instituto Nacional de Estadistica e Informatin " P h . hporre .CIemul ". Abd, 1997. .. - Banco Centra1 de Reserva ".Wernoriu 1996 ". Lima-Pd, L;

Modcrst -owh was seen in al1 sectors. in the tkst quarter of 1997. except tishing and sovenunent which MI 1 1.03Oh and 0.7% respectively. The volatile fishing sector posted this decline due ro the yearfy indefinite tishing ban. Economic activip in this p e r d tvas led by growth in a_&cuIture (20.696). construction (9.856) and commerce (4396)- Althou$ growth wiII accrlerate relative to the recent trou$ p-istered Iast year. the expansion wiI1 hl1 well short of the double disit pace recordeci rarlier m the 1990s with the consolidation of the stabilization and privatization program. " Min isteno de la Presidencia "f'uldad de Oporrunidades para un Desarrollo Sosteniclo. htraiegia Fuculkada de Luchu conrra la Pobrca "' Lima 1996. *< - Humbeno Campodonico, "lmportancia EconOmica del .Vurcotr@co y su relacîôn con Ias Rt$orrnas .Veo- liberales del gobierno de Fujimori ". Lima t 994. " ".Clemoria / 996 ". Lima-Teru .- - tnninrto Nacional de Esmdistica e Informatica. "Peni. Reporte .-id'*. 1 996. Y " n e Pemiun Enterprise Project. " CONFIEP, Januaq 1996. -1 - Compared to the Ley General de Drosas law No. 22095 of 21 February 1975 which is the main le@ instrument for cirue control m Pem aimed at the tepression of ilIicit drug traffidcins rehabiIitation of drug- addicts, and reduction of coca cukivation. Since its appmval, modifications have ken afkcted. especiaiIy

duc: to the approval of a new pend code in 1991 that stipulates harshrir psnal rntlasures for coca cultivation and tnfticking. '" National Anti-Narcotics Bureau. DINANDRO-Report of the Technical Suppon Office. Peru. 1996.

II. PurîOne Defning the P robIem

2 . Si@z~ficance of the Coca Leaf and Coca Paste in the Main Econornic

.-l spects

The purpose of this section is to esamine the main features of the production-chain

lôr cocnine. from the cultivattion of coca Iraves to the e?<pon of the finished d m p (cocaine

hydrochtoride) from the Andem region. tt wiII also d d with its distribution and

marketing. including statistics and comparative data and. finally. what it otTers for man?;

tàrmers in the .Andean region.

,'. 1. / Pro~/tictÏon ofC*ocu c m / Ci,ccr Pc~sre

Long before the world economy Mt the impact of globdization of money. markets

and products- illicit dmgs moved international- from producer countries in less developed

areas of the world to consumer counuies that wsre usudIy more devdoped. Production in

m l areas was transported to and sold in other continents after large pnce increases dong

the ~vay- proïiding hi$ profit and risk incentive to traffickers (See Map 1).

Many esperts think that the tim stage. when plants are grown in the fields or

consumable dmgs are produced in the laboratory. is rhe most wulnerable point in the chain

of illicit production distribution and consumption. The second major stage. the

disuibution phase. is dso considered b - some as an rqually good intexvention point for

drug controi purposes. However. the potential for a s y movement disguise and diversion

32

of dnig s h i p m r n ~ and the vast numbers of shipments of small quantities of drugs decrease

the yisld of enforcement for rach unit of intewention etTon. The third stage of possible

intrnxntion and otien taqet of law enforcement is m the time of consurnption. Here. a

particuIarly vulnenble point is whsn dnigs pass from deders to consumers.

Esti mates of il k i t drug production corne from sevenl sources. Systernatic anempts

t» provide information about the amount of dnig produced may ernploy high technolog-

satellite mapping. ground s m e y . agronomie chanctetistics or consumption figures.

Srw regions have enter into the production of opium. coca and marijuana as a

rcsult of the displacemmt of othrr qricultural crops. Table 2.1 -1 .a provides g o s s

cstimates of the major supp1ic.r of these ilIicit drugs since the 1 990s.

Since some dmgs are more availablrr and used more ohen than others. the questions

that arise are the following: whiit properties of specific drugs. whît personal

characteristics of the users and what social or cuItud factors in a $en country influence

the anractiveness of a h g ' ? . Or. in another w q . why do users want certain b g s as

opposed to others and how does this inîluence thcir wiIIingness to pay for them? Studies

suggest that production and distribution of ÏIIicit dnigs fo1Iow supply-demand p ~ c i p l e s

with some allowance For the illegai nature of the product. In terms of its impact on global

drug problems and its l q e scale financial implications. coca-cocaïne is the p r i m q dntg

of current interest.

Eq-throp-Ion coca is a variety of s h b native to the tropical dopes of South

&nerica but is now found in other parts of the worId tvïth chmates similar to the Amazon

tropics3.

I and T b 2 . 1 a : WorIdwïde Potentiai Net Production t 994-1 99 1 (metric tones CVorIdwide Cultivation Totals ( Hectares) Country

Opium

There are 250 species and tour major varieties gram on the eastern slopes of the

.-Indes in Peru and Boli~ia in conditions ranging from poor to fertile soils. tropical or dry

1 994 Cultmed

'~olombia Peru Ewador Total Coca Marijuana

Mexico Colombia Jamaica

cIimates. tlat lands or steep dopes and at dtitudes ranging tiom 200 meters to ZOO0 meters

40.600 155.500

40

239.900

7.T75 1.500 641

Afghanistan Iran Pakistan

Total Buma Laos Thailand

Belize

51.620 108.600

120 201.340

28.690 2.457 650

Produdion

27.860 21.530

1 65 49.555 2.587 285 40

48.038 129.200

1 30 221.252

25.650

1 993 Cultmted

600 300 125

1.025 2.250 250 32

Produnion

110

40.800 163.300

100 248.300

7.000 1.500 600

27,420 19.310 12.540 59.270 18.501 33.624 7,589

570 300 180

1 .O50 2.350 265 35

50.000 108.800

112 198.912

26.854 2.156 1.875

39.100 223.900

1 70 315.970

19.715

59.714 2.576 3.812 1.875 11.329 19.592 138.576

40,000

2.650 27 46

17 41 131

3.831

I

Total Colombia Lebanon Guatemala

50

1.870 11.MO 1.650 1 825

Others ' ~o ta l Marijuana

1992 Cuhated

Source: INCB, Report of the International Drug Control Board. 1972-95: CNCSR International Narcotics Controt Stnteg? Report, 1988-96. DEA, Illegal Drug Pnce'Puri~ Report 1994. Several of these figures are rou- mimates which ma? be disputai.

3,840 12.990

43.472 132.500

120 230.478

28.710

3.890 35.797

1991 Culmated Produmon

21 1.553 2.454 3.63 1 1.820 10,980 18.885

283.041

23.515 17.428

2.912 18 64

15

1

35.900 121 ,500

270 21 8.270

30.200 2.0001 2.800

Production

17.190 12.740

415 385

43.800 1 43.884

2,532 15 5 1 10

1.783 86

585 300

2.565 22 40 13 62 137

3.667

55 131

3.688

44.100

Mexico 1

190 49

3.680 34.651

130 1.015

11.660 52.603

52.800

Total Total Opium Coca Leaf Bolivia

3.658 13.623

275

194.927 2.316 3.400 1 .721 10.310

182 52.649

41,000

320 60 3,550 32.995

172.910 31.550 7,093

165 965

2.855 19 34

12 66

54.386

65 3.700 36.513

3.320 25.420

8.645 38.575

60.600

3.500 36.755

b

2.250 275 40

17.747 251.249

131 4.001

161.102 29.625 4.200

' 2.430 375 50

Psm has oRen been cited as a classic example of an expon-led economy. The

celrhrated guano age in the mid-nineteenth century made Peru a monoproduct expon

econorny that failed to achievrd self-sustaining growh. The rubber boom in the 1890s and

1900s had its impact in the jungle region. with linle rtTect on the remainder of the

country-". Rather. coca has alwys conditioned the culture and sconomy. Man- local

~conomi~s that generated revenues for the national govemrnent functioned around coca

tndr. Bsfore the advent of modem communications. it was the Andean montanero's roIe

w bring coca up to the highlands. .-\lthough this ecologicai movement of coca still

continues. new types and methods of mde have svolved with the rush of cocaine

production to satise international demand.

Pnor to the cocains boom. there w r e nvo kinds of rnontaiïeros in the hizdhlands: the

comm<rrcial voyagers who went to the forest to bring coca coffce grains. and fruits to xll

to local merchants in srnall to\ms and citicj: and p e u t s who w n t occasionally to the

ciosest coca tields to buy one or two arrobas ( 1 arroba= 1 1.5 kgs) of coca. mody for their

oun use. The former took food from the highlands to the jungles in order to trade for coca

Becausr of government control. the number of commsrciai traders h a diminished

trrrrnendously. Hoivever. peasants from remote ntral areas have increased the fiequency of

their trading trips to the foothills of the Andes so much bat the)- are bscoming dependent

- - on the new coca economy".

Change tirst carne to this ancient social -stem in the 1950s. when the Peruvian

(Tovemment initiated a pro-grain to encourage mi~ation from the overcrowded coastal cities 2

to the scarcely peopled foresu dong the eastern dopes of the Andes. .Most of this

coIonintion took place in the province of Leoncio Prado. of which Tigo Maria. located

35

in the heart of the coca belt is the capital. me govenunent sponsored plantations of tea

coffee. and tobacco did not yield anything close to the re tms that the new colonist

sspected. so thsy turned their lands to the traditionai and ras' crop. the coca, It was a

food timc to cultivate the plant. The boom in cocaine use had begun in industnalized

countries. so growing numben of cocaine procesing hideouts in the forest stood ready to

absorb the increased production of coca".

I h i 1 the sisties. coca was mostly produced for traditional chewing. The Peruvian

yovemmcnt cstablished an ofticid bureau to control coca agriculture and to cokc t t a

revenues tiom coca uade. This rigency. Estanco de Ia Coca \vas a subdivision of the

Department of Treasuy. Tay collccton were posted in t oms and strcitrgic locations where

the movrmrnt of montaiïeros could be controlled more rffectively. Seved old-time

trawlers risssrted that. in addition to paying their t;l.es. the pesants were forced to work

h r the t a s colIectors. kIany govemment emplo_vecs themselves were coca planters and

Iegal cocainç manufacturers. Up in the highIands. the collectoa made the travelers labor

in the fields or do private construction work. Once the travelers sold their coca to the

stores. retailers paid another escise UK. By 1972. the Estanco de la Coca disappeared and

the National Bank took over coca-tax collection. Later- the National Coca Enterprise

( ENACO) u-as organizeb and it tvris announced that disuibution and sale of coca \vas fiee

of tases, .As local farmers m e d their land to coca cuItivation, production of the coca Ieaf

increased npidl y shce then".

It is essenriai to understand the reasons for iIl& coca expansion because man): of

these factors still p m i a and could Iead to the resurgence of this activÎty. Aside From

strong esemal demand and Pem's comparative advanme for coca production there are

36

interna1 reasons for the expansion of coca. One concerns a pattern of agicultural

development that has yield very Iow Icvels of income in the Andean region where the

majority of the farms are of less thm 5 hectares. .As a result P e n has levels of poveq

comparable to those in the Ieast developed areas of .\si3 and sven .Afnca. Studitis estimate

per-capita income for Andean peasants at around US$ 50imonth3". In addition. food

consumption patterns in Prru have undergone drastic change. The tnditiond emphasis on

.Andean goods (sweet potato. barley. sofi maize. sofi wheat) has gradually been replaced

by a more wstemized dict in the urban a r e s ( ricr. white potato. chicken. daip products.

bread. noodIes. and other processed foods). Thus. in the last decades Andean Famers

havc facrd a declining market for the type of foodrtuffs the? cm producc nithin the

ccological zones the- inhabit as well as the impon of food staples initiated in the mili tq-

covsmment of president Velasco. increasing drarnaticdly in rhe early 1980s and continued +

under president Fujimon. As a result protitability for mon of the agriculturai sector

. - sharply declined and coca production eaminp rox' .

Castro Pozo argues that during the lm two decadcs- transformation of the .Andean

society and culture at Iarge is more evident md its western direction is inevitable. These

changes may be the result of conscious and unconscious policia of land distribution and

population control in the country at [arge. Howeever. the land refom that \vas designed to

create equal distribution of land Further impoverished the peasantq- due to topo-gaphic

variations. Iow temperature. drought. sspeciaily on the western Andes. lack of capital

im-auncnt and technicd suppor~ and marketing obstacles'! n e highlmd agriculture

frontier did not work causing lndian and petsant popuIations to search for other sources of

subsistence as it \vas mentioned above.

Pem. Bolivia and Colombia account for 95 percent or more of the world's

production ~ l c o c a ~ ~ . One of the most widely quorsd estimata has corne from Rensselaer

Lee I I I :

"ln the mid-1980s. SouthArnericm cocaine mtf?ckers probably m e d behveen USS 5 and USS 6

billion dollars mnuaily f?om international sales in the Lr.S. market. Perhaps USS 1.5 to USS Z biiIion flowd

to the cocaine-producing counttirs. Viewed in terms of repatriatcd dollars. cocaine esports are equivalent to

an estimated 10 to 2090 for Colombia's le@ esporcs. 25 to ;OOo of Pent's. and 50 to 100°& of Bolivia's.

Cocaine is almost certainly the most important ssport in Prru and Bolivia. although in Colombia it probably

crirns ltkjs than cotTee and petroleurn""'.

As it cm be seen in Table 2.1 . I .b diverse information is s h o w for the years 1975,

1980. 1985. 1990 and 1993, t'or P s r u BoIivia and Colombia.

The information covers the area under cultivation: production of coca leaf. coca

pastc. and cocaine: the price paid to the producen for the le& the number of people

directly and indiredu empIoyee: and the nurnber of drugs users. The main concIusions

are: (a ) cultivation rose constantly. (b) the tendency is ter the price to the producer to fall.

and (c ) there is an increase in traditional consumption but dso by drugs users.

Tables 2.1. I .c and 2. I -1 .d show that only 3.8 per cent of the value produced by the

coca-cocaine complex in Colombia P m and Bolivia stayed in those countnes. The rest

remained in the countnes of the North. crssentially the United States. but aIso in Europe. It

coes wïthout saying that the proportion remaining in the producer counnies. benveen 5 and C

S percent betwen 1985-88. is very similar to that for le@ ptimmy products such as

c o t k . cacao, cotton, or bananas-

Table 2.1 .l .b: Basic Indicarors on Coca and Dmgs TmtEcking in Bolivia Colombia and Pem, 1975-95. Country Ha. ! Prod. o f ' Rod. o f Prod.of Price ; Direct 1 Indirect J Consumer Consumer and Ycrr undrr Lcaf Coca Cucainc of lnvolv Involvon 1 of Inf ' of dru- 1

* a Tons Paste Tons coca cmmt cm (000s) (000s) (006s) (000s) 1 (000s) i Tons 1 Iraf ; (000s) j i

1 i (Stkg) / 1 t ! Bolivia I 1 i 1 ! I I 1 ! I 1 t 1975 11.3 1 9.6 / I I j 6 i 2.00 15.0 50.0 1 2000.0 / 50.0

I 1 1 t

1980 22.5 : 19.3 i 22 12 2.00 ] 35.0 1 100.0 1 300.0 j 80.0

i I

1995 -I

1 . 6 ; 5.3 &I : E 1.05 168.0 i 195.0 : 3700.0 1 165.0 1 1 1 I I

Colom bia i l 1 I 1 ! ! ! I i !

Total I 1 1 ! 1

l !

r 1 I l i I

!

1971 ! 31-3 1 312 i 91 i 32 2 7 i 56.0 ! 155.0 i 5050.0 1 440.0 / 1 l 1 I

1

Source: fSCB, Report o f the International Drus Control Board 1975-951 WCSR tnternationai Narcotics Control Stntegy Report 198s-96, DEA, IHe@ Dnig Price'Punp Report 1994. Sevent. of these tigres are rou- estirnates which mry be disputed The heading of consumer d q s does not indude socid dm- like tobacco and aIcoho1.

Colombia (

Table 2.1.1 .c: Production of Coca Leaves. Coca Paste and Cocaine, Plus Prices and Incorne Generated. For Bolivia CoIombia and P e n 1985-95.

Pem 1

*country and

Year

Bolwia

Control S t r a t q Report. 1988-96. DEA, III@ Drup PriceiPurip Report 1993.

Incorne to Intemal market (Sm) Incorne to Intemed.

Pon 1 Street 1 Total Leaf Paste

Coca Cocaine ITotal

Pnœ per Kg (S million)

(000s)

Leaf

(000s) Paste

Producbon (tonnes)

(000s)

Leaf Coca Paste Cocan Coca Cocaine

However. the situation is even worse in the case of the coca Ieaf since. of the gross value

Table 2.1.1 .d: Distribution of the Profit From Drug Trafficking in the Puidean Couneies.

of the production of the coca~ocaine compIe't ody 0.4 per cent w e d in the hands of the

1985-95 Year

1985

1 986

1 987

1988

1989

1990

1 993

1 994

1995

Total

Year

1 985

1986

1987

1988

1989

1990

1993

1 994

199s

Total

'Source: INCB.

peasant producers.

In P e n coca is grown principally in the depamnents (regionai divisions of Pm):

Control Strates Repon, 1988-96. DEA, 1 I I e p I Drug PricelPurip Report 1993. Figures are derived fiom Table 2.1. t .c

Cuzco. .-\yacucho. San Martin. Huanuco and La Libertad. The moa Unponant growing

Intemal Market (SrniIlion)

ara are the Upper Huailaga V a k y and the Upper Urubamba Valley (See Map 2).

Leaf

278

323

337

376

1 99

1 38

331

The town of Tmgo Maria mon became a mecca of unrefined cocaine naflic. and

- Total Profit

52.888

55.419

54.014

5 7 . m

89.182

86.078

85,228

85.318

85.573

651 .286

Extemal Market (Srnillion)

Percentage Value Perœntage Value

nearby t o ~ m emerged a strategic location for cocaine production .%n ancient sociaI

Coca Paste

1.601

1.690

1.436

922

923

364

568

Port

10.590

9.108

0.5

0.6

0.6

0.7

O. 3

0.2

0.4

0.4

0.4

0.4

?stem t'or the exchange of Iabour and food. based on the trade of coca has been 41

Cocane 3.354

2.898

1.756

1,663

1.700

1.126

946

Street

37.065

41.400

340

368

2.690

Repon of the International Dmg Conml Board 1973-95: INCSR International Narcotics

3.0

3.0

2.7

1.6

1 .O

0.4

0.7

0.7

0.8

1.3

Total

5.233

4.91 1

3.529

2,961

2.822

1.628

1.845

925

91 0

1 5,278

Total

47.655

50.508

578

640

8.722

1.843

1.918

26.690

50.485

54.625

86.360

84.450

83.383

83.475

83.655

624.596

6.585

7.125

12.920

12.949

12.063

12.023

12.005

9 5 3 8

6.4

5.3

3.2

2.8

1.9

1.3

1.1

1.1

1.0

2.2

43.900

47.500

73.440

71501

71.320

71.452

71.650

529.228

9.9

8.9

6.5

5.1

3.2

1.9

20.0

16.4

12.2

124

70.1

74. T

81.3

82.5

97.8

97.8

97.8

78.0

83.7

83.7

83.8

65.9

2.2

2.2

2-2

3.8

100.0

100.0

r 00.0

81.8

90.1

91.1

93.5

94.9

14.5

f 5.0

14.1

14.1

14.0

121

100.0

100.0

100.0

100.0

96.8

98.1

823

83.1

100.0

100.0

infiltrated and aitered by the international undenvorid. who now use the peasants' traditions

of coca raising as agents of production and trdficking. An unskilled labourer in the capital

sarns about three Urnes Iess than a peasant carting a bale of dried coca Ieaves. the Iowest

paid worker in the underground indusny It is hardly surprising that mibmts began

making the trek to the jungle fiom the highlands of the Andes and fiom the coastal cities.

7hr prosperity of the region creates cspectations that cannot be met by an- other more

modes source of incorne. Likr cocaine itself. the mon- of the jungle is addictive. The

Penivian govemment has anempted in vain to limit the cocaine production by controlling

the huge chcmicd i n d q linked with it4'.

The importance of production of illicit drugs to an rconomy wi11 vary ~i~gnifican*

from country to counep. Speaking of Pcru and according to the non-~ovemmentai research

organization Macroconsult ~td." . it has rnimated rhat in 1993. 1 15300 hectares o f coca

have becn planted. of which 33.700 hectares are in the ljpper HuaIIaga region aione. In

the .\mazon region 30 percent of the land is cultivable and one-fifth of this land is used for

coca plantations.

Chart 2.1-1 .a Cultivation and Production of Coca Leaf

Valleys 1 C u l t i ~ t e d Prod. 1 Cultivated Prod. 1 Cultivated P d , 1 Cultivated Prod.

The voIume of dry coca leaves hmested from 1 15.300 hectares amounts to about

207,540 tons ( 1 .S tons per hectare) and was estimated to be worth 540 million U.S. dollars

1 ( H a ) (nnr)

l

in 1995 (2.600 U S dollars per ton). -4 total of 1,885 tons of cocaine base is rstirnated to

Source: ~IacroconsuIt 1995. " For illustntive description set: Map 3.

have been produced From this hanest with an approsimate market value of 700 U S dollars

223.900

138.200

13.800

2.300

23.200 3.000 14.200 13.200

16.000

( H W (MT)

Total f 129.200

pcr kilo or a gross inflow of 1.320 million C.S. dollars into Peru's narco-trafXc indu-.

108.600

33.600

9.400

8.600

17.800 2.300

Upper Huallaga Central

Huallaga

Between 1988 and 1995. coca leaf accounted for 5 percent of Peruvian @culturai

155.500

73.400

13.800

2.300

23.200 2.600

(HW (Mf)

61.100

8.500

production. The value of cocaine traficking \vas the equivdent of 25 percent of the

14.300 9.400 13.400

108.600

28.-

8.500

7.500

21.400 2.000

(Has) (MT)

c0unt.q-'s legal ~ S ~ O N - ' ' ..\ccording to other research organization Cuanto S.A.. in the

163.300

64.400

15.500

2.300

38.200 2.300

115.300

33.700

7.500

6.500

19.600

7.1 O0 21.000

10,000 9.900

LOwer I 2.000 Huallaga

1970s- coca leaf cultivation was 16.400 ha and grew up to 57.000 ha between 1980 and

207.540

67.550

12.720

--

t 1.200

23.975 13.780 37.800 18.000 22.5 15

' Aguayha Ucayali

"Apunmac Cusco Other

1 986. The same source mention that between 1 987 and 1 995, the area cultivated increased

14.600 10.700

15,300

16.600

2.600 12.800 11,600 14.000

14.200 10.700 15.300

to 133.000 hau. In other sources. such as the National Development Instïnite (INADE)

17,000

9.900 13.400

has rstirnated for 1995 an extension of 125,000 ha, Similady. according to the AgricuIture

Inîômation Office of the M i n i e of -4-gricuituree coca I d cuitivation tvas 39-86 1 ha in

1980. however. in 1995 this amount - a w to 120.000 ha, which meant an inmease of 43

20 1 O h (sse Chan 2 1.1 .b)? Further klow arc the figures endorsed by US govemment

qenciss. Thus. masses of peasant famers in dmg producing regions have moved

upstream into the valus-addrd processing of coca priste to further intsgnte themselves into

the intrirnationd cocaine economy.

The totd number of cultivated hectares and potentiaily hanestable coca Ieaf only

inciuds coca plantations in fuI1 production which cm be fuIIy detected via satellite and

other mcthods. Accordingly. absolute figures of the above tables and chans are subject of

dsbats. ruid coca led production in Pen ma? bs higher.

Illicit drugs are a commodity. and a particularly lucrative one reIative to others

esported by devetoping countries. Coca is an attractive crop to h d e a n f m e r s because it

produces a secure profit. In most cases the rate of r e m on coca is two to five times higher

t h m most rnditiond crops. or higher. In man- m o t e coca zones. nansport problems and

soi1 constraints and other factors add up to an inhospitabis environmitnt for lepl cash crop.

Chart 2.1.1 .b: CuItivation and Production of Coca Leaf

1 I L I 1 Total 1 129200 1 223.900 1 108.800 1 155,500 1 108.600 1 163.300 1 115.300 1 207.540 (

' Valleys Cultivated P m d Cultivated Pmd Cultivateci Pmd Cultivated Pmd. J

(Has) (Mf)

" Lower 1 2.000 1 2300 1 8.600 1 2300 1 7.500 1 2300 1 6.500 1 11.200 1

(Has) (Mi)

H&I1aga [

l Other [ 14.WO 1 16.0ûO 1 13.400 1 15.300 [ 13,400 1 15.300 1 9.900 1 22.515 Source: hlinistry of A_&culture-A_&culture Information Office. Annual Smtinics. 1995.

* Pachitea \vas formed in 1995 by combining areas m A,->-tia with areas in the other category.

13.800 Central Huallaaa

HuaIIaga Aguaytta

(Ha4 (MT)

8.500

( H m (W

9.400

16.600

Ucayali 1 2.600 Apurimac ] 12.800

13.800

23.200 3.000

14,200

8.500

17.800 2.300

15.500

23200 2.600

7.500

14,300 1 14200

21.400

12.720

2.000 17.000

38.200 2.300 14.600

19.600 23.975 7.100 13,780 21.000 37.800

Table 2.1 . l .e attempts to makr a reasonable estirnate of its gross revenue. value

added. esports and rmployrnent for the drug indus-. in the three Andean counuies. These

estimates indicate gross revenues tiom illepl drugs of about USS 8-1 1 billion. or about

7096 of Iegd comrnodity expons. Howver- this esaimare includes fun& which may be

retained by cimg trades abroad. In trrms of value added the drug indu= is roub@ip

equi\-alent to about 5-6 percent of GDP of these three countnes? There are marked

di tTerencs betwveen counuies. however. w i t h drugs having a significandy larger economic

impact in Colombia than in Pem and Bolivia. For Colombia value added From cocaine

rtrpressnts about 7-8% of Iegd GDP- compared to oniy about 3-941 for Bolivia and 2-3%

for Psru. In rems of e'cports. -irnated gross amïngs from dmgs equ l 91% of

Cotombia's officiai exports but 28% in the case of Boliria and 25% for Pen. This

disparie retlects Colornbia's overdl dominance of refining and esporthg Colombia

supplies an estirnated 70 to 80 percent of the cocaïne soId in world markets, and about 15%

Chart 2-1.1 .c: Coca Cultivation Estimates. 199 1 - 19% 1 1991 1 11992 1 1 1 993 I 13994 1 1

Valleys i Cultivated 1 % Change I Cultivated I % Change ( Cuiüvated 1 % Change 1 Cultivated i (Has) I 1 (Has) i 1 (b) i i (HW 1 I I 1 I 1 l

Total i 120.800 l +11.0 i 134.087 i -23.46 1 108.600 1 6-16 115,300

'

I I I I l I Upper 1 60.100 1 e.46 1 63.987 ! -121.40 / 28.900 +16.60 1 Huallaga 1 1 i ! Central 7.000 1 +21.42 8.500 1 O 8.500 i -30.76 1 6.500 Huailaga i I , I 1 l I

Lower 1.500 1 +lOO.O 3.000 i cl50 7.500 -15.38 HuaIlaga ! 1 I I l

6.500 i 1

Aguaytia i 10.100 1 e.35 1 16.600 i +28.9 i 21.400 1 -9.18 1 19.600 1 Ucayali : 2.600 1 O : 2.600 -30.0 I 2,000 1 ~255.0 1 7.100 ! Apurimac i 12.400 1 +11.3 1 13,800 +23.2 t 17.000 i +23.52 21.000 1 Cusm 13.100 1 -12.93 1 11.600 ' -17.17 ! 9.900 I +1.01 ! 10.000 Other 1 14.000 1 O ! 14.000 4.4 i 13.400 1 -35.35 1 9.900 f

Source: Unitcd States Deparment International Narcotics Control Straqy R-n 1995.

to the US. heroin market and earns huge value-added in smugpling dmgs to the United

States and Europe.

The rmployment impact of the dmg trade is relatively small: on1y about 2-3% of

the total labor force are rmployed by this indunn;. but man? of these are concentrated in

rural areas. whcre they constitute a more significant part of the ruraI labor force. The

r.mployrnent impact of cocaine in Colombia is smaller than in the other source counuies.

and is also qualimively different. .-\ masimum of 160.000 people or 1.3 percent of the

labor force works in the cocaine indusry. Employmsnt in the indumy abovr the fàrm level

comprises perhaps 20.000 to 23.000 people. Of these a critical level of 6.000 to 7.000

kader entrepreneurs and specialized operators coordinate principal tMf'ficking functions. In

Peru and Bolivia cocaine provides proportionally about nvîcicr as mluo; jobs as in

CoIrrmbia -et only a midl percentzge of the cocainr work force. las than 5 percent in

Bolivia and lrss &an 5 percent in P m engqes in cocaine retïning and export operations

\vhereas in Colornbia the proportion reaches 1 5 percent4'.

f I 1 I 1 Source: US. Deparunent of State. International Narcotics Control Stratez~ Rrport (March 1995) and United Nations. Economics and Social Consequences of cimg Abuse and Illich TraftÏcking. Nov. 1994. Bolivia and Peru are based on cocaine esports only. Coiombia's s imates assume USS i biIfion for exports of heroin and marijuana

Table 2.1 - 1 .t.: Economic Impact of IllicrgaI Dnigs. Andean Countrirs. 1 994

Coca farming is not a natic activity. Farmers can esploit various oppomuiities to

Grass Revenues (USS) Value AddWGDP (%) G r o s Revenues to Legal Experts(%) Drug areaftotal cfoppeû area (%) Cocaine work force (inc. Farm Iabor) Percent of National Work Force

incrase yields and income by applying more sophisticated techniques. There is evidence

Colombia 7 to 9 billion

7 to 8 94

1 -9-2-3 160,000 1.3

Bolivia 200 to 300 m

3 to 5 28 2.5

74.000 2.8

Peni 1 to 1.5 billion

2 to 3 25

2.9-5.5 230,000 2-9

Total 8-10 billion

5 to 6 71

2.4-3.7 4ô4.000

2

that coca h e r s are implementing agronomie improvemrnts that make their fields more

productive (se<: Table 2.1.1 .O. In addition. coca farmrrs seem to be adding to their income

hy divsrsifyinp downstrem of priste or base. In so doing thry have rmlized higher profits.

cspecially from base production. In the case of Peru. according <O USAID data a farmer

could realize profits of USS 3.300 per hectare by converting coca Ieaves to base. about ?O

percent more than what he could earn by selling Ieaf alone.

Table 2.1.1 .f: Pem - Increasingly Efficient Famers 1989 1990 1991 1992 1993 1994

Coca Yield Per Hectare (MT) 1.48 1.53 1.63 1.47 1.35 1.50 Source: Depanment of State, Bureau of International Narcotics Maners. Strate3 Report 1995, p. 24.

U'ith respect to their revenues. these estimates depend on the arnount of coca leaves

that are used for domestic consumptioa the mount wasted rit sach mgr of production.

the amount of cocainr and by products consumed in the producing counuies. and the

mount ssized by authorities.

Despitr declining coca cultivation in the Upper Huallaga in 1993 and 1994. the

country's main coca producing ma production is n i I I espanding in other areas

particularly in the Apurimac and Aguaytia vallq-. However. according to the Mini- of

Agriculture yields per hectare and profit mxgins have decreased considerably as a

consequrnce of the fùngus Fusarium Oxysporum, a newIy detected disease. in the

Apurimnc vallq. increased production c o s (fertilizers. etc.) and Iower coca prices.

P r i c s of most primary cornmodities have not only remained low since the 1990s.

many have acruaily declined in nominal t e m . owing to abundant supply or ovemock.

Ho\vsver. in 1993. the prices of cocoa and coffee have begm to recover. but whether this

47

upward trend is sustainable remains in doubt. The comparison shown in Table 2.1 -1.g

hetween the pnces of cocoa coffee and coca leaf reflect a strong economic incentive to

cultivate the latter. however. coca I d prices have begun to experience a drastic decline in

1995. This faIl in the price of coca Ieaf is basicaily a consequence of increased interdiction

efforts in Cotombia and Peru in 1994 and the disrnantiement of the leading Colombian

cartels of Medellin in the late 1980s and later on the cartei of Cali ( 1995) as vie11 as the

capture of important heads of provider firms in Pem. Eventhough pnces have fallen to

1989 levels (USS 0.4 to LES 0.8) production cos% are noow on avcrase 5 times higher than

the pncr obtained by the coca growers. The situation is economically wonying with

respect to the subsistence alternatives or thousands of coca growers. At the same time. of

course. the pnce for cocaine base has aiso suffered a substantial decline in 1995.

The recent dnstic price fdl h a caused despair among thousands of f m e r families

\\-ho depend cconomicaily on coca cultivation and has strengthened their w i l l to return to

lsgal crops.

The fact that the country und now has not had an estended history of a broad-based

rigriculturai de\-elopment strategy benefiting its peasant producers p d y explains the

massive mi~ptions to coca producing areas and suggens the cntrenched inter- and

political inhence of upper incorne social groups. Hizghiand migration in search of

employment and income becornes a rational response within a context of severe economic

~ n s m on top of decades of d i s c r i ~ t i o n by nate policies. In shon whereas the mibgration

to the coca growinp areas. the Upper Huailaga region for coca leaf cuitivation has been

aimulated by the relative hi& prices for coca fiom the 1 970s unhl 1 995. the push factor of

estrems poverty in hi~aand comrnunities is dm part of the problem.

18

Table 2.1.1 .g: Prices in US$& Year Coca Leaf Cocoa 1990 0.66 0.83 199 1 1.45 0.9 1 1992 2.46 0.72 1993 1.23 0.8 1 1993 2-48 1-04 1995 1.20 1 20 1 996 0.7 1 1.14

Source: CSDCP-Country Programme Fmework . Peru. 1997

Coffee 0.5 1 1.76 0.59 0.6 1 1.85 1.91 1.50

A n d m public policies have Ied to decrides of rsploitation and rnarginality creating the

necessary pre-conditions for rspanded coca growing. The national interest in fighting

drugs bbecomes n highlp ambiguous concept when the current govenunent faces massive

unrimployment and increasing potrrty among its citizens.

The current conjunction favon the implementation of a widespread alternative

da-rlopmrnt programme. The only option leîl for the praunts is to rehabihate abandoned

xt';1~ traditionally cuItivated uith cacao, cofkc. etc. and to commence the

implementation of other agriculturai or livestock activities promoted by national projrcts

and othrr entities being cncouraged to initiate and support alternative development

activities in different areas. This is reflected in increased levels of collection and marketing

of coffee and cacao through the coopentives and producers* associations which are target

croups of ongoing nationai projects. , C

National experts' opinions c l a h that the current pnce tendency might only be

tcmporaq- until narcotraffxclrers reorganize themeIves to tind alternative routes to nanspon

cocaine base. It has already been specdared that the border -5th Brazil mifht be

considered a practical alternative to transport semi-procesxd cocaine instead of using

traditionai direct flights between Pem and CoIombia 49

Finally. since cocaine and various other illicit drugs are africulninl-bascd products.

policy maksrs must anaiyze the impact of nationai n(lricuItura1 policies on the peasants

producer sector. Policy mAen m u t take into account what is happening to peasants

economicj locally. the growing areas and plantations. the labour market in the Huallaga

d I e y and mi:-t workers, in response to broader regional and national socio-economic

changes.

2. I . 2 Di.srrihttrion in rhc. .I.kzrkc'r

Results frorn the relationship between the national economic needs and the

international undenc-orId econorny are maniksted in socid and economic behaviour of the

groups that participate in production. distribution. and marketing of coca pane and 0th-

oond relatsd to the indusry. - Border controIs are a major focus of interception efforts. However- wîth the

increasrd tIow of commercial trafic benveen counuies and the tiee movement of goods in

large regional tndc blocks. the success nte of interdiction at national borders. low to

begin with may decrease m e r . Vigorous action by authorities in one area ofien leads to

shifts in the pattern of iIlicit actidty or to movement of the ilkgal actiiity to another area.

Hhik interception efforts rn- result in Iengthrning or altering the chah of illicit

movement and increase the sxposure of the illicit operation to seizure in a given area.

unlss the interdiction and seizure success rates are hich illicit shipments of drugs wil1

Iikely continue. Those who get caught mug$ing drugs are often lotv level persons who

can sasily be replaced with new recruïts.

Bsfore Ieaving the production zone for the national or international markets. the

white coca paste circulates in comrnunities and tou-ns. Thrn the? take diverse routes. Coca

paste producen try to sel1 it few hours afier manufacninng. for if it is kept for many days.

the substance's weight is reduced. In a c h taritory dominated by one boss there are tu-O

kinds of buyers: independent and conttacted. Independent buyers operate their own

business: contracted collccton w r k for commissions. avrnging about 100 dollars per

w c k . Coca paste manufacturers rrsist doing business with i ndependent buyers. because

they demand more money. Furthemore. if independent buyers pay bsner prices than

official buyen. conmcted collrctors cornphin to their bosses. Their bosses get rid of the

unfair competition. Independent buyers can continue their operations only by paying the

same prices stipulated by the Iocd organized group.

Fluctuations in pnces are functions of international demand. prexnce of organized

crime. p o k s conuol. and distances to shippinp points (airports). PrÎmarily. Peru supplies

semiprocesseci cocaine to the Colornbians for refining and subsequent export to the United

States and Europe. W e n the bosses in Colombia send the more cash requesting greater

mounts of coca pane. the local boss authorizes raising prices. ?rrgumrnts for stipulahg

ne\v prices c m be attrîbuted to the saturation of international market or heat~ competition.

Organized crime stipulates pnces based on seniorïv in the territop. Like other Iegal

consumer commodities. coca paste market vaiues add expenses such as human labour

required for trampormion the use of secret routes to mislead police. and other

unespected espenditures. Besides being heat'iiy concenmed in drug terminai towm and

using regdar transit roads. coca paste dso moves through villages and communîties in the

hi~ghlands as it proceeds on its way to national and Ïntemationd markets.

51

Two kinds of people are involved in the local aaffcking of cocaine. The smail

trader rither buys coca paste at the first stage or goes to the jungle to bring paste to tovms

kir r ~ ~ a l e to wholrsale dealers. The second rype of dmg dealer is the locd middleclass

public employer.. T o m wholesalm always have the mal1 traders in their power. in that

they lsnd monq at high interest or pal lowcr prices arguing an oventock. Smail traders

art. the besr consumers of the services available in the coca pane terminai sertings. In the

second stage. commercial movrment of coca paste is almon completçly open. Everyone

know who is who in the business. and it is not rare to 0bsen.e local and non-local smdl

dealers \valking around with their saddlçbags hung ovcr their shouldrrs.

Coca paste from die second stage goes to the national market via surface

transportation. Buses. tntch. and private cars cmy the drus declarïng it as food king

transponed from coca production zones in Cuzco. .Ayacucho. San Martin. Huanuco and

La Libcrtad ro Lima and other cities on the CO= such as Piura. Tumbes. Trujillo. and

.-lrequipn among othrrs. whrn is chrckrd bu the t.raffic police stations. In theop. these

stations are responsible for searching for cocaine in the vehicles travelling the route.

Ho\vever. it is an impossible task for feu- policemen to do more thm simply check

personal identifications. detain suspects. or accidentally discover smuggled coca paste.

Smugglers and dealers have their o m w y s of finding their way out when passinp these

controls.

In these urban cîties. some se11 theu produc: to cunomers or people to whom they

u-ere recommended, and some are caught by police,

Important reasons for brin~bing coca paste to the market in the cities are to satisfj-

indi~jdual consumption and to supply it to refming laboratories. Slums and shantytovns

52

arc idral senings for cuning. packaging. distributing. and rtnablishing smoking areas. It

t d s s unsuspected roads and routes to international markets. The mon outstanding feature

of disrri bution and marketing of coca paste is its retum to the jungle.

2.1.3 .Crmcrure und Dirision of . Luhour

The underground nenvork is a rigid hirnrchy. The people who participate in the

national and international underground economy are oqanized and labelcd according to

production. distribution and marketing of both the coca paste and the cocaine

hydrochloride. .Ar the top of the p y m i d is the boss of the operation who is its link to

international organizations. He is always knom as a "coIocho". a nickname used in the

jungle to dçnotr a Colombian but which in the cocaine ind-. simply rneans someone

associated with the processing and trafflcking thar is cenrered in CoIombia However. this

does not m m that the t&ic in cocaine is totally controlled bu Colombians. Many

nationals from other Latin .4merican countries are connected directly to the United states4'.

Xnother social Ievel that is widely used in Peni and that carries recoc&tion. respect.

and prestige bxed on economic power on the Iocd and. to some elqent national Ievel is

the word "narco". A narco alwq-s has an investment in one of the sectors of the economy.

His Iqal activity is to incorponte narco-dollars into the lgal economy and thereby to

participate in rvery aspect of national Iifr. a phenornenon knom as bleaching cocaine

money. Moreover. a narco may be a jungle crime boss who is stipulating pnces and

conuolling Iocd population and to those who Iive in the jungIe. the boss is a shadow~

tigure h o w oniy by his code name. Other o u p s structured around the participation in

the iIIicit economy are the pick-up men: IocaI bosses or patrones: runners, or coI1ectors

53

of coca pas7s: and transporttition and securic support staî'f msmbcrs.

The pick-up man. or "bag man". coma in an airplane to transpon the merchandise

ro Colombia. The plane is loadrd with contraband such as watches. appliances. liquor.

m s . etc. The pick-up man and the pilot are the ody occupants of the srnaIl plane. Fuel

supplies and the size of air fields and planes are drcisive factors in Ianding. Becciuse some

srnaII planes do not have the fuel capacity to cross the borders they o%en rehel or leave

thsir Iorids at points where sevml Ioads are colIected for tmspon in large planes.

Commrrcid. private. and air force airstrips are sometimes used with the cooperation of

compt officiais. Although the communication with Colombia is criticai. because of tight

control. new methods and routes of transportation and communication are developed

constantlu. After landing. neithrr the pilot nor the pick-up man leave the plane. The

operation is so well organized that from landing to departure takes Iess than ten minutes.

The delivery men c a F a Full load of coca paste to the plane where also bodyguards and

two or threr gunrnen position themselves on the ground w i h their fingers on the aigger.

and there the? stay until the plane Ieaves with the merchandise.

.-lnother important member in the organization is the patron. who may be a colocho

or a narco. A person with an enviable liféstyle. His residence is full of Iuuuries. Color

television sets. home video equipment and imponed liquor are very common place there.

In towns and villages. the patron can eat drÎnk. and entenain his Fnends mithout any cash

in his pockets. .rIthough his involvement in the dmg business makes him seem Iike a

dangerous man to many local t o m people. he acts lke a gentleman and a humanitarian.

He helps the poor and rnakes sure that his b o d y g d rhrow out crooks that are either

disturbine the commimity or ~spec ted of king agabt him.

54

Continuing down the structure. the organization presents a group of people known

as runners or collectors of coca paste. Drpending on the number of r tmer s and pick-up

tliphts. the patron _nives the runners cash to buy coca pans. The range of maximum

nmounts collected by the m e n is between 50 and 100 kilos. h o cash the range is fiom

$50.000 to 5 100.000. The coca paste collecter gets a commission of about S50 to S 1 O0 per

assignmenr. which takes fiom three to five da?^.^'

The lowst people who handle the coca paste are the delive? men. The- are mostly

unernployed rnizmts and highland peasants who tmspon the dmgs for extra income. In

their regular actit.ities they m e be coca Ieaf piclers. hiph school srudents. teachcn or

;tny person who tvants to makr more money. depending on distances waiked or skills.

They deliver the illegai gmd to consumer markets and retining Iaboratories. The' are

inrennediaris between selirrs and buyrrs of coca pMe or couine hydrochloride. The

seller rnay br a producer or a dnig deaisr. the buyer may be a coca pane or cocaïne rerailer

or both. or a national or international wholrsaler. In addition given the kinds of goods

tmsponsd and the risks f a c d their wages are v q iow. The average pay for a delive-

job that takes from three to five days is U O to 560. or the cquivdent of NO month's wonh

of minimum sd-.'"

.As we c m see. the illqal trade generares a variety of occupations and activities that

support both legd and illegai econornies. Moreover. the underground economy helps

maintain Içgd industries that producs materials for the preparation of coca paste and the

manufacture of cocaine."

Estimation of the cocaine industq-'s size and profitabilin. coofronts the problem of

continuous innovation wïthin the industq- itseif. Narcotics enterprises in the 1990s are

55

more dynamic. evolving, and increasingly efficient. As Iaw enforcement pressure has

increaxd. production techniques. s t o q e technologies. and smuggling mategies have

improved commennirably. For i nmcr . some cocaine laboratones now are equipped with

chsmical recycling and recoveq. plants as well as with vacuum-packing facilities and

microwavç dry ing ovens. Smuggling methods continue to advance and to pro1 i ferate.

Drug-rnftickers have extended their smuggling reach by buying or leasing cargo planes.

includinp jets and turboprop aircnti: smuggling aircraft today m q carry one to six tons of

cocaine comparrd to 4C0 to 500 kilo:-ams in the 1980s. The sheer vari+- of vehicles that

modem smuggling ux to move bulk cocaine shipments such as cargo jets. maritime

containerized cargo. tractor tnilers. camoutlaged srnail boats, and even semi-submersible

vcjsels. represents a new considerable challenge to lawv enforcernent officials".

The matia organintions and the coca lobby connitute whar might be called the

cocains constituency in South .\merka counuies. These orgnizations intepte a m g e of

rictivities. arc multinational in scope, and command substantiai technical. financial. and

huma resources. This indmry is relativrly conccntrated and the actors cooperate on both

strategic and operational maners. In general. the mafia's mucme. capabilities. and

methods of operation convey the impression of s-en-@ and resiiiency.

2. I . 4 CC.7tat does Cocu Ufer?

For m a v fimners in Pem Boliwia and Colombia coca is the sole cash crop.

because it v,Cfers wvhat is in man); respects the complete package for fanners. .Utho@

market conditions vary. coca is ~picalIy much more profitable than licit cash crop in Pem

Bolivia and Colombia The hi& protits associated wïrth cuitivating the pIants mean that a

56

tàrmer who wants to start a coca farm cm obtain tinancing, krtilizer. seed and even

technical assisace frorn dmg tnffickers or their intemediaries. The plant is easily

cultivatcd and seems to tlourish in agronomie and clirnatc conditions that are unsuitable for

most other crops.

Statistically. according to Perds Andean ~ e ~ o n ' ' . a coca f m e r in the Upper

Cluailaga Valley could earn a maximum gross income of S 12-30 per hectare per year 1990:

of this sum- 60 percent was protlt. .A coca farmer's net per hectare earnings were ten times

thoss of a cacao farrner and ninsty-one times those of a rice f i e r . -4s it $vas shown in

Tabte 2.1.1 .g. prices of South Xmerican coca I d have dropped siyificantly €rom their

pt-ak levrls. primarily because of the overproduction of leaf and intensified enforcement

against cocaine tabontoties. However, coca yields rehively quick retums. Coca c m be

hanrsted 18 monrhs afier planting. Many aitemarive cash crop. for example. oranges.

rubber. tea or cotTee require 4 years or more from planting to the tÏm h m e n In m.

coca cultivation presents a very superior cash tlow option for Pmvian, Bolivîan and

Colombian fmsrs.

Within the area of coca cultivation some lands are more marginal than others. The

tlat alluvial lands dong the river. which are suited to growing traditional crops contrast

~v i th the humid j ungie hillsides. which are not. Farmers in some cases may have shifred

Imd out of food production like rice. bmanas. oranges. and the like. into coca

cultivation. Data fiom the USMD project in Peru indicates that the net income per hectare

for coca was si~gificantiy higher than mon altematives (see Table 2.1 .-La). The net annual

income per hectare for coca is h a t e d to be US$ 1178. compared to USS 156 for

traditionai crops?

Table 2.1 .4.a: Pem - Estimate Net Annual Incorne. 1994. Coca and Legai Crops

L h i k citrus and pineapplr c m match thesr returns using ûdvanced technologies and

optimum conditions. the cultivation methods for these crops are much more sophinicated.

and the initial invernent costs are much higher. In the case of pineapple. the initiai

invatment is 4 times that needrd for coca. Crops such as mancuya and paim hearts are

çrops which iur now being gown only on a limited scaie but because they have relativeIy

thin markets. substantiai increased production is likely to Iower pnces and economic

Crop

retums.

Compared to esotic products with uncenain markets. coca produces quick yields.

wncrating enough cash to repav the initiai invmment In addition. coca has a hi& vdue C

to weight ratio and presents tèw handling pro blems for f m e r s . Coca can harvested at any

timc. and the laves dned and stored until collected. Crops such as bananas. citrus and

pineapplc must be picked when ripe and shipped on time. Remotr areas are not natlnally

the b m areas for grow-Ïng these buiky commercial crops which are a h e d at urban and

esport markets-

1.178 330 920 308 89

463 I 56

L

Coca Pineapple Mancuya

Citrus Fruits Bananas

Palm Hearts Tnditiond Crops

Initial Investment ( UsSIha)

Source: USA ID. Alternative Developmcnt Projea. Lima 1994. p. 2. Nct .-Innual Incomc r'tciudes initial invesrment cost.

1

1-1 18 1.635 2.936 2,565 643

1.898 617

Net Annual income ( USSfha)

.A constrriint on developing protitable alternatives to coca arises fiom the relative

distance of the regions that produce the plant. Such regions are hundreds of miles from

urban centres and are not connectcd to them by roads or commercial air transport. Pem's

Ilpper HuaIlaga Valley lies 400 to 750 miles from the capital. a ten hour drive from Lima

to the closest city (the t o m of Tingo klaria) at the southem end of the Valley.

Distance c m increase the required cost to ship cornmodities to market and in the

coca growing region of Peru. Bolivia and Colombia these costs are likely to be very hi&.

Consequçntly. peasants find themselves at a comprtitive disadvantage. If cocaine indusuy

dots not operate as an efficient enginc o f economic progress. it still provides an escape

tiom poveny and misery for man)- inhabitants of the h d e m world. Moreover. for rurai

dwAlers especially. the cocaine indus- offers 3 kind of ins~ant introduction to modem

tifest>-le. For these reasons. it is difficult to imagine h t coercive measurrs against

pcaants could evcr have positive results. Prasants producing coca have nothing to lose.

.As long m coca provides a famil? livelihood they will protect their coca crop at d l costs.

In this \\.a?. coca cultivation and cocaine traficking have created radicdly new

sspectations and aspirations mithin Andean socieiies.

2.7 The Socio-Economic Impact of ivarcorics in Pent

The following section wilI analyzr the effect of the underground dollar rconomy in

the Financial System. It also describes how cocaine production constitutes a sigificant

source of employment: the implication of coca chewing as a natural. social pnctice in the

.-hiean sociery. and their concomitant ecological and cost impacts.

Sarcotics money laundering has cvolvcd oover the last three ysars into an important

toreign policy as well as a tinancial management pri0t-i~ in many key financial center

countries. Thesc prioriries are retlrcted in vinually wholesale changes to laws and

rrguiations. as well as improvsd cooprrration. T h s e changes remit From a grow-ing

international conviction that h g uatficking cm not be hdted unlcss ws deprive traficking

organimtions of their proceeds. as wrll as frorn a shared srnse of responsibility for halting

- - .. the production. traffxcking and consumption of dntgs-- .

The purchase of state-own enterprisa. the acquisition of businesses by private

incestors. and the shift to Full currency convenibiIity al1 procide ample scope for financial

manipulation by criminai organizations associated with the illicit cimg industry. This threat

if ofien generalized under the umbrella term of money-laundering. Ttie intemationalization

of money laundering has been brought about by nvo factors. F i a the inrebmt.ion of

tinancial markets throt@ the IiberaIization uade @en by rnacroeconomic reforms into a

cornples. global entiv: and second the effort b- Mxcking to avoid deteaion by

concentrating operations in countrïes where dorcement is \veak and Iegislation is absent

60

Untortunate&-. many corntries fd l into this latter catcgory. in particular those cIassified as

emrrging markets. In becoming more internationalized. mons?; laundering is in tact

simply followhg the global macro-economic trend of Isgitimate goods and financial

services. It works to the benefit of the laundrrer in as much as it creates more scope to

move from one place to another. taking advantages of gaps in legislation and discrepancies

in regulato~. control.

The Financiai Action Task Force, established in 1989 bu the heads of State of the

Group of Ssven major industridized countriss. estirnates that approximately S 85 billion is

Iaunderrd cach year in Europe and the United States. The new shifi in tocus tow-ards

emerging markets in Asia and Latin Amenca raises concem about the nsks facing

crnrrging tinancid sYstems? Such risks go well beyond the mere recyling of illicit

revenues into Isgitimate enterprix an act which amounts to litde relative to the totaI value

of private sector capital Howing into devrloping counrries. With the trend towards

privatintion. the real danger cornes from the ability of dmg traîXcking not only to launder

funds. but dso to acquire portions of what constitutes a second-hand sale of global

proportions.

Most of the biIIion of dollars m e d bu cocaine tr;ifTickers stay abroad in offshore

heavrns such as the Cqman Islands, Barbados. .-ba or Panama or in investments in

toreign real estate. securities. and business. In Peru. according to the -4nti-Narcotics

National ~ureau-DINANDRO". Reynldo Rodripez Lopez a nafficker who was a

trusted adviser to Pem's top police officiais. owned a me1 agency that m e d as a cover

for his cocaine srnuggIing operations Similady. other Peruvian rraRickers who were

çapnired in the 1993-95 perïod such as Dernetrio Chavez Pefiaherrera Umberto .Ammaturo

61

Rochino. Cachique Rivera and Tijero G m h . convolled nationnide and through

intermediaries real estates: cattls ranching: commercial stores (wholc sale and retail):

lusup rrridences and condominiums (mostly in Lima and Tingo Maria): services and

recrearion (gymnasiums. hotels. restaurants. and discotheques ): small light aircr;ifts and

I u s u n c m .

Once cstablished in the legitimate domcjric econorny. dmg tratlïckrn gencrally

have considerable frecdom: (a) to transport illicit goods undrr the guise of lep l

merchandise: (b ) to create new markets for who1esaIe or retail distribution: (c) to establish

or arrange for nrw sources of precurjor chrmicals: and (d) to launder even more illicit

revenues.

Wht'ther ~affickers invest their mon- at home or abroad depends on several

conditions in the source country: i n v m e n t opporntnities. interest rates. politid

stability. and perhaps the most important. governent policy towards the dmg trade.

Pro tits that return or remain at home may add to the country's O tlicial resm-es or rnay

circulate in the underground dollar econornu. Due to the dificultia in derking an accurate

and precise figure for the amount of rnonry laundering. different esperts have provided

some rough &mate of the arnount of rnoney l a u n d e ~ g occmring in the country.

Unfortunately. the vast majori' of institutions lack d i c i e n t data to support any

credible estimate. The most comprehensive figures remain the resdts of the study

producrd by Macroconsult ~td.". which says thar of the approsimately 1.100 miIlion

dollars that the dmg i n d u , generated for Pem 870 million never entered the country's

financial ?stem due to capital ffight Hatf of the remaining 700 million dollars are

beIieved to have been im-ested in the Peruvian goods and sertlces industn;. while the

61

rcmaining 350 million dollars found their way into the lqal banking system. Other

sources. such the Centrd Bank. provides tigures ranged fiom USS 1.300 million to USS

2.000 million for the amount of money laundering during 1995. Moreover. odier experts

otTered data on sums seized pursuant to money laundering investigations or prosecutions.

Thus. somr of them were unable to establish the magnitude of money laundering taking

place. but as an esarnple could show that the Drug Enforcement Xgency in 1995-96. had

1.233 cases of money laundering proxcuted with a totd value of USS 1.61 billion".

FIowevt.r this information doss not support a valid estimate of the amount of tainted b d s

cntering the Irpitimate financial Stream. as it c m only be a srnaIl percentage of the total

nmount of proceeds of crime because most of the money laundering taka place in different

tinancial markets. involving criminal organizations worldwide. through wholesale and

retail channels.

Uhen viewed in terms of macroeconomic indicators. the impact of the illicit dnig

i nduse on (i producer countrfs vade balance such as Peru tends to be positive for the

simple reason that esports of i l l q d dmgs gencnte inîlows of foreign eschange. This is

precisel>- the reason why some andyns have the assumption that any producer country

benetïts tiom illicit drug exports. 'lamely. the monry is not ailocated to investments

~r-hich are considered productive ttom the aspects of economic developrnent but are placed

in the balance of pay-ments to be part of the payments for the senicing of Peru's extemal

drbt. Hoxever. there is no etidence of nich opedons because as nade in illicit drugs is

not recorded bdance of paqment variations c m give only indirect ches as to the size of

the trade and its impact.

Cocaine money aiso brings in10 the industry money brokers who spread cocadoIla.

63

throughour thc country. kIonry eschanges travel back and forth through the cocaine towm.

collecting cocadollars and conccnuating thcm in Lima and. to somr extent spreading

them throughout the country. In addition to rnaking US. dollars available to the general

public- coca-dollar brokers send the American currency back to the United States.

Thsrefore. because of its underground roots- it is sstremeiy difficult to know or estimate

the amount and proportion of cocadollars that remain in P m or leatave the countryh0.

Banks otfer 3 \vide nnge of tinancial products and hold the larges share of the

tinmçiai market. and accordin& the services tht'y provide are widr1y used for moneq

laundering. However. non-bank tinancial institutions and non-hanciai businesses are

hecoming more attractive to these brokers for introducing ill-gotten gains into replar

hancial chmels as the anti-monsy laundering rrgulations in the Pewian banking sector

becorne increasing effective. Some delrgations continue to report a sipifÏcan< shift in

laundering activity from the tnditional banking sector to the non-bank financial sector and

to non-iïnancial businesses.

Among the most generai esampIr is that in the capid city. circuIaûon of coca-

dolim h3s become wide open. Since 199 1 - dozens of new money-eschange offices are

oprned in donntown and middle-clas sections of Lima In particular. Lima's financial

district is tlooded with US. doltrirs, Hundreds of drdsrs holding th& calculators and

bundles of doI1ars and soles deal ttith pasers-by . Tomists. businessrnen. and others who

needed to buy or sel1 dollars wouId go to these sreets of Lima

This bureaux de change. exchange oftices or casa de cambio pose an ever more

sigificant money laundering threat. niey offer a range of senices which are attractive to

cn-minals: (a) eschange senices which c m be used to b- or sel1 foreign cwencies. as

64

rvell as consolidaûng srnall drnomination bank notes into I q e r ones. (b) exchanging

tinancial instmrnents such as travelers cheque. money orders and personal cheque. and (c)

telegnphic transfer tàcilities. The cnminal element continues to be attracted to bureau de

change because they are not as htrviIy regulated as tnditional financiai institutions or not

regulatcd at ail. Even whrn regulated the bureaux oîien have inîdequate educarion and

interna1 control -stems to guard against money laundering. This weakness is compounded

hy the tàct that most of their customers are occasional. which rnakes it more difficult for

them to know their customer. and thus makes them more tulnerablshl.

.-1s anti-money laundering regdations is consolidating in the national financial

sector. the cnminals place increasing reliance on professionai money laundering

facilitaton. The experts reportcd a significant number of cases involving Ia\\yers.

accountants. hanciai advison. notaries. xcretaial companies and other fiduciaries

whox services are emplo~ed to assin in the disposai of criminai profits. . b o n p the most

comrnon tactics observed have bern the use of solicitors' or attorneys' cIient accounts for

the placement and layering of fwids. By this method the launderer hopes to obtain the

advantrige of anon>mity. through the solicitor client privikge. n i e making available of

bank accounts and the provision of profasiond advice and serc-ices as to how and where to

launder criminal money is IikeIy to increase as countor measures become more effective.

In addition to the use of shell cornpanies. there \vas dso wvidrspread use of real

businesses in Peru. to camoutlqe the ilIegitimate laundering of money. Techniques used

in conjunction wiith these businesses included fdse invoicing. commingiing of Iegd and

illqd moneys. the use of Ioan back arrangements and Iayers of transactions through

otrshore shell cornpanies. Often the Iaundered proceeds dsvould then be invested through the

62

r d Company into real estate or other businesses. though one country reported that there

\vas a trend away from investing illegai proceeds in reaI estate. and into i e s visible

in\rstments such as financial businçssd'.

Drug trafficking remains the most frequently mentioned sources of illegal proceeds.

Sou-adays. in the 1990s. drug traficking is sri11 the largest single g n m t o r of illegal

proceeds. Banks and bankers are compeflçd by due diligence conventions and other

sanctions in nurnerous countries to accept responsibility for ensuring that their institutions

take affirmative steps to prevent narco tics money laundering. We belirvr banking systems

in many k q - countries are less ~ulnttrable today. at least at the placement stage. thanks to

the adoption of new laws and banking regdations.

1 - 2 2 .Yo~iO_Demo,~t.uphic Impucf

Traditionallp in Peru. the indigenou population of the Andean region were always

rissociated with their habitua1 coca-chewing. This traditional sociaI and c u 1 W practice

has changed to more sophisticated and addictive behaviours. Cigarette smoking and

dcohol abuse are probably stiII the most serious health hzards and social problems

atTecting vaditional and modem societies alike. But another. coca paste smoking. has

appeared in Peru and some Latin .;\mencm countries. Wlile production coca paste and the

retriiling of "ketes" (in the 1980s. coca paste \vas retailed under this name). have created

an cconomic dependence and caused iinlationq prices. they have also brought about

physicai and psyhologicai dependenceh'.

Beside econornicaIIy supporthg the undenvodd the highland peasants undergo the

socid consequences of using coca paste. Their trend of coca-chewïng. especiaily among

66

Young male p e m t s . is now changing to the ux of coca paste. that is to a more addictive

and dangerous habit.

Bcsides the obvious availabili~ of coca paste. there are two main reasons for the

consumption of the substance in the jungle: sconomic and social. In the jungle. food is

cspensivr. Since the cocaine entrepreneur has ro provide the peasant with food during his

srnployrnent. it is to the entrepreneur's advantage to keep production espenses low by

lettiny his workers consume coca pastr. Sociûlly. the .Andean pesant is used to workins

under the srimulation of coca and is aware of the social impact that has been attached to

cocri-chswi ng.

The most damaging effsct of addiction io dmgs is the selfdestruction of hundreds

and thousands of children who enter the dnig subculture vrry w l y in their lives. Statistics

from population surveys have shown that smoking coca paste begm tvhen children Lere

ninr or ten years old. and across the board. they have been smoking coca paste for one <O

t k e !cars. The ounger addias usuaily get their daily dosages by ~vay of homosexuai

senices or eschange of sexwl gratif cation. Son-addicted homoxxuals and heterosexuals

aIso traddr coca paste for the same purpose?

The illicit h g trade brings with it drug abux and a hon of other social problems.

.-\vailable cvidence. thouz& suggest that consumption of cocaine and other drugs is far

Iess widsspread in Latin America than in the United States. In Colornbia for instance, a

1992 study commissioned by the National h g Directorate showed that 1.4 million people

(4.1 percent of the population) had conntmed at 1- one illegai h g at some time in thek

Iives. In the United States. hoviever. Iifetime h g prevdence is 77 million or 3 l percent

of die LLS. population. Comparable tÏ-mes for cocaine are 34û.000 (1.0 percent of the

67

population) in Colombia and 23.5 million (9.4 percent of the population) in the United

States. In Prru. accordinp to the NE[. lifctirnr prevalence as of 1995 is somewhat higher

than Colombia ( 1.5 percent for cocaine and 2.9 percent for cocaine paste). Such nurnbers

are still much loiver than those in the U.S. in Bolivia a study by the National Directonte of

D r q Prevçntion. Treatrnent Rehabilitation and Social Reinteption found that only 1.2

percent of the BoIivian population had used cocaine paste as base at some time in their

l i s . Uhilr current ntes of use are Iow. it is Iikiy that the continued presence of a well

de~eloped illegid cxpon drug industq- will rventudly focus on dsveloping domestic

consumption. and usage ntes are likely to rise in the future"'.

Therefore. the Upper Huallaga VaIlry. the region of great concem due to its

important cocaine indu-. has had a very signi ficant increase since 1 940. This increase.

nevcnhslrss. has not ken homngennus al1 over the valley. Overd1 population gro~trh

thcre has ben higher than the national average as c m be s e n in Tabie 22.2.a. But if we

malyze the g o u h rate according to two clusters of places. the t'trst localities amund T ingo

XIaria and the second one around Cchiza. things change considerably. For the tirst cluster

ive h d a dsscending dthough higher than average growth rate since the period 19404960-

People got to those places especidly between 1930 and 1970. as part of a migraton; wave

to a very promising region, bien in the second part of the 1970s the coca boom bqm at

the same time that a very severe sconomic crisis. the duster became an important point in

the development of the cocaine i n d q . Rqressive policies that included forced

sradication. simple substitution schemes and sheer force. pushed the whoIe production

systern in the direction of Tarapoto and created the second cluster. Indeed it is very clear

that population growth rates are ascending for that cluster and get to an d l Mie hi$

68

hst~vren 1982 and 1990. This corresponds with the period when the insurrection of Shining

Path devrloped and probably the cocainr indus- and the subversive movement combined

in creating the big mizptory \va\.s that corresponds to the last Fears.

.-\bout 80% of the urban population is concentrated in Tingo Mansa Uchia

Tocache and Nuevo Progreso. One of the moa important fea~ires of the area's population

is that almost 90% of it is made up of people who amred there recently and followed a

cofonization pattern that run from south to north in the direction of the construction of the

marginal highwq. a project of former prcisidrnt Fernando Belamde.

Table 2.2.2.a: Population and Population Grouth Rates in the Lpprr HudIaga Valley and Two Clusters Within tt

1 940 1961 1972 1982 1 990

This colonkition was. as noted. promotc-d by the mte- but without any senous

planning beyond noting the region's dsvelopment potentid. Mon of the mibgrmts came

from Pent's northem h i ~ ~ a n d s . in a disorganized and spontaneous way. The sertiers'

motivations included xcuring land obtaining jobs and Iess fiequentiy. fàmiiy ties with

colonists who were already there. In some of the sunreys undertalien in the region

marginal road construction and mibption trom the Andean -on coincide w3.h the failme

69

Total

Growth Rate

Cluster 1

(Tmgo Mana. Progrwo)

G r m h Rate

Cluster II

(Juanlui. Tocache.

Bellavtsta. Sion.

Uchua. Pachza)

Growth Rate

71.832 124.454 185.094 241 .O1 1 313.090

2.60% 3.70% 2.90% 3.00%

2.6 19 24.475 55.631 31 241 112.988

1 1 20% 7 80% 4.20% 3.70%

8.882 20.712 36.605 54.231 109.179

6 70% 6.80% 4.30% 9.70% J

Source: Innituto Nacional de Estadistica e informatica Peni. Oficina de Estudios Derno@kos - Sociales. Repone Anual. 1996. p. 17.

of the miIitq- govemment's agrarian reform policies and the lack of opportunities in the

citie?'. Some of the newcornrn were second time migrants who. disenchantrd with city

l i fe. hit the road for the jungle.

Cleariy. the govements in the past nvo decades actsd W-ice: first promoting. via

road construction and a certain initial organizing prcsonce: then disappearing, leaving a

sort of gate used by a disorderty migration tlow in ssarch of opportunities. one of \vhich. if

not the most important. is the coca indusu'.

Two additional factors have intluencird the shiîi tiom Iqal to illegal crops.

incIuding the purely economic hctor. On the one hand. cultivation \vas based on field

rotation more than on crop rotation. This. of course. promotes displacement and

instability in the relationship between the peasant and the soil. On the other hand, the Iegal

system that regulated land tenancy \vas cumhsrsome and inefficient so that obtaining a

property title \vas nearly impossible. But s titls is needed in order to receive a bank loan

credit and technicd assistance. so that illsgal crops xere a naturai and drnost

understandable option for mmy of the settlers. most of whom were aîyectsd by the lack of

Iegal stability. Of course. those that cultivate illirgd crops are by definition excluded fiom

ml- -stem of national or international cooperation. In other ~vord. it is a vicious circle.

The most recent initiative as was mentioned before. promoted by the current goverment,

intends to change that situation by gven legd tities to the farmers. From that point a

progressive substitution scheme uith intemationai nippon wodd follow ( Dmg-traficking

Smtcgy Enforcement 1990)". LVith this register. it becomes feasibk to promote

alternative crops and avoid a lxger tlow from rin;il regions into urban, wkch would only-

\\orsen the problems of Iow standards of living and unemployment .-Uso. it is possibIe to

70

ncgotiatr a crop substitution program and improve it over time. ..\n evaluation of the

progras of the program. t h d s to die land registlation and le@zation process. can lead

to the concentration of thé repression and Iegal tight againn the drug made itseK and those

that do not comply uith the crop substitution agreements. It cm also support the fi&

against the terrorists.

The drug vade has had a nqatiw effect on the grnenl qualit? of life in affected

countrirs. and panicularly in the Andean producer countria. have contributed to a hi&

Iwel of social violence. Drugs are associated with the de~ndation of the judicial sector

and with the increasing inefTectivençss of the coun systems in resolving civil disputes. The

cocaine ethic also has diminished the mord basis of the society. spewing corruption at al1

IsvsIs. and increasing the incidence of kidnappings and Street crime. These sociai costs

c m also have a direct economic COS. in terms of reduced Iabor productivity. increased

çosts for crime prevention and securityhx.

In analyzing the socio-demognphic phenomrna generated by the coca boom in the

high jungle. we End characteristics that are not unespected in a country Iike Peru, or for

that matter in a region where sudden economic sxructural reform is undertaken: lack of

continuip- and planning by m e that at fm grnerates expectations. This is followed by a

lack of authon-. institutionalization and suppon which are compensated through

unorganized but vi_oorous illegai forces that do not abide by the des.

.An important direct con associated with the dmg mde is the con of enforcing the

drus 1au-s. prosecuting drug kingpins and implementing demand reduction via treatment

and prevéntion pro-gams. Peru's national cimg budget is about US$ 2 billion this year or

about 3.4 percent of Peru's GDP? Of thÏs amoünr alrnost 90 percent is allocated to the

72

Ministn of Defense and the National Police. for crop cradication and counter-traficking

rictivitiss. while the rernaining amount goes to the Ministries of Heaith and Education

~vhich share rrsponsibility for fighring dornrjric dnq addiction. D n g control efforts are

ve? cosrly. Thus. the Andean countries bsar a rrlatively hi$ cost for sudning efforts

againsr drug production and drug ab=- and these etforts divert resources from the

cIswAopmsnt of other parts of the sconomy.

The most imponant part of the prognm is that it should adopt the point of virw of

the poor. creating institutions which support their efforts to attain the nght to their

property. theretore integrating hem into the Iegal market fmmework. I t aIso becomes

possible to establish the presencc of the sate in the coca production areas as a legitimate

authorit?. and source of alternatives for the millions of peasant land holders.

? ? - - . , . J C ïuZencr und Imtrgenq-

The impact of the h g trade on the Penivian politicai and socio-economical system

has b e n considerable as it is founded upon an alliance benveen leftist guemlia groups and

coca f m e n . Therefore. it is n e c a s q to rspIore this important cornplex relationship and

coIIaboration with the cocaine indusm.

The violence and insurgency pl-s a sicpifrcant rote in the Latin Amencan drug

rradr. The dnipinsurgency reIationship is the formation of political-militaq- enclaves

conuo1lc.d by tnffickers in aiLiance wïth Ieftist. revolutionan; groups. This means that the

iùnding and equîpping of terrons activities are accomplished by involvernent in h g -

relatrd activities that may include the production and e'rport of narcotics.

it is in this scenario that the Shining Path a tefi-wing perri1Ia movernent emerged

72

in May of 1980. The initial focus of the Shining Path's terrorin acts \vas the city of

Ayacucho. where socioiogists. anthropoIogists. philosophsrs and students at the

Lkiversity of Huamanga incited both Young mestizos and peasants to attempt armed

strugglrss against the government. Ihç moving forced behind the Shining Path's creation

\\.as .-\himael G m h . a philosophy proksor at the University of Huarnanga. Noting the

striking cIas differences in the society. G m h concluded that as Peru approached the

twenty-t?st centuy it was stiII a semi-feudal and semicolonid society. Moreover. the

covrmrnent rmbodied a fiscist structure masquerading as democncy and engaging in the t

construction of a corponte stats and the dsvelopment of bureaumatic capitalism.

Guzman's politicai ideology was predominantly Maoist. As such- Guni51-1 held that the

social reform could be had only by making revolutionaries out of Peruvian peasants for the

purpose of ovenhrowing the es~ahlishsd govemrnent.

The Shining Path first c m e to widespread public attention after a Full decade of

dogrnatic selksarnination and rigorously selective recruitrnent. The violence against the

government began in July 1980. and by the end of the yçar some 2-10 incidents had been

recordrd including the destruction of local txx records. bombing of government offices.

and sabotage of elecnical pylons. By 198 1 the rate of incidents had increased cvpanding

to such activities as the raiding of banks. mines. and the police posts. Kidnapping and

amcks to offices and personnel associatrd with the madication of the coca plant and control

70 of the production and aafficking of cocaine ws added the following year .

In the jungle. uniike the rest of the country. no banks. schools or power plants

hm-e bem destroyed. Such ternorisr acts would have affected local h g econornies more

than the nationai economy. Cities that provide consilmer go& to drug-producing areas

73

hws not besn targets of any kind of swious terrorist attacks so far. whereas other highland

çitiss and towns whose economies are not based on cocaine have attracted the Shining Path.

bforeover. i l thr Shining Path rvcre politically important in towns and villages producing

dmgs. and if the rnovernent were supponed by organized crime. thrre would have been

on&- spondic attacks. Both the highland guerriIlas and the cocainc undenvorld have been

more organized and better equipped than the national 3rmy in the ma- ' .

Most of the victims of the drug trafickers' iinacks are police intomers. policemen.

and mernbers of the armed forces. They set fire to encampments and offices. torture thrir

victims and chop their bodies iinto piecrs. put thsm in plastic bags. and dump hem in the

wods or throw them in the river. \%%en the' ger their hands on people the? want very

hadly. they beat them up and han, them with wires. puning s i p s on their bodies w-hich

rad. "This is the wvay infomrn The drus traI'frckers communicate and organize so

quickly against poIice raids. that man- law enforcement officers are more concemed with

thsir own sun-ival and Iivelihoods than with law enforcement hnctions.

The idrologicd politics of the Shining Path becmc most evident in the focus of its

tsrronst activities during 1986. In southern Peru. the Shining Path guerrillas capnued

plantations and haciendas. sometimes kiIIing their o w m r and employees. and distributing

canle. sheep. alpacas. and other goods to local peasants. .-\ state of emergency, with

conaitutional _ruaantees in abeyance. cxisted in drnoa nvo thirds of P e n af5ecùng half

the popuIation- Moreot'erer the Shining Path \vas beIieved to have tielded some 5.000

guerriilas and 500.000 foIIowers nationwide-'. - The Shining Path has acted with a combination of what codd be called tacticai

simplicie and strate@ sophistication. Since the \var e-an in 1 980. it has had long-range

coals and mid-range goals. and has taken immsdiate. specifc action. dl carefùlly and - crntrally planned by Grni in.

Shining Path has imposed iwlf in some regions of the .Andes through sheer terror

with linle social support. n e Upper Huailaga Valley is. in that sense. an ideal setting.

Statc control is almost absent. and when it is prexnt it brings contlict. repression and

corruption. The drug tnfickers represents violence and sconomic esploitation. -4s we

have rilready seen. the psasruits. poorly organized and lacking social support systerns. are

mistreated bu cvepone. The Shining Path protccts the coca cultivators. regulates their

dsalings with the trafickm. harasses the fsw people who represents the statr and defends

coca cultivation against international and national eradication prograns. In other words.

the Shining P a h has established a Iegitimacy in the region that it has not been able to

ric hiew c 1 sewhcrre. The latest antidmg mtsgiss ( mi litanzation oFthe antidrug efforts, via

the -y). suit Shining Pathos ideology pex-îkctly ris the contlict t k s s on an international

scope. The coca growers would bc at the crnter of the KU of national resistance against the

. - b e n c m efforts to take the Peruvian peasants livelihood away tiom them.

Dntg traf'fickers and Shining Path gurrrillas represent two totalIy different socid

movsments. Drug uafficksn are members of an underground social organization with

purel? rconomic interem-'. The? are d l y consen-ative and s~atus quo-onented. They

do not have an? ideologicai and emotional identification with national problems. The

Shining Path and other politid groups. on the other hand are d l ? seeking to radicaliy

uansform k i r respective socieùes by overthrowing their govemments and impiemenring a

re~oiutionaq nets- order usually bassd on an offshoot of Mar?ust-Leninist iddo,--.

Hundreds of people in both the hi&Iands and urban areas did join the p e d i a s . For them.

75

there was no other way to express the tiustration. povaty. rnisery and abuse esperienced

in the country. For this reason. the highlmd Indians and pe;isants directly or indirectly

have supported the rural guemtias.

The narco-terrorism link. however. apparentl? deteriontes in the downstrearn

phase of the cocaïne induse. Cocaine dealers and guenilIas cornpete bitterly for territory

and resources and for control over the coca growïng ptrsantry.

Giïcn this patrmi of contlict it is not surprising that the Pemvian sociologist

Gustavo Gomti suggests that drug dealers can develop certain forms of coopedon and a

tacit alliance with the state. From the state's perspective. after d l . guemllas pose a greater

strategic threat than the cocaine industry.

Sonetheless. powertlil groups related to drug nafficking have cvolved in the pan

feu years. The? have tned to intiltrate and convoi society and influence politicai parties.

Tu-O csmplrs corne to the mind: between 1975-1 980. dmg traf"ckrr Carlos Lanberg

built up an intluence nenvork during the last yrars of the milita? goumment. He

intluenced leaders of the Ieft-of-center .VRA Party which everyons thought was shed to

\vin the eiections f i e r the r e m of the military to thsir barracks. Lmberg contributed

genrrously to the .QRA politicai campaign in 1980. .After the riectoral drfeat *RA

undenvent a renewd that saw .Alan Garcia a Xoung and largely unknow~ politician, rise

to pom-er. From the Garcia focused on the presidencq-. which he achieved in 1985.

Xnother example is ReynaIdo Rodripez Lopez an obscure accountant who. berneen

1 980- 1 985. built up a nenvork of illicit activïties tied to drug tralticking protected by the

highest ranking police oficen during Fernando Belaunde's second governent between

1 980- 1985. Con- to Colombia however. once drug tratEckers are exposeci. the? and

76

their oganizations tend to crumble. The two centrai figures and mm? o t k r s are still in jail

and attempts to liberate them haw met uith svong and effective opposition fiom the

poiitical establishment and frnm the press".

These two aspects entertain with civil society diverse and ambiguous relationships.

.As for production. there are more and more doubts about the intelligence of treating the

coca f'en as criminals. ahich only makes the Shining Path. the most real and important

danger to the country's integnty. stronger. Thnie statr should accept the Iegitimacy of the

coca fmcrs ' organintions and design with them alternative devrlopmcnt plan. .As for

dru, tnfickrrs. les powerfui in Pem w d Bolivia than in Colombia. for esample. the

prob1t.m is one of corruption. The? are capitdist entrepreneurs that do not uant to be

bothcrcd b? the sa te and should be vigorously sachcd for and enprisoned.

Drug tnitficking is. indecd qnonynous with corruption, To cite an example: in the

Cpptr Hurillaga Valley. in the Juiy-.Aubpst of 1988. as well as in other years.

traîtickers reportedy paid SIZ.000 in bribes per shipment of cocaine base flown out of the

C'dlsy- In one recorded case. S5.000 \vent to the Iocd mi1im-y cornmanci. SS.000 to the

Iocd contingent of the nationd police. and S2.000 to comlmity o~anizations affiliated

direcrly wth the Shhhg ~ a r h . ~ ~

On the rare occasions when lading affi~ckers are arrested. they on b n i their way

out of custody on ihe spot Wlen &ckers do. in spite of evq-thing. land in jail. compt

judges or prison wardens rnay release hem Liom custody. For esample. one of Latin

.krmica's most notorious drug traffickers, Juan Rambn Matta Bailestores. escaped fiom

prison in Bogota Colombia by paying $2 million to each of his Cyards.'

There is a Iimit to the mafia's ability to p e t n t e and comrpt enforcement qencies: it

77

cannot buy irnmunity for dl its activities. Hrnce. the mafia needs an intelligence network to

supplcment the protection n e ~ o r k and provide advance warning of planned anti-dmg

operations such as nids on labontona. custom xarcha. and police nveeps. The nenvork.

consists of strategicall y placed in fomants in the bureaucracy . Sometirnes cocaine traffïckers

thernxlves occupy position of trust and responsibility. In P m for esample. the W ~ c k e r

Rg-nûido Rodnpuez Lopez \vas an advisor to the Director of the Penivian Investigation Police

uhilr rnainraining an office at the headquarters.

This intelligence capability hctions within a broader .stem of social relationships is

çrcarçd by the narco-mafia. Cocainr tdEckm am tnends and supporters mithin society by

spending money within the society.

Cocaine trafficking. as already noted. bu? protection from police. prosecutoa

judges. înb whrre necessu?.. the mili-. Timr magazine reporteci in F e b m 1985 that at

[ a s t 100 Colombian air force perso~el and 200 national policemen h d k e n dischargeci

becaux of drug connections. .AISO. -100 judges repottedly unda investigation by the

Colombian Attorney G e n d ' s otfice for allegai complicity in the trade?

CocaÏne aaffickers sometimes try to nvay ofticid policy by capitalizing on

covçrnments' tinancial problems. For esample. the Bolivian trafficker Roberto S u i k a in a - meeting with president Siles' narcotin adviser in 1983. offered to give the Bolivian

ZOI-emment S2 billion in four SjOO miIIion instalment to help pay off Bolivia-s foreign debt - Suirez according to accounts of the meeting n-mted the Siles governrnent to acknowledge

the independence of his cocaine trafickiq enclave. In eady I9W. a Pennian aafficker by

the narne of GuiIIemio Cardenas reportdy o f f d to pay off Peni's national debt in r e m for

his tkeedom from jail. In the same year. Colombian cocaine tratfickers. in m e e ~ g s mith that

75

country's attorney g m d . otTered to repatriate an mimated SZ billion to Colombia in r e m

for otticiai amnesn;. Rou~My 2 y m later. th- offered inîiomwlly to pay Colombia's SI 3

billion national d ~ b < ' ~ .

The state has played an incoherent rolr that has oscillated benveen a certain

resignarion towards an activity that has psrmitted it tg mitigate certaîn aspects of the

national cnsis. csprcidly the lack of hard currency and increase in domestic production.

and intense. although inconstant actions targeted more at the coca famen than at the

cocainr indus- as a whole. fhe tmth is that the Upper Huallaga Valley is not quiv under

Pemvian governrnent control and it cannot offer the people who make coca their livelihood

crop substitution schemes. The rffects of this issues are already transfoming the Huallasa

population's perception of rlected and tùNre govemmrnts.

22.4 E,rrernaliiirs of rhr Cocw Indzar~

From a global perspective. it m m bc recognized that the environmental damage

c a w d by illicit dmg production is minimal compared with that produced by other causes.

such as the production of clorotluorocîrbons. I t is. hoviever. at the country level where

the impact of illicit dmg production is inquably del-astatin$".

Environmental problems associated nith the narcotics indumies c m be inciuded in

the catqory of indirect economic costs. Such costs are associated with the pollution of

P m ' s wvatenvays. Chernicals required for the refining of coca such as kerosene. sulfunc

acid. quicklime. carbide and acetone. are dumped into the major riven. Further

de forestation is caused by the slash and burn techniques used by the coca f m e r s to clear

plots of land (see Table 2.24-a). Resent consumption is h a t e d at 10 million Iiters of

79

suIfunc iicid. 16 million liters of cthyl éther. 8 million liters of acetone. and up to 770

million liters of kerosene. annually. aithough somc of this cm be recycled. To the extent

that processon spi11 or dump used chernicals ont0 the ground. the? quickly end up in the

region-s rivers. The result is widespread deforestation dong the riverbanks. land erosion

and the poisoning of rivers which are so vital for the Iivelihood of industries and the

population at large"'.

In this light. it is al1 the more tragic that the Huallqa region has evolved into the

world-s p r imq source of illicit coca. Psni's coca grotviing areas spanned thousand of

hectares since the 1980s. The local cconom! of the HuaIlaga region \vas once based on

cocoa and coftee produced by small-scde landholders.

The system detexionted owing to the following: (a) the lack of appropnate land

ownership legisla~ion: (b) inadequate agricultural extension semices: (c) the absence of

viiibIs marketing options and distribution channels: and (d) isolation due to civil strife.

The environmental impact of dmg production is an issue that m u s bc seen within

the conte- of sustainable development The linli benveen population pressure and dnig

production. for esample. is not ai fim sight obrious. but is crucial nonetheless.

Population grotvth often renilts in greater agiculturai espansion aimed at mainraining

minimum subsistence Ievels. This otien results in a decrerix in follow periods. Ultimately

soi1 krtilic is reduced. This lowers the potenùal for maginai yields. In view of their

income potential and relative ability to withstand harsh terrains. illicit crops are seen as an

muactive alternatives. But their h m d n g Ieads to funher soi1 degradation. thereby

sliminating the possibility of a r e m to other crops-

Tabis 2.2.4.a: Cocaine Processing

' x i d solution.

Stsp 7 . Thc solution is tiltcrcd and thc prcsipihtç is d i s x k d . .\rnm«nia watcr h addcd 10 thc 1Ïl;c~rJ solution and mothm prccipiwrc is lomcd.

1 I ! Stcp Io: 1 [>dmchlorir: =id dilurcd in xcriinc or cihcr ih ddcd 11) thc c b n c wlution. ïhc addition o f the 1 : h>drochloric =id uus6; the ci>uinc to pn-ipiwc out ot'thc wlution ra; u a n c hydrochloridc. l

j

1 CILSU plastic uids for d e to ctbtomcrs. I

1 Source: Andestudio. Market Study: the coca I d international possibilities. Final Report, E'IACO. 1992. p. S.

In this I igh~ illicit cimg production tits into the oh-cited nmus of popuhtion growth.

qricultunl stagnation and environmental dqndation.

Coca I d was cultivated for centuries in the .Andes with techniques that were

efficient and respectfil of the environment. This was carried out in response to socid and

culture pressures of the ancient .-dean word. This. in ntm controlled the extension of

cultivated areas. But in the hi$ jungle regions where new areas of cultivation have

espanded u-iIdIy in the 1last 15 ycars. things are different CoIonists setded here attracted

hy prospects of easy mon-. They indiscriminately esploit an eco-stem that has enormous

potentiai for the future development of Peru.

81

Notes

' Sanc? Lois Richards. "Ec.thra~lon CTicu in rhc P~nmiun Highfunds: Prucricc-P und Belietfi. Y Univcrsiry of California 1980. . - - - ' - G . Pennano. "Lu Economiu c l ~ / C'cruche" (Iquitos. Peni: Crntto de Estudios Teologicos de la .-lmazanonia - - 1988). ' ' "Coca en Peru.- Prni Econcirnico. j a n u q 1984. p.50. : I Edmundo Morides. -Coca and cocaine economy and social change in the Andes of Peru.- EL-onomic D~.r.~.lt)prn~-nr un J CC~druruI Chunse. VO 1. 3 5. No. 1 ., 1 986. - . '' blathea Falco. "The Big Burinrss oflfficit Dmp-. 'leu York Times Magazine- 1983. "' J.M. Caballero. -Econorniu .-igruriu rit. fu Si~*rru Pcnrunu-. Institut0 de Estudios Pcruanos. 199 1 . . - ' This was thr kei sconomic theon. for developrnent in Latin Amerka from the mid 1960s tilt the rnid 1980s. The idca luas ro replace the Latin Amecîcan nations g m t dcpendmcy on impons with local production by national industrirs. The probiem was industries h d neithrr sutXciicimt capital nor technoIo,- to pmperly rcplace the import products. '" i ldrbrando Castro Pozo. '..\iiLstru Cornunirlud lndigcnu ". L ima-Peni 1 979. f i l

hlacroconsult L rd. "C*OC.-iI.Y.-I: Prohlcmuiï J Sdtic-iones .-lndinu.s ". APEP, 1 990. ;ri Rcnssr taer . W. Lee 1 II. "The Witt. Luhp-inrh: C;rcuinC und Poliricd P r )wr ". (Transaction Publisha: 1 9s9,. p.43. " Jriv ier Escobar and Marco Cmtil Io. ".-i,~ricuIrurul Prrcc Policics. Incom Disrrihurion and insrnion in rhr .Ucrrkcr ". Dsvelopment Analysis Group. 1992. . . '- ?&croconsu lt Ltd, ".-lnu!~sis of the Production ~ ~ C ; J C C I in the Cpper Jungft* ". Lima. 1 995. 1 :

-'R'ymrr of-rhti Inrernutionul .l'urcoriciv C'onrrol Bourd fijr f WEi ". United Nations Publications. 1996. &a Cuhto S.A. " P h enCifus 1995". Lima-Peni. :< Ministp of Agriculture. Xgicufture Information Office. Annual Stritistics. 1995. &9 This is slightl~ ovmtated sincr illqal activities are not included in GDP. and the value added for cirus includes amounts which are not repatriated. Value added estirnates for Colombia based on 6096 of gross revenue. ;- U S . National Dntg Conuol S m t q ~ . Februv 1995. l x Dtug Enforcemcnt Agency. Special Report. "CC'orlJ,riJr CCtn-urne Truflcking Trenk-'. Washington D.C.: DEA. 19S5. 8' t E Jmundo Momies. "Cocuinc: Wh& Gofd Rush in Pcm ". (The Universin. of Anzona Press: 1989). p. 90. il 1

Monles, p. 92. I M o m l ~ * p. 92 < - - US. k p t . of Justice, National Dm? Intelligence Centrr, Aprii 1993- i:

" The .-fndcun Reporr ". Lima Decem ber 1 990. p. 2 4 . ' a USA 1 D. ".-i lternarke Deveiopmenr Prqiecr ". Lima 1 994. p. 2. i 5

Orsan ization of Amencan States, ".Vurcorics .I-lonq Luundering in rhe .-îrnericas: u I-ulnerabiiig .-isstlvsrnm ". Washington D.C.. 1993. '" OECD. Report of the Finuicial Action Task Force in Mon- Laundering. Ms. 1990. <-

in formation supplied by the National An ti-Narcotics Buteau, D m ANDRO-Report of rhe Technical Supporr (?(?7~v-Peru, 1 997. in Macroconsult Ltd.. 1995. '" C S . Department of State, INSCR 1996. '" Carlos E, Percovich, ".Clonqi. Laundering ". L ima-Pem 1 996.

Report of the Financing Investig~tion Div ision-Dmr AN DRO-National Police. 1 995. "' Ibid. #. . - "c'~,c-u Gruwing. Cocuine Colzsllrnprion Sen us .Vurionul Pruhiems '. intewiew with Edprdo Machado. El Cornercio. June 16. 1989. hl Monles, p. 1 1 S. '" Maria D u n --Dedi Bem ". New York: Harper Collina. 1994.

t i r C. E. .4nm buru. "Lu &conornia Parccluriu y el C'ulrivo de ku <-mu ": El caso del .Alto HuaIlaga in Leon and Castro de la Mata R.( Ed.) Pasta Biisica de Cocaina. CEDRO. Lima 1989. " hl in isterio de Agricu l tun. "C'clmpendio &I Sccror ..l.:rop~.r-uurio / 993- 1994." Lima 1 995. p.26. I n n Anthony Maingot. "The Mit-ir D q Trude in the .-indeun C-orrnrries". Use. Tnnsshipment and Money Laundering. Report prepared for the World Brink. 1995. "" .Announccd by the Ministq of Health. Marino Costa. Published in the Cornrrcio's newspaper. August 50. 1997.

-1 ) Michasl Reid. " k m : Purh ro Port* ". London: Latin America Bureau, 1985. p. 1 OS. - 1 -. Lee I I I . p. 1 78. -Hugo Salazar del .4lcazar. "La Otredad de Sendero". @rerhucerr. J a n u v 1990. Vo1.62. --

Pe ter Janke, "Gite.rriiiu und Te.rrr)ri.vr Orguni=rrrinm ": X World Dirrctorq and Bibl iognp h'. N a v York: blacmillan. 1983. p. 505. - 1 Scott B. kIacdonald. "Duncing on u 1 iilcuncj. T h Lurin .-fmcricun Dmg TruJc* " (New York: i 988). pp. 5- 6 . -a

Gustavo Gorri t i . ".Qndero Luminoso. Hisrorru de /u tiucrru .Ilil~'nuriu c'n ci Pcmi ". Lima 1 990. "Bureau of In tcmational Narcotics Maners. US. ikpartmsn t of State " l n~~rm~ ionu l .~;uL.ori~-.s C-onrroi Srraregr Rcprt - (I.YCXR) ". ( Washington. D.C, 1957) . p. 70.

Ibid.. pp. 70-7 1. -?(

Fighring rhc Cimine Ct'urs ". Time. Fcbruap 25. 1 985. - 1

.A lan Riding, "Coccine Bi1iionuire.v ". The New York Times hl a p i n e . 1 987. Y f I Sou thnxst Resarch Associates incorponted, "&mironmcrnrd und Ec.oiogic.crl Eflecrs r$ the Coco C.trmwsron inclusrn.". Januap 1993. a study sponsored b? the USAID. * 1 M. Durojcanni. "&nvironm~.n~ui hpucr f h m C;)c*u Cirlrirur~on und Producr~on rf Cocuine in rhe .Jmcon Busin ". CEDRO. Lima, 1989.

III. Part Two Assessing P olicy Alternatives

3.1. Problems. Sti-ategies and Solufions [O Attack Drug Traficking

The problems of narcotics control in the .Andean counies stem largely from the

powsr of sntrenched narcotics interests. ffowever. such problems are also atrributable to

othcr tictors: weak control of government the absence of nrong public suppon and

tension benveen civilian and militaq authorhies. The dmg issue has also ken a source of

conflict and munial recrirnination benveen North and South Am& Roducing counûies

and conniming counaies blame =ch other for the accelerathg h g Paffic and advocate.

respxtively. demand-side and supply-side solutions. The existence of widespread narcotics

cultivation and uaffi~ckllig in the Andean region. inevïtably accompanied by comrption of

governent and armed forces officiais. weakens the reliability of the Latin berican

counnies. Thm. the United States considers the iIl-aI flow of cocaine From Latin .4merica a

serious threat to U.S. nationai secen;.

Has there k e n an- clear propess in campai+gns against drug abuse and tmf35cking?

Nlat has failed? What has worked? What have k e n the outcornes. intended and

unintended of goovemental intervention in dlls area? Therefore. it is the objective of Part

Two to and- the efforts to d u c e or diminate both the production and supply of illicit

h g s and its consumption. Lt b e g b with an overtiew of the role of govemments and

military: and the responsibilin; of supply and demand countrïes. The section concludes with a

description of the United Stata policy. an evduation and measure of effdoveness and some

options aimeci at combating narcotics production and aafticking in the region.

81

3. I . I Role of Governmenrs

.Andean govemments find thernselves in an uncomtbrtable position in the u.ar against

dnigs. On the one hand the cocaine mde injects n d e d dolIars into Andean economies and

cmploys hundreds of thousnds of people. Dnig dorcernent measures generaIllly have linle

popular a p p d because it is pmeived as a pr0L-m imposed on the Andean region by the

United States. Certain US. measures such as extradition. the spnying of iIIicit crops, US.

military intervention againsr cocaine tabontories and economic sanctions qainst cocaine-

ssponing countries have caused considerable anti-.h&can popdaity: i nded th- arouse

substantial opposition. Governments themxlvs are apt to fwl that the tvar ~~ dmgs

çonflicts with other prioritis: for example coping with intlation and unemploynent

promoting sconomic g r o ~ I ~ . and combating crime and subversion.

.At the same tirne. Latin Mericm govemrnents are under some domenic and

international pressure to control drug tmfEcking. Moreover. Latin LImerican govemments

face the threat of reprisais by the United States for not taking strong action. .aerican

Con-gressional attitudes have hardened in ment ysars. and Iegklation has endorsed

progessïvely Nffer and more wide ranging sanctions ga ins govemments that are

uncoopenti\-e on drug control.

T h s e contradictoq tendencies condition die ways that govemments approach

narcotics concol. So. it is possible to mention severai distinct approaches. First

govements set up elaborate bureaucratie smctures for fighting the dnig nflic. Second

they sought to mavimize the intlow of international aid for this ptnpose and to m h h k e rheir

OWI outiays. Third. in Peru and Bolivia the? nied to refocus drug control strategy. stressiog

interdiction o v a ~~itdicatïon. Govemments find it potit idy easier to raid cocaine

85

Iaborarories than to destroy peasants* coca fields. Finally. continuing controversy over

narcotics policy within the bureaucracy and w-ithin the sociel at large. has immobilized

govrmmenrs in important ways. They cannot implrmcnt enforcement measures diat couid

matsrially advance the cause of drug control. Signifiant measures apparently on hoId include

the use of herbicides to eradicate coca and the estradition of Ieading cocaine tnffickins to the

I-hited States.

Latin .-lrnwican governments s e the tvar on drus as a drain on scarce resources and

ris undsrtùnded by the international cornmunip. They cite the awesome economic and

rni1ita-y power of international cocaine mafias and the relativeIy low leveIs of international

support as reasons for their failure to conwl the h g a;iffic. In addition. govemments in

vq-ing m a u r e perceive narcotics control as imposing economic and social sîde effects.

principalIy in the hm of Iost income and jobs. Thr rich dmg-consuming colmaies. in their

visw. should compenute for their Iosses with major new infusions of money and

development assistance.

5.1.2 Rolr of the .lfiIitq.

Andean military establishments do not have a major anti-narcotics mission. Rather.

the: provide occasional logistical ntppor~ such as helicopters and pilots. for operations

planned, executed and controlIed by antiidnig units of the national police. In Peru and

Bolivia. the m i l i t q has contriiuted alrnost no resources or manpower to fi@ the cimg

naffi~c~'. Furthemore. th- have. in fact. k e n qisodes of coilaboration between militarq'

factions and cocaine trafEckers throughout the Andean worId. The hbges ma>- derive. as it

was discussed above. f b m corruption. h m stmtegy considerations. or even fiom shared

56

political and ideoiogical values. Also. the inherent nationalism of the md forces has been

a barrirr to increased international cooperation qainst narcoUcs. Finally. there is rivalry and

historical animosity benveen the milita? and the national police in the Andean region

hlilitary rsrablishments seek etktive control over the legitimate use of force in the zone: for

this rerison the? have resisted rtTorts by the national police to deyelop an independent drug-

tighting capability.

The wents of the last decades suggsst rhat the US. sponsored narcotics control effort

in South .hnerica is to some estent a hostage of the militq. The police must depend on die

milit* for mobility and tirepver. It is wident that Peni provided a much better q g e n t

for the use of military. for it is both the principal source of coca and a place where penillas

are invoived in the dmg enterprise.

The crop and lab destroyrs in P a fàced two serious problems. Farmers planted

tislds and tdEckers built tabs in net; and more isolateci locations. More serious. however.

\\as the inability or unwillingness of Peruvian secirn'ty forces to protect antidrug workers

%ainst the violent resistmce which inevîtabb occurreci sspeciaiiy that of the Shining Path. If

the crop endication and the Iab destruction p r o L m \vas to nicced the L'pper Hudlaga

Valley had to be made secure''.

Many residents of the HuaIlaga Valley welcomed the arrivai of the Shining Path

hlrn coca growing and naffcking boomed in the lawless of the Vdey and tensions were

subxquendy raised by the antidmg campaip. the perdlas moved into the Valley and

impoxd ordm. somethinp the Pennian governent had not done. Colombian aaffickers.

who had k e n abusing the groweers. were disciplineci and taued; the Shining Path thus gaineci

support tiom the groers and income uith which to purnie its poiîtical ends.

87

The Penivian military failed largely because it \vas ordered to folloa a contradictory

policy. It could tight the guerrilla or engage in antidnig efforts but not both. htidrug efforts

drove people into the protective amis of the Shining Path while anacks on the guemllas gave

the drug producers a kee hand to purme their business. Peni~ian milita? leaders. by and

large. prekrred to concentrate on the guemlla believing that the Shining Pa& \vas the

xrious threat to national security and one that the rnilitary w s trained to tight The United

States. howver. more interested in destroyinj drugs and protecting antidrug worken.

pressured Peru to focus on drus.

Pmrvians are udikely to d n their fear and anger about illicit h g production.

Thry \\il1 become bored with dmg news and divert their attention to other issues. sspeciaily

as t h q s l o ~ l y adjust to the reality that a certain percentqe of the population men though

highcr than they mi@ rvish. will dways produce illicit m. The h g problem pales in

cornparison to other national problems even though it received an inordinate amount of

attention through past years- The drug issue has been part of a much larger issue in Peruvian

soc ie~ . that of social conuol. The Peruvian gooemments represented arnong 0 t h things-

an effort to restore social conuol. Peruvian wznted theu nationai ~ovmmemt to fight those

things which the? believed threatened the normal of life such as terrorism. its educaûonal

-stem, the persistence of p o v q , deterioration of its economic iriii.astructure. reduced clout

in the intemationd economy. rnban decq. m\ironrnentai pollution budget deficit and

uhat d e it wiI1 play in international affairs.

3. I . 3 Responsibilip of .'zipp[v Chuntries

Severai Latin American counuies account for the bulk of i11-al marijuana cocaine

and heroin smuggkd into the United States =ch v a r from the Wmem Hemisphere. Some

of al1 imponed marijtiana that entm the U.S. market origînates in one of the following

counuies: Mexico. Colombia Jamaicri or ~elize".

Colombia emerged in the mid-1970s as the principal refming country and for more

than a dscads has controIIed roughly 75% of a11 the refined cocaine esported tiom the Andean

rtgion to the Cnited tat tes*'. In the last three years xveral other countries: Venezuela

Brazil. Ecudor. Paraguay and .kgrntiria have revdrd not onlp transit points but also

budding processing centres as well. although still on a relatively srndl scde. This has corne

sbour in large part. because nrpped-up CS. and Latin ..\merican enforcement operations

have driven soms gowerdedrrs to ssarch for ch- and saî-èr d t e d v e s for cultivaion

and processing outside the tndÏ tiond coca-grotvin_r rqions" .

Since a permanent though varqing demand for ille@ c h g s is Iikely to persih it uill

be necesW. to reduce the supply of available drue. h g avdabiIity can be dscreased by

operathg @ns eveq link in the dnr, chah h m cultivation to production and -cking.

Drug crop cuitivation must be addressed both domesxidly and abroad ûrugs m u s be

interdicted tvhile in transit The diversion of precursor chernicals must be prevented, IUicit

profits m m be traced to their criminal sources and where possible. seized and aafficking

organizations mus be broken. Because dntg nafficking is hdamentally a profit onented

enterprise. aniicking the economics of every aspect of the illegai drug ind- offers a way to

reduce dnig availability. interdiction must continue to be a t j td component of a balanceci

supply-reduction effort- Bilateral. mulnlaterai. regionaL and international cooperation is

89

criticai ro the success of any rffçctive interdiction efforts which require flexible and

intelligence driven operariow. Moreover. it will be essentiai for the reduction of h g

availabilic the continuai development of law rntorcernmt pro-ms and o~anizations that

c m movr eftéctivelp qaim sophiaicatd tdXckinp organizations. For this reason and in

complimce with international drug controt treaties. cmperation benveen countries \vil1 need

to includc the exchange of inîbrmatioit rspenise. and assistance to reduce production of

illicit dmgs in supply corntries.

Supply reduction etTon should focus on specitic crops gown for illicit purposes in the

major cultivation zones. This will be supplemented with alternative development projects in

ninl sconomic zones. which saive to gnrrate and promote lawfi.11. pmfitable. and

environmentally sustainable production and help to make it possible to overcome the condition

that gave rix to illicit crop cultivation. The nerd here is to promote the cultivation of other

crops. such as banana tobacco. pineapple. rice. coffe. cacao. and potato among others.

The use of these crops provides the assurance of the e';istence of a market. However. it aiso

means that the new producer will be competing with rstablished producers for the same

market niche. or \vil1 have to try to create 3 new niche.

C l o x coordination in @cultural development poli- benreen the .4ndem corntries is

r i h needed. so as to diminish competition khveen producer countries. .Ail South American

coca producing regions are located in a simila. climatic belt and are therefore ke ly to be

producing the same altemative crops. II should aiso be considered that the Uoired Süues are

IikeIy to be the main euport =et for any coca replacement crops. and strong competition for

ri L-S- market niche may result.

The suitabilin. of alternative foob foddrr and potential cash crops to larger scaie

production. their yield potential. and their suitability for ninainable fuming systems ni11

nreds to be evaluated. Basic production problems need to be solvd such as disese and ~veed

conmol. and unfamiliarity of the grower with the cd tivation requirements of the crop.

In ordm to revive and develop the agriculturai potential of the .findean region much has

to be done to reverse the damage of Iand mismanagement and to cope with the increasing

demands of an inmeshg population- The best approach appears to be the development of

agroindusv systems integrated into a niral development package which should be aimed at

srnaIl to medium shed f m s in areas that are not too isolated to be intqpted into regional and

national markets. The objective m u t be to nop and reverse mclronmental degradation.

rehabilitate terraces. increase the producticity of dopes. protect and regdate w-ater sheds to

improvc and develop crop wrieties and their adapthon to the environment Agricdniral

devçiopmrnt m m be accompanied by the buiIding of local infrasmctura (roads are to be

upgradrd power plants and agricuiturai îàcilities consmicted and marketing facilities).

by making credit available to local fkners. and by gainhg the cooperation of local people

through invohing them in the decision-making processes Wïth active community

participation in planning and esecution activïties ~vi t1 be developed to create Iawfbl

opportunitics to generate income. reduce poverty. raise the quai* of life. and conserve the

sn\ironrnent in order to reduce the supply of drugs.

3.1.4 RespomltSIbi~@v of D e d CozmmCnes

There are appro'cimatel'; 33 to 28 million marijuana smokers in the United States. 6.3

miIIion n@ar users of cocaine and 0.7 mllion heroin addicts. At retaiIer street p r k a the

91

United States public ma- spend as rnuch as SI 50 billion on iI1icit dmgs a y&'. According to

Donald Mab-. the profit potential is obviously immense at ai1 kvels of the indumy.

although some 90% of the value-added is redized in the distribution proces once the dmgs

have b e n brought into the United States: only 8% tu IO% of the profits accrue to the Latin

.-\mericm source and transit ~ounuirs. '~ In the short-na a genenl strate= to drasticaily

reducs the Amsrican consumption of narcotics has to be dcfined. This strategy couId inchde

rehabi litation and prevention prozms. Pursue a vigorous advertking and public

communications p r o F m dealing with danger illicit drugs. Stren-&en Iaw enforcement

including frdrnl. sate. and local drug task force. to combat drue-related violence. disnipt

criminal organintions. and arrm the laders of illicit drug cartels. Break the -Ir of d r y

ab- and crime. Promote international policies and laws that deter money laundering and

hcilitats mti-money taundering inwxigations as weII as seizure of associared assets.

In order for supp[y and dçmand initiatives to work the? m u t be supported by

appropriate organizattional smctwes. including comprehensive. coordinated community

bsed stntegiss. and i n t e r g o v e m n n (t'ederal, stats. and local) coordination. Information

on n-hich drug policy decisions are based must be Umely, accurate. and avaîlable to al1 cimg

control asencies. Initiatives should be supponed by r-ch and the application of emeqEing

technologies. Specific operations mua be supponed by good intelligence that both anticipates

drug ü a f 5 c b g efforts and allow for their criminal prosecution.

3.1. j Penn-im Position Fucing the Dntg TrMcking Prohlcirn

The Pentiian governent has never esercised full control over its national

t e m t o - . In these remote jungIe regious. traffickers establish coca plantations.

92

labontones. airmips. and norage faciIities. Such areas are rernotc from metropolitan

centres. relatively inaccessible. and patrolled by guemllas or other hostile groups.

During the a I y ei&ties. a blind sue. tvhich means that there was no effective

profram initiated against drug trade in the region. \vas cast by the Belahde administration

on the dnig trade even though it was rurnored that the police and the army were involved.

The United States brgan pressuring Prm to fight against the illicit industry. They supplied

Peru nith tinancing for lavi enforcement. crop endication and crop substitution p r o z m s .

Economic hard times. hot-rwx memt that a lot of the plans backfired and hi@

uncmploymcnt and hyperinflation contributrd to the growing number of dissatisfied

pesants. The Shining Path took advantage of the growing unpopularip of the government

in remote areas where the cenrral authorîty's power \vas tveak. The guemllas intended to

rict as a union tbr the narco-peasants hy attempting to CUI out the Peruvian middlemen. In

this w u . the? intended to nejotiate a better price for the peasants who. in r e m . were

taxrd bu the Shining Path to fund the purchax of ammunition and weapons. Further

backlashes to the anti-narcotic policies w r e due to the fact that the? were king identified

nith exxrnai pressure. particularly from the United States. The Garcia 3s weII as the

Fujimori administrations stepped up the anti-drug policies by destroying laboratories.

bombing clandestine airsû-ips. seizing coca paste and arresting those involveci.

.-\s it \vas mentioned in the fim seaion presÏdent Fujimoti announced in Iate 1990.

his cornmitment to fi@ drugs through the implrmentation of a comprehensive strategy. The

matqy tvodd place narcotics-relatai miiitq- and law enfiorcement efforts. demand

reduction and alternative development under one specidized govermental office. the

.\utonomous Audiority for Aiternative Developrnent

93

U S . has been in engageci discussions uith the Pmvian government on the basis of

this proposa1 and are hopetiil tSiat the NO g o v m e n t s wiII be abk to work together to combat

narcotics production and naflicking in the hturc. The ability of the Peruvian government to

implsment its comprehensive mrcotics smtegy will be an important indicator of its resolve in

narcotics issues.

The government policy is to elirninate illqal coca production by providing viable

economic alternatives. This effort is nationwide. recognizing that wide-spread povew is a

major impctus for continued drug traîfickinp. The govrnunent's proznm aiso includes

etforts to improve the administration OC justice and to promote public awareness of the

hami dom by the drug uadr. The . m e d Forces increasingly have recoyized their

responsibility to support carcotics en forcement since it is evident that narcotics supportrd

interna1 suhvrrsion. and incursions of CoIornbian trat'f?cl;ing aircrati into Peruvian Vr

spacc. thrcaen nationai security. Police units charged with counter-insurgency and other

functions brgan making narcotics arrests and seizures as well. Nrvertheless. progess has

been made in regaining control of narcotics cultivation and processing areas fiom the

Shining Path. resdting in oniy modest narcotics seizwes and lab destructions.

The govsmment labors under many handicaps. but it has undertaken a variety of

initiatives to elvercise more effective control. Thus. according to the United Nations Drug

Control ProCgramme. Peru has signed comprehensive drug control and alternative

development qeements fo1Iowed by supplementary agreements on counter-narcotics la%

enforcement. economic. and m i I i t q assistance with the foIIott-ing countnes: .&gentha

Bolivia, BmzÏl, Colombia Chile. Ecuador, the United States, ttaly. Mexico, Cuba and

~ a r a ~ u a ~ ~ ~ .

To date. the following multilatenl dmg control agreements have been signed by

Pau: establishment of the Inter-Amencan Drug Abuse Control Commission ( 1986). Inter-

Amencan Progmme of Action (1986). Dcclantion and Programme of .Action-Ixtapa

( 1 990). and Inter-.Amencan P r o ~ m e of Quito ( 1990). Relevant subregional agreements

sipnrd by Pem include the followinp: Cartagena .\greement. signed by the president of

Bolivia Colombia the United States and Peru ( 1990). San .Antonio Declaration. signed

hy Bolivia. Colombia. Ecmdor. Mexico. Venezuela the United States and Peni ( 1992).

and the blrmorandum of Undsrstanding (MOU) signed by .*sentina Chile. Bolivia

Peru and UNDCP ( 1993).

In the pan years have seen Cnited States drug agencies pay increased attention to

international aspects of cocaine traficking. Rrcognizing thar police actions aione mil1 not

work, the Dntg Enforcement .+dminimfion and the Internationai Narcotics Matter Office

of the CS. Stao Department proposed to the govemment of Peru that it reduce coca I d

cultivation through a program of crop endication and economic incentives

The Lr.S. govenunent in cooprration with the government of Peru. proposes

tinancing a set of economic alternatives to coca IeaQxoduction in the hi@ jungie. whiIe a

massive endication and control pro- there is concurrentiy carried out.

The goal is to eliminate coca kaf totally in one area of Penitian hi& jungle (the

foothills of the hdes) . where the US. govemment claims that enough leaf is grown to

supply up to 35 percent of the cocains consurned in the United States. The proposai cdls

for the development of an econornic intiasmicture in this region which. for over a decade.

has seen very linle development and which remains poorly inte_gmed with the rest of the

nation. Therefore. strategies have been ongoing with the objective to reduce illicit coca

91

production in Peru. In such. in May 1995. a project gram agreement \vas signed between

the povernment of Peru and the United States acting through USMD related to the funding

o f alternative devrlopment activitia in determined coca gro~ving areas (See Map 4). The

budgr- provisions include an rnimated USAlD funding of USS 30 million over a five

year period. supplsmented by a cornterpart contribution of the Peruvian govemment of

C'SS I4 million'".

Rrgarding interdiction. n new strategy ?-vas announced for the ftght against drugs.

~vhich cornprehends the control of the rksrs in the coca zones (a new transport route for

dmgs ruid production supplies). Likewise. the creation of 3 Antidmg Tactical Operation

Di~visions (DIOTXD) which cover the east of the counw have also been announced.

Moreovcr. the creation of 2 antidmg bases in these zones has been announced for 1997.

as w l l as the creation of twenty mobile bases. which would travel the areas with the

Iargest amount of dmg traficking activip in the jungle (their installation would count with

North Xmencan support).

In January 1997. the Secretaq- of Hdth and the head of the Fight ..\gains Drug

Abuse Council (CONTR4DROGAS). Dr. Marino Costa Bauer announced the institution's

objective to reduce the cultivation area by 50% for the year 2000. They seek to reduce the

area to approsimately 60.000 ha and in the long term to an amount &cient to fùlfill

medical and traditional uses.

The initiation of the National Aitemative to the Cultivation of Coca Laves

Development Program was announced. According to officiai sources. it MI1 require an

investment of 1.5 to 2-0 billion doIIars. The Fust stage will begin in early 1998. A group of

projects for die development of the productive idktmcture and the fi& agak t dmgs (in

96

prevention and rehabilitation areas) for 430 million dollars has been presented to the

rnember countrirs of the Mesa de Donantes (Donors Board) to srsk tinancing through the

cancrling of drbt through investment. Likewisr an agreement behveen the National

Devrlopment Innitute and the International Development Agency for 4 million dollars

destinrd to credit for the prasants of the Xpurimac River valley to substitute the cultivation

of coca Ieaves bas also been announcrd (See Maps 5-6).

Rqarding the administration of justice for dmg txafficking cases. the National

..\nti-drug Upper Court was created in 1996. According to the International Commission of

lurists. it specidizes in illicit dmg mffic crimes. which will permit the processing of the

most serious cases. As of November. 5 decentralized oficss had been i d I e d . kvhich in

two and a half months received 601 cases rendering judgemrnt in 38 of them. In March

1997. the Judiciai Power Reorganiwûon Cornmirtrr deactivated the Court. establishing

that the cases be handled by the Second Transitory Criminai Branch of the Supreme

COUT''. Said branch wouid be in charge of creating a new judicial administrative structure

and handling the tinai appeals in the caxs of dru= U;tf'f?cking and related crimes.

In this context. the mti-dnie czar. B q McCaffrey. praised the governments

successes in the cultivation reduction policy. The ruIl catiticarion received by Peru is

Ixgely due to these achievements. The rupture of the air bridge behveen Colombia and

Prru maintainsd the fa11 in the price of coca paste and forced the peasants 10 abandon coca

tor other crops which tvould not bring them !osse?'.

These certifications are the annual evaluation made by the president of the United

States on the anti-cimg management of the 5 I producing or uansfer counnies. Certification

this year offered no ntrpnses but simply confirmed the predictions of the analysts: Pem

97

and BoIivia were hI1y certified whereas Colombia vas once again decertified

notwithstanding the efforts made by its govi-mment in the fi@ against dm$ traficking. In

contrast. Mesico received full certitication dsspite accusations of cormption in official

instances. and the scanda1 caused by the dstention of the director of the National Instinite

for the tight againa drugs. Gcneral Jesus Gutiérrez Rebollo. a having been bribed by the

leader of the Juirez Cartel. 1 believs the ditTeriince in treatrnent, in cornparison ttith

Cotombia is basically due to political rtzisons and the desire of the United States to

maintain good relations uith a counw with which it shares a large border and with which it

maintains important commercial relations. How-ever. there is pressure in the governent

and Congress to review the certification of Mrsico.

Finally. the govemmént's overall objective is to achievc a balanced cooperation

programme. consolidating alternative development efforts and strrnh&ening activities in

the tieIds of supply and demand reduction and control masures. including precursors and

essential chernicals control. According to the LKDCP in Lima over the past ten years.

ssw-al projects have been concentrated mainly on supply reduction through aitemative

dçvelopmcnt in the HuaIlaga and QuiIlabam ba areas''. These alternative development

projects rire currendy undergoing consolidation phases. and are scheduled to end in early

1999-

Future alternative development stTorts in Pem must become MI? inte-pted in

national alternative-rurai devetopment p r o - m s that are effectively supported by the

~ o v i i m s n t mithin the framework of the Nationd Plan for h g Prevention and Conûol - 19942000. .Uso. new alternative deveIopment projects shodd count to the geatest extent

possible on substantial national and intemationai fmancial resources. Aitemative

98

dc~clopment and h g control should br Iinked with the broader drvelopment dimensions

of international rrchnicd cooperation. in particular considrring the need to count with

support for inrq-atted rural dcvciopmcnt. .AccordingIy. linkages need to be cstablished

ktivrrn alternative development in the contest of the National Plan for h g Prevention

and Control. and the developrnent plans in the selected regions. including the role of

national dsvrlopmsnr institutions such as the Ministq- of Education. M i n i q of Hal&

bl inistn of r\griculture. Ministp of Justice and the 'uational Developmsnt Insitute.

among others.

Such national institutions wiI1 need to promots the incorporation of the drug

dimension into mainmeam national rural development programs. with substantiai

crnphasis on the monitoring of illicit cultivation. the propagation of community

cornmitment towrds the dimination of illicit cultivation. and the design of intezgated a r a

drvriopment schrmes which addrrss dru j abux problem.

To curb i lk i t uatlic. rmphasis wi11 have to be placed on national and subregionai

Ia~v enforcement training programs. as well as on technicd c o o p d o n in the areas of

sducation. treatment rehabilitatio~ social intezation. custorns control. data gathering.

money laundering ana precusors control. Both in the demand reduction and control

rneasures kiclds. Peru ~ ~ i l l also ben& increasingiy from other subregional program

in\-olving &gentina. Bolivia Colombia. Mexico and Chîle and possible other counaies.

In the contes of the XatÏonaI Plan for Drug Prevention and Control. the

covcnunent ni11 necessq have to protide policy guidance and selected direct support in t

the field of institutionai capacip building. particdarly at the legai. training and managerÎai

lcvels. Special interest should be placed on assistance to drvelop mechanisms for

rnsasuring illicit crop areas. and monitoring the progess of drug control etrorts.

3.1.6 C nired SICIWS Inrenenrion

The primary LYS policy response to its domestic h g abuse problem has bsen to

attempt to reducs foreign h g supplies through interdiction. coca seedbed mdication

al temarive development lawv enforcernenr public awt'areness. and international cooperation.

These areas of cooperation are set out in agreements benvcten the nt-O countries.

Efictivr counter-narcotics law enforcment wiI1 raise the costs For tnfii~cking in Peru and

Colombia whilc interdiction and seedbed endication in P m will block the delivep of illicit

drup. erode the protitabibility of coca cdtivating and procrssing for coca growers. and create

cconomic conditions in which dtsrnarive development program become more amactive and

effrctivr. The govemment of Peru m u s provide adequate secuis for alternative development

propans in the coca-produchg a ras to be successtùl.

The United States has trciditionally v k w d h g abuse as a forei y problm crosshg

its bordtirs fiorn other countrîes. -4s a result the tocus of Lr.S. cooperative efforts has k e n on

reducing the q p l y of dmgs produced by its neighbours in the Western Hanisphere. M y

recentI?. has d r y abuse become a critical problem in these colmaies. mashg the historicd

distinction between consumer and producer nations. Governments mattegies mus now reflect

the cornples interaction of supply and demmd within individuai countrîes as weI1 as across

national bundaries,

There is a multitude of çocio1ogica.I. economic. and uidividual reasons for the growth

of dmg abuse in Latin Amerîca One theoc is rhat excessive supplies of coca a by-product

100

of the esplosion in LS. demand in the past nvo decades. helped create a new domestic market

in the producer countries. In contrast to the United States. where drug supplies rush in m

m e t demand the root of the problem in Latin .t\merica appears to be the reverse: that

increasingl y cheap- & I l available drugs led to new consuxnption.

The CS. proposal to endicatc coca Idand dewlop the Peruvian hi& jungle serves a

numbér ot'Xorth American govenunent interestS. [t wouId also m a t s economic incentives in

rhç hi$ jungle which would result in a transition away fiom t'amiing based upon a simple and

traditionai asgriculturai technology to the cultivation of cash crop for the Iqitimate market

tùnher integnting pesants into the commercial sc-ctor through the production of a marketable

surplus.

Cultivating and processing these 0th- crops and agr0indumia.i producrs depends more

on fârm m c m . chernicals and management senices than does simple coca I d f&g.

C S . ûid to çradicate coca leaf and promote alternative crops. therefore. implies P m i a n

dependence on imported f m technology as well.

Hencc the a p p d of the C.S. proposal would increase Perds @culture and

qroindumid exports as well as its production of food crops. It might kcrease work

opportunities for P e d s uaempioyed and a geo~mphical area into which some of Pm's hiz&Iy

concentrateci hifhland indian population might k beelled.

Another motive for the US. proposa1 to mdicate coca I d in Peru is that it represents

m anempt by d m g control agencies in the US. to show that they can effectively stop cocaine

trdficking. Therefore. the US. effort to eradicate coca Ieaf, even ifonly partid1y successful,

can also be vkwd as an effort by the United States governrnent to deai wîth the comrption

and disequilibrium of the Cucuiation of vast amolmts of iilgal currenq and Ïts causes.

IO1

In this scenario. Peru presents a dificult situation because of the cornplexi~ of its

prograns. Thtxefore. the United States has helped to improve counter-narcotics cooperation

with the Pcruviui policier assisting the Amed Forces to assume a more vigorous role. This

çoopmtion has resulred in increased xizure of drugs and sen t i a i chemicals. laboratory

husts and destruction of clandmine airstrips. Conxquently. pressure on the crafficking

cirganizations and destruction of their activities have increased.

Furthemore. the Fujimori adminisnation has publicly cornmitted itself to fi&

nxcotics trafickm and insurgents. and to adhere ro international human rights standards:

hut with a \ride range of xrious internai probletm. it has moved slowly and sometimes

uncertainly tomrd developing a cornprehensive smtcg . There is. howver. sizpificant

support uithin the govrmment and in the public for developing a wokablc counter-narcotics

p r o L a in cooperation with the United Smttts.

Despite the xcrrrity threat poxd by the Shining Path and nithout the entire

çoopention of the Penivian militap. Penivim Iav enforcement agrncies have de-oyrd

more labontories and seized more cocaine han in previous years (see Chart 5.1 -6.a).

However. these efforts only had a marginal effect on the overdl flow of cocaine base From

Pem.

In c o o p d v e efforts. the United States and Psm signed a Tay information

Eschange Agreement at the Cartagena Drug Surnmit in 1990.~ This agreement will allow

br the eschange of information between taï authorities of the trvo counaies. and will also

br hcipfd in money i a u n d e ~ g investigations.

C h w 3.1 -6.a: Coca L e d Coca Paste and Cocaine Seimes and D r y .kests i 1993 , 1993 1 1995 1 1996 ; 1

1

! 1 Seize of Coca Luf ( MT) , 103.95 145.64

l 1 19.32

1 ' Seize of Coca Paste (Kgs) 1 8.43 1-39 1 IO.Z10.Sj j 15.0022 1 1 1 1360.74

1

I ! i : Scize of Cocaine ( K g ) i 40.9

! ! 95+6s 1 7.658.83 1 692.06 l

I 1 I I .-lrrristcrd b? the National Police (000) i ; 6.6 I t 0.7 I t 5.5

1 i 1 I I I

Sourcc: tlnti-Xarcotics National Bumu-Dinmdro. Lima. 1996. 1

l'pon the request of the Director of the hti-narcotics Division of the Penitian

Sationai Police. DE.4 has k e n prodding direction and input on how to improve the

intelligence smicture of the mi-narcotics division and the ability of the oqanization to

provide counter-narcotics intelligence to fight dry-traficking.

5. I . - Ln& J SIUI~S Polk?. und Stru~qv GouLs

The h g problem has b e n assuming growing importance on the world scene. The

overall problem of illegal drugs and related crimes rrpraents a direct threat to the health and

wvell-king of the people of the hemisphere. The problems of- abuse and dernand a d the

production nafficking and illegai dimiution of drus. including designer cimg. continue to

be serious and intermineci. .AU counuies in the hernisphere are king affkcted by this and

reco-gnbe they have a shared responsibilip to rnsure that dl aspects of the problem are

addressed. This is a cornples. tvorld-wide and comtantly chanzjng problem for \.hich there

are no simple solutions. In this regard ci- pose as a nsk to national secinity in the

United States as well as in the hdean countrïes as tmorism entironmentai depciatioa

among other factors.

;\gairut this backdrop. narcotics control has emerged in recent years as an incr-n& C -

central issue in the formulation and implemrntation of .herican foreip policy. The U.S.

coal is ro reduce the îlow of d r u s to the United States by demonstrating to the international

çommunity that there is a common interest in stoppin- this menace and by working with the

producer and transit counaies to strenb&en their political \vil1 and stability to fight it.

In this contea. in 1988 several important brd-Ihroughs occurred that have put the

I - 3 . on a course reversing the dangerous and costly production traf'frcking. and abus<: trends

of carlier drcades. .\ccording to the U S . Department of State. the prissage of the hti-Dmg

.\buse .-kt of 1988 established the Ofticr of National Dmg Control Policy (the Drug Czar)

and mandated the devçloprnrnt of î comprehsnsive. intebpted. national dmg control

suareg>.. .+\r the same time. the United Xations completed the LJX Convention Against [Ilicit

Tmttic in Narcotics h g and Psychonopic Substances. an agreement that set the stage for

unprecrdsnted international cooperation to purnie increasingiy cornplex international counter-

The Ofice of National h g Control Poiicy has the ot.eral1 responsibilip for

tbrmulating and coordinating the f e d d govemment's cimg connol poli-. It moved

immcdiately to assess the counter-naniotics threat and in 1989 published the fim National

Drug Control Strategy. whïch it has updated annually. The stntegy is comprehensive.

addmsing nipply. demand and treamenr. its top priority beiig to reduce the availabilip of

cocaine to the United States. To translate the poIicy priontics into action the stratw seek to

achieve progres across the follotving tionts.

First it seeks to anack the major oqanizations by creating an intemational political

and Iqal environment that is hostile to narcotics trafficking. In man? cotmnies this me-

working to pass conspincy. asset forfeiture. and other Iatvs and then develop the inninitions

needed ta prosmute the Ieading tratXcka who manage and iinance the trade. Yet this

leadership has generaily k n ot-erlwked by past control tactics that have focused on

interdiction and crop suppression. The I ~ d m have been able to rebound fiorn these

opaations usually by expanding and depending their compt ries to the politicai. le&. and

~ c u r i t y institutions. The t a . to break this chah is for govemmmrs to target invenigate.

and convict the drug leaders.

Second the strategy seeh to increase the con of operations to international uafficking

through interdiction and other enforcement actions to attack the drug infnstnicture. T h e

rn~xsures are most effective u-hen they can mode nafficlim' profits and weaken their

organizations. raise dmg prices and lotver dernand and create tinancid barriers that prevent

new mpnizarions fkom entering the trade. In this regard the strate,?. emphasize irnproved

dçtrction and monitoring to locate d r q shipments. caches. and processing centers and

enhancrd capabilities of response forces to amck these targets.

Finall. the strate= aim at reducing and evrntuaily climinating the cultivation of

illsgd dmgs. This goai invoIves not only efforts to crntail production in ~ a d i t i o d areas that

supply the CS. market but to prevent cultivation from spreading to new areas as tell. Crop

substitution or nrraj development schemes \vithout the dbrcement deterrent simply will not

\ o r k and this larter condition airnon aitvays requins govemments to have political control

ot-er the growing areas. Consequentiy. crop controi etforts are not the work of a few months:

they take time to effect a substantid change.

Thus. a major component of the .herican international efforts continues to k

supporthg the principal cocaine source countries: Pent BoIivia. and Colombia in their

I OS

Rght q a i m thr multinational criminal orginization that nippon the production processing.

tmspomtion. and distribution of drugs to the United States and other counrries. For an

e t k t i v e long term conter-narcotics strategy. the US. is working with these counmes to

enhance thsir institutional capability. This effort \vil1 require high priorities to bilateral

proLms nith important dru-Lighting missions. such as man-Grne and c o d panolr

customs services and crop conuol h o u @ training and material assinance. In providing this

assistance. US. uill insist that internationaily accrtpted standards on h u m rights be

rcspected,

Since Brazii. Ecuador ruid Venezuela also have the potentid for large-scale profitable

cultivation of coca le& and because of their prosirnity ro large-scale M c k i n g centres. the

I.3. will need to ensure that neither the cultivation nor the trafficking organizations spread to

th- countnss.

-4 key question nised by policy m a k m is whether or not the strate9 can work: that

is, wilI the .knerican governent proposed inmases in aid (milimry. economic. law

cntorcrmrnt) pro~ide the Andean nations with suficient assistance to combat drug production

and mffÏc'? .And. if s a wodd this have a t'at'ourable impact in the sense of reducing

production of illegai dmgs and drug reiated crime?

The international drug control poli- of the United States is aimed at curtailhg the

international mde in illicit dm-. In rhis effon c o o p t i o n with and by odier nations is

essentiai. L.S. xeks to reduce the foreip mpply of dmgs by motivating other c o d e s to

engage their own resources and efforts to combat the worrIdwïde drug trade. to dismantle their

own illicit cimg indudes and to d u c e the demmd for drus.

CS. n i I l assis these pvemments with appropriate but selective proCgmms to

strengthen thcir institutions. and to encourage them to u n d d e more effective actions

against the drus rnde. paxticulady in such hi$-due elments as money flows and precursor

chemicals. Major emphasis on the cocaine transit areas is king pIaced on the three key

source countries of Peru. Boliiia and Colornbia. which are dal t with in the Andean strate,..

The principal focus of this s tnteg is to block the flow of dmgs drssned for the U.S. at the

i ntemational c heckpoints beoveen the three principal producer counuies and U .S. borders?

Through these and otha pro-ms. the US. uiIl seek to raise the level of national

cnncern about the esxent and nature of drug production- afficking and use. the acute threat

to nationai scicurity posed by the entrenchment of drug traficking and their interem- and the

danger poscd by the dmg trade to stable s d n e d rconomic growth.

3. I . S EruIuucion und .Clraslire qf ' Efecrii.r(nes.~

.-1 key qumion facing poli- m a k m is how to cvaiuate the success of the strate?. .-\n

important issue is that given demonssed traITickm ability to adapt quickIy to policy changes

and change courje accordingly. 3 need ma)- esist to modie poli-. goals. and

implementation rnethods. For this reasoa the sûateg~ ma. be seen as a chanb~ing or evolving

procas. In this contest. quantitative goais- such as the reduction in the arnount of coca

produced are viewd as crucial aspects of progras. However. failure to achieve such @s

in the short nm does not nrcessarily m a n that the strateg ~ i 1 1 fail over the long m. Experts

ernmlly qree that due to the clandestine nature of the business. it is imposniIe to ho tv - nith any precision the exact arnount of coca leaf g r o w n cocaine produced. and cocaine

shipped: in addition to which important xctors of the trade are decentmiized by the presence

of man' small suppliers.

Without access to such data and uithout truly diable base figures. it is difficult to

tuas with any reliabiIity whether. inded, dmg production and shipment to the United States b

is incraing or decreasing according to any sqxcific pmentage. Moreover. since the law

enforcement cm seize srnaIl percrntqe of the drugs on the market m y sustained increase in

the amount seized may on- indicate. on one Level- that more d y s are entering the United

States and other consumer countries and are avaiIabIe for seizure. X major wealiness of the

arguments that question the reliability of staustics. how-ever. is that the? are the onIy measure

avai lable. Consequently. given these limitations. mon analysts use suc h figures with caution

and c~mplrmcnt their rvduation nith other. less tangible indicators.

Sorne of the indicators used in cvduating the etTecti\-enas of the strate;' inchde such

tangible figures as n u m k of a i r d seized or intercepted amount of cocaine seized.

nurnber of arrests of major -ckers. dollar value of assets x i z d quantities of chernicals

xized. and hectares of d m g s sradicated- However. andysts suggest that Iess tangible

indicators mi@ include host governrnent Ievefs of cooperation and attitudes. host country

public opinion on drug cooperatioa host nation levels of corruption changes in naflIcliing

modes. increase in costs to traffickers, resaucnrring of traffickers organizations. and Ievek of

coordination and cooperation arnong the U S . sovemment agencies that formulate.

implement tünd and oversee the strategy.

The evmtual criteria for evaluating U S . and host country law enforcement and

rnilitq- efforts ~~~1 be closely Iinked to the goai of suppressing the intemational drug trade

oganizauon Host coimaies wil1 be judged as much by the d t of their efforts as on the

I O8

stfons themselves. nie US. will judge as et'fective those efforts ~ u l t i n g in sustained. net

reductions in aafficking activity. not merel?. those efforts irnpoMng a net increase in hoa

country ettort or manpower.

5.1.9 Options

M a t is to be done'? One major U.S. tactical option mi& be to finance mobilization

of Latin Xmerica's hg-fighting capnbilitia. The United States could protide source

countria with the billions annually required to aab!ish rtfrctiw control over cimg-producing

art's. many of which are occupied by tmorist torctts of mafia organizations. In practice. this

option would require firepower- helicopters. communication quiprnent and intelligence

support. in addition producing countries could be given more advanced technologies for

cornbathg the narcotics indusaies via beefed-up b i l a t d and md t i l a td aid prograns:

herbicides for spraying. radar -nrms to track the movernent of dnig smuggIers' aircraft

modem amidmg weapons. electronic devices to bug and jam uaffickers' communications.

and heat-srxhg equipment to detect dmg laboratones. In many Lailn he r i can cornaies.

more sophisticated security synems for top govemment oficials. judges. and w h s e s

would have to lx part of diis option Such mobiIintion of course. cannot take place

unilatrnl1y: politicdly difficuit institutional reforms wodd have to be made in cimg-

producing and a y i s i ~ g counîries to enable hem to cooperate in a reciprocai €ashion.

A second US. tactical option might be to .4mericanize its anti-drtg operations in Latin

.berica which would entai1 the US. governrnent assumirtg h g enî'orcernent fiinctions that

source corntries do not perform. if those countrïes consent, Models of Amerianhtion are

the e'rnadition and nial of drug aaffckers in US. courts and the US. .Amy operation against

1 O9

cocaine labontories in the region. The effectiveness of the Americanization model. however.

inherentIy Iimited and can producr rejsctions in some countries for the introduction of US.

forces. .-\mericanization is therefore. a ris-. potentially counter-productive approach that

shouId be ripplied only under emordinary circumstances.

-4 third US. option mi& be to support Latin American governments' efforts to come

up nith viable economic alternatives to the dmg trade. The Lnited States codd make a major

contribution by helping the economicdly depresxd Latin ..\mrrican nations to provide crop

and incorne-substitution p r o c a s for drug t'amers. it could help open new economic

opportunitirs by Iowering imports barrias for lrigitimare esports (testils. sugar. coffi.

tlown. etc:. It couid also aileriate the nushing burden of Latin Amencan debt by taking the

lsad in devising new formulas of debt reliet: Indeed. it uill be d i s t i c to expect the

Andean counnies to commit rconomic suicide by destroying a major source of foreign

currency without some assistance to ovsrcome the destabiking effscts of such actions. in this

contest economic aid is viewed as part of the price that must be paid to obtain the

cooperation of host nations in impkmenting policies whose components ma? weII pmvoke

economicdly and politicdly dismptive tàllout. DefiniteIy. a renewti of economic

devdopment in the region is an essential component of any successful. long texm effort to

reduce h g afftcking.

-4 fourth. radicalIy different tactical option would be to abandon the \var against dru9

and move instead to Iegdize. or at Icast decriminalize, drug consumptioa

Proponents of legaikation or decrimînalintion claim thar a distinction should be made

benveen the public heaith probiems caused by cimg abuse and the violence and cnminality that

surround the cimg trade Nnply because it is illegai. The? believe that the ben way to artail

110

dnig traflicking is to treat dmgs as a public h d t h probkm rather than a criminal one. It

wuld be possible to remove the clandestine profits from the drug trade. rliminating the

motives of criminai gangs to get involved in the trade. compt police and judges and H I .

Moreovrr. the govemment could tas the sale of dnigs. thereby earning billions of dollars in

revenue to tinance prob- in drug education prevention and rehabilitation.

There are. of course. people that consider the idea of Iegaiizing d r y use out of the

question. Dmg abuse ma? increase if dru9 are Iegdized: there would undoubtedly be man-

pnctical probkms in sening up a distribution -stem for e s .

The central point is that the public h d t h and d e t y aspects of drug abuse cm. and

shouid. be separateci fiom rhe violence and crirninality arïsing from illegality. Logicd or not

however. it is abundantly clex that political winds in the United States are not in favour of

Itrgdization: hmce diis option. at ! es t for the time being. does not appear a viable or

redistic methoci for Latin .Amaïcan h g mde.

In this section I bring rogether various options to deai wïth the problem of dmg

uafficking. the proliferation of coca deshed for i l lqd consumption and the abusive

consumption of drus considered iI1qal. sspecidIy in the Andean corntries, cocaine.

1 am a defender of the coca le& of its vaditional consumption and cdtivation. and I

am in favour of its beneficiai indumial production. I m dso roundly opposed to drug

tmîicking and its consequences. as well a s the illegal use of dmgs in both North and South.

However. 1 reject the \var on dmgs as a mana of prliciple because it compromises the

sovereignp of the .Andean corntries and has been miable either to d u c e dmgs aafficking or

the abuse of drup.

This is the starting point of a US. intervention. because any solution based on militan;

or police actions only makss the problrm worse. The only result of more than 10 years of the

imposition of the US. strategy is the proliferation of dmgs aafficking. and the growh of

i 1 legal dru, (7s m.

The International Xarcotics Conaol Board has recognised that the policies followed

until now should be miewed. and the C S Commission on Narcotics Drugs has indicated that

the prohlem needs to be facrd as a wholr. respecting the social and cultural aspects of

consumption. 1 would agee with this. although 1 would stress that the same issue should be

rstended to producers of rhe raw materials used in the production of dnigs.

The peasants producers themxives should work to esmblish sustainable integrated

rural development projecrs in the areas in which coca is produced and in those areas where

most o f the peasants producers corne h m . Baides the neoIibeni market model, 1 beIieved

that a neu- proposal should be conceivrd tiom below. given impenis from nithin the producer

counuies. and designeci for their bendit smchirally independent decentraiised

redistributive and ecoloficûlly sustainable. This would involve the creation of interna1

markets. the development of qroindumy (ril~vays emphasising peasant production of

foodstuffs- a need to change the national food policy which has ofien promoted food irnports

over the development of .hdean crops). and would include the design of economic

dternatives to drug &cking and h g production

That is to say. the proposal implies a rnodel which diffêrs h m the traditional policies

imed at rackling poverty. one which involves the full participation of the population and

which respects the cultural aspects of agicuinna[ production and coflsumptioa The coca le&

is one of these traditionai agricultural products. \;hich Ïs finidamental to Pemian and

112

Bolivian Society. The proposed new sconomy wodd no< be based as has up to now been the

case. cllmost exclusively on the cultivation of coca and its illepl drrivatives: it would be

hased on a&uItlnal and agoindustrial diverdication. beside thich mail but necessq

culrivations of coca would be maintainai. The mode1 should be based on multicropping and

should combine dit'ferent ecologicd niches and produce primarily for the interna1 market,

although also for espon if this were considered advantagous. while alw- maintainhg a

balance with nature.

This kind of devsloprnent necessarily irnplies that the rconomy in which d r u s

tnfticking and ruraI poverty ssist would have to be replaced by an economic structure that

o tked a r d alternative. It wodd be important to p r m e the positive aspects (above al1

technical. social. and infrasmicturai) of the current diemative developmenr' progammes

tinanced hy international organintions (USAID- IJN'DCP. etc) and donors countries

( Germany. Sweden, Italy. Japan. etc).

Stimulus should be yven to macroeconomic policies b t h o u r rurai production. help

to reconswct the food production qnem the rational exploitation of forest and the e v r t

of cornpetitive pods- whde always prioritising the social agenda

This necessari1 y irnplies raising esisting economic policies which have palpable

negative strscts on sociep. Furthexmore. such policies are king retlsed around the worid.

b th in the '(:orth and the South. Severai bodies are ÏnvoIved in the search for new policies-

such as the CVorld Bank the IMF, the Econornic Commission for Latin America and the

Caribbean (ECLAC) and the Latin American Economic System (SELX). E C U C and SELA

identifi- the search as one for policies of growth ttith social pro-gess.

There shodd be a wholeule reassessment of policies on pnvatization agiculnuai

credit. eschange me. prices paid to producers. import duties. toreign technical assistance,

invment . nationai and foreign rrade- productive and socid infr;istnicture. and so on. The

current undecrn~ized poverty-producing ssport mode1 does not totally work for the

rnajority of the popdation. For this to be considered it is vitai that the social organizations be

involvsd in its retision.

Deding with the problem should be a serious concern m regionai. national and

international ievel. It is an aiarming situation. as important as the problem of urban and rurai

poverty. Indeed. it is perhaps more accurate to think of it as a consequence of this povertp.

.-btidnig campai_ps in the North and in the South shodd not fdl into the error of following

the otticial discourse of the \var on dnigs. a discourse rvhich speaks only in terrns of the

cuilty. that is. the countrïes of the South. and of the ~ictims. the countries of the North, The - problem is an overarctllng one. muitilateral and interrelateci. which encompasses medical.

public h d t h and cultural themes. as well as a stronger Iaw enibrcement and judicial systems.

kne r govemment control over cimg-producing zones. and a pattern of self-sustainhg

economic g o w h

" Donald J . blabc. ".f ndeun Dmg Truficking und rh~* .tfilitug. Oprion: The .\filirun. Rmtcw ". Wash ingon 1990. p. 39. s:

For more detailcd exmination of the coca enterprise and U.S. dmg poliq in Peni see Edmundo Motala. Cocrtinr: U'hite Gold Rush in Peni. 1989. u.t Rrnwlaer W. Lee 111. " 7 % ~ Drug fiudc und Dc~d<~piJlg Corrntr ;es ", ( Polie Focus 4: 1 987). " ~onrild J. $1 a bp. " 7 k Lcrtin ..lmrricun Surcnrics Trrrrlc* md L 3. .Vurionul .%~-urin. ". (New York: Grmwood Press. 1 989 ). "' L. 'ruliis. " Bmc.fkiuries of rhe Illicir Dmg Trudc*: Poliricul C;~nv~.yucncc~s und Internarionul Polk? ut the /nr~~r.v~t~rion r, / -S~pp!~ und Demund ". Discussion Paper 1 9. UN RISD. ;Marc h 1 99 1 . Y' Int~niarionril Narcotics Control Strate! Repon: N C S R 1996. us Xlabp. p. 45. * 'b Repon of the United Nations Drug Control Prognmrne, ".-lnri-.V~rr~-otic .-Icrir.iries in Peru /954-/993 ". SNI

ES. Congrctss. Senatc Comminrr on Appropriations. Department of Defense-Support for Dmg Interdiction. W'ashington D.C., 1995.

t .. The .-lntlcs: ~mrrgent or emergenq-.' ". A n d m Commission of Jurists. Lima. 1997. . I I

Intrfiiews with Peruvian narcotics experts in Lima. Septemkr 1997. Ibîd-

' ' ' ~ r = \ im of the 199 1 International Nxcotics Controi S t n t e z ~ R r p o n .iJ Internationai 'iarcotics Control Strateg? Report, L.S. Deparmient of State. 1996. il.

Re\ iew of the 199 l Intmarional Narcotics Control S t r a t ~ Repon.

IV. ConcIusion

The purpose of this thesis ha. k e n threefold: (a) to describe the politicai economy

of the size of the illicit dmg sector. (b) to have a bener picture of the structure of the

cocaine ind- and finaily (c) to provide assessments ofpolicy alternatives to attack h g

tratricking in Pem.

In the first section the purpose \vas to andyze the macroeconomic impact of the

illicit h g sector on the economy and viceversa during the penod IWO- 1997.

The problem facing Peru were a driunting complex of economic. political and social

ills. StnicturaI adjuments did not always succeed in such years. But neither did some

alternatives saategies. in the early 1980s Peru aied nabiliation pro_erams with linle

success. Its efforts codd not overcorne the etyects of both tvorld recession and the debt

crisis. Economic conditions deterîorated inflation soared real output fell. and widening

budget deficit appeared. Stabilization policia nonetheless beçan until the last quarter of

1988, when the govemment announced a severe readjustment of prices that inmeased

consumer pnces by 1 14%. The adjustments consisted primarily of pnce increases without

red ~vages increâses, characterized the Iast hvo years of the Garcia's administration. By

the time the Fujimori's administration came to power in 1990. inflation was ninning close

to 3.000% a year. Production and wages were fdling. Adding to the problem of Peru was

the Shining Pa& a corp of fanatic perriIIa insurgents seeking to purify Peru by violence.

Fujimori's reforms in trade. fiscal poliq and deregdation. coupled Mth renewed

debt senices payments that repaired relations with the international thancial community.

have restored the credibility of the Pem-ian goverment,

Fujirnori's commitment to real nnicturzil econornic reform has been put to the test

by a domestic political environment that remains troubled by labour unrest. sporadic

guemlla trrrorism. and popular discontent. Structural a d j m e n t demanded amen-: it

cdled for deep cuts in govemment spending to cut budget deficits. It also memt remoting

price controls and freeing market forces to promote efficiency.

.As Prni's economy has become more stable. the public and private sectors have let

CO hundreds of thousands of worksrs. But the government has not strongly focused 'et on C

social prognms Iike training for Iaid-off employees. education health care and housing.

1 rrcognize that in the contest of globd crisis triggered by neoliberai economic

adjusunent prozms. peasants producers have been lefi with no ahemative but to produce

coca for the drugs traffickers in order to combat their poverq. In the current national and

international circurnstances it is the only profitable product availabk to them. -4s a result

of this. the economic structure becornes dependenr on a prime expon product which

dqrades naturd resources. e ~ c h e s on& a mal1 section of socieo;. retards medium-term

production. and rnakes the pricing structure of the whole economy chaotic. FinaII-. it

Ieads to the development of an econorny which stnkes at the peasmt econorny. distorting it

by removing the incentive to produce foodstuffs.

Sociep as a whole becomes heavily intluenced by the problm of drugs. which

Ieads to evcr pater damage to the social structure by imposing the d e s of the garne which

the dmgs mafias foIIow.

Politics is affetted by the sarne procas. closhg the spaces which worker and

peawnt or~anizations had previously opened up. as well as destroying the fornial

democratic muctures which the ruiing classes had imposed on them.

I I7

The environment deteriorates. Ieading to 1eveIs of destruction in the Andean-

Amrizonian basin that are so great they cannot be measured. Wlereas the traditional

cultivation of coca leaves does not damagr and erods the znvironrnsnt. cultivation destined

for the coca by-product esport does.

The andysis of the macroeconomic impact shows that coca by-product exporcs

directly detemine the real exchange rate. and indirectly determine the exchange rate through

the intlurnce on non-banking securities. Thus. despite the declining importance of the coca

sector over Perüs GDP due to a dnstic fdI in the price of coca I d and its ovemock as a

consequence of stronger prevention activities in the .Andean region the w t o r stiII has an

important macroeconomic impact. It has aIso sffects when the dollars obtained fiom the illicit

esporcs are cashcd and uxd to buy good and senices. The indirect effects of coca exports

inducr a demand push on inflation diat esacerbates the pressures on anticipated dnliluation of

the nominal exchange rate. These st'fects have to be consjdered to tUIIy determine the coca

esport impact and interpret the implications of&ated impact coefficients.

In Part 1 an attempts has b e n made to improve &mates of and to cdculate the size of

the illicit h g xctor in Peru. It is important to mphasize here that to the extent that wr are

d d i n g uith an underground activity the resulting estimates can only be considered good

efforts to record an iIlicit sector. The data deveIoped here have been based on field work in

coca growing areas. and microeconomic data on iIlicit coca production gathered by various

organizations. It is also important to mention here that the quality of the estimates have been

improved sornewhat due to the availability of data for c& variables. such as prices at dI

levels. since the- are recorded for several zones. Thus. @en that coca p ~ c e s at various

sages (paste. base and cocaïne) are known at -ch of the different stages. the revenues

generated in the sector depend on the assumptions made regardhg hectares and yields.

Peni did not reaily produce official data on illicit dnigs. It is ody recently with the

N E I and the Mini- of Agriculture that data on iIlicit production are collected and published

otiicidl~. This information on the coca industry until 1995 is consistent mi th the private

consuIrnt Macroconsult Ltd, and the U.S. Deparunent of State's NCSR.

Their result for the yrar 1993 baxd on 1 15300 hectares produceci a coca sector value

added of approsimately CSS 1 .JO0 million. The National Developmmt Institute has

esrimatcd for 1995 an extension o f 125.000 hectares. Similarly. the Mini- of

culture's data for the same y a r range behveen US$ 1.450 and USS 1.600 miIIion. Its

estimates assume 120.000 hectares. Officiai sources announced the objective to reduce the

çul~i~ation are3 by 50% for the year 2000. The: se& to reduce the m a to approsirnately

60.000 ha. With respect to prices. the data were protlded by US. resources. LNDCP in

P m and t-arious Pemian sources. Since hfactoconsdt Ltd. did not consider al1 oher nrral

activitic;. such as cade raisina and the lack of recording by the Ministry of A_~cuIturès

~m~stica1 ofice of some crops. the number of hectares caiculated cm be considered much

higher-

Moreover. this section presented a historicai evolution of the illicit drug sector and

has dso attempted to descrik the smcture of the illicit coca industn; in P m Different stages

of evolution as well as the agents who participate and the current marketing procedures of the

indu- were identifieci and d e s c r i i Some of these issues are the type. or nature. of

incorporation of the coca producer to the cocaine industq. the products that are d e t e d

abroad and those sold domesticaliy. the type of nansponation tttiheci the types of centers of

119

production and international crime. The description of the structure of the coca econom);

shows the vertical intsCmtion which coca growrs have o n e through.

One fact that appears clcarly in a i s section is the moving nature of the activity.

Indeed. coca growing has spread wïdely and tiequently in the Peruvian jungle. ho ther fact

is the dymmic and quick responses given by the différent agents as their economic

mvironment changes.

Calculations made by several smdiss show that the value of the coca sector's

purchaxs from other sectors ranged bettveen 13 and 18 percent of the coca sector's

intermediate demand The major implication of this is. contrary to what \vas found in the

rariy 1990s. that the coca sector bas important backwrd linkages with the rest of the

economy. especially with the chernids. petrokum derivatives as we11 as transportaion and

storage sectors.

.An aspect that is dso worth discussing here is the empto-ment effécts of the coca

sector. T'he sector employai directly ben= ? 10.000 and 240.000 people in 1994. This is

about seven percent of the txonomically active @cuiniral population of the economy. or two

ro three percent of the total econornicaily active population of Pau These shares of the active

population would be higher if the indirect employment were considered

In precmptÏng the anergence of large-de firiiinciai activities by organized

international crime. conml efforts m u s focus on both the supply and demand sides of the

transactions in which criminai organizations have a role to play. International nime feeds on

the revenues from the drug trade. .And yet despite e n c o ~ g progres. the perception

Iingers that drug control is exclusivel~ a country-level

international Ievel must become a more central

120

concern. Drug-controI efforts at the

means of tacklizig cimg-trafficking

organizations: until they do. the revenues accruing to crime will continue to groow. and with

it. the threat of criminai finance will become an mer greater rhom in the side of economic

ret'orm.

Coa created by the illegal coca made are multiple. cornplex and extmneiy di ficult ro

masure. nirx costs may offset the benefits derived liom coca and create morr poverty for

the country in the long m. Principal arnong them are the ecoIogical demudon of the

Pmivian jungle and the alliance of convenience benveen the guerriila and those in the illqal

coca tnde qainst the state.

Part of the problem cm be solved thou& by $vine narco-dependent monomia.

such as the Peruvian case. feasible. Iegd alternatives to alleviate a nidr range of political.

cconomical and social problems which c m o t be done using only militaristic policies. It \var

theretire the purpose of Part II tn discuss the solutions which ddress the inunediate problem

presrtnted by cultivation while rmplojng a longer term stratep to attack drug aafficking.

In the macroeconomic framework. the country needs to take steps to control money

and credit growh and to stabilize d o r n d c demand so as to Iimit or reduce the cment

account deticit bp reducing import growh. It should aiso consolidate the eschange rate to

be morr tlesible (to avoid M e r foreip-ecchange reserve losses). reduce foreign debt

and re-esamine privati-/ation apicdniral creditr price stnrctures. tarîffs. technicd nrppon

and investment pro-rams.

Wlils we cannot tm the ciock back on tinancid Iiberaiization. we can ai Ieast

absorb the lessons of experience. Hoviever. diis does not mean that the country should

reverse the deregdation procedure. What is mquired is a liberaiized deregdated market

liamework so that cornpetition is accompanied by riskcontrolling~ consewative practices

121

on the part of the institutions themselves. such as adequate capital ratios. ample

provisioning. transparent accountinp and proper credit-risk analysis. A greater influx of

foreign rsprr-tise. technology and capital to the econorny would al1 help Pem to achieve

t hese goals.

Economic liberalization -with a human face- must be the objective of the Fujimori's

administration. Since taking office on July 25. 1995. he has renewed his elrctoral pledge

to continue the market liberalization policies of his previous govemment. but also has

served notice dix his administration will d e o more active role in solvinp [ongsmnding

social problems. If these efforts prove successtùl. the govsmment wiI1 serve to reduce

popular dissatisfaction and ~tren~gthen Peru's democratic institutions.

Financing these social espenditures will not be a problem. .\fier recording an

average m l growth gain of 706 in the 1993-1996 period the econorny will probably

espand at a 5.56% annuai clip in 1997. buoyrd by mong copper and tishmeal pnces and

rvrr l q c r csport earnings from the country's vast new rnining fields and agriculture

del-elopment. In fact in recent w r r h the govemment has taken severai precautionary

monetq- and credit measUres to cool demand and pnce increases and to squeeze escess

Iiquidity out of the economy.

The ne13 phase of reforms will require profound institutional changes to maintain

grow-th rates. and if possible increase them. The vaiidip of this type of generaiization mil1

t-ary uith the implicit assumptions regardhg the distribution of the benefits of growth

&tu-een income groups wïthin the corn-. In the recent past growth and investment have

varied ~ i d e I y behveen regÏons and there hris been a tendency toward more economic

inequaliq and evea in some cases- for economic gorvth to be accompanied by increases

133

in unemplo1;ment. So. in order to sustain high growth rates. Prru must appreciably

increase its savings rates.

The sustainabiiity of the refonn process remains a key issue. in view of the

enonnous costs that have been imposed on people. and the inequity wiirh which the benefits

of reform have been shared. Govemance is also developing into a crucial issue:

institutional reforms targeted at incrrasing the stEcicncy. Iqitimacy and equity of state

policies are vita! to the country's stability and to the pursuit of democratic development. In

addition. rampant corruption unrelated to dnigs. in both the private and public sectors.

rmains a S ~ ~ O U S threat to socio-rconomic growth and good ovemance.

Thus. consolidaring the political. economic and social reforms. making them a

permanent frarure of the Peruvian rconomic and social Iandscape. is an enormous

challenge k i n g in the prompt hture.

I think this is the moment to rrffectiveiy implment a redistic progam of integral

derelopment. Five years ago it \vas not nor will it be tive years fiom now since during the

next fivr y x s an>-thing can happen In the Iast nvo years. the price for Peruuian coca I d

and for coca paste for cocaine has plummeted. but not the pnce for r ehed cocaine. The

meet price for cocaine has risen in the US. Unri1 Decmber of Iast year. Perutian coca

s o ~ v m . both in the areas where coca is g r o w ~ for aaditionai consumption and even more in C

the areas growing coca for c h g trafncking. \vere king paid USS M per arroba which is

rquivdent to 1 1 5 kg. about USS 4 per kg. Right now. the price is USS 0.10 per kg. This has

caused a major economic crîsis as well as a major socid crisis in the countryside.

Another important element is the surpIus of both coca leaf and cocaine in storage.

While the overail consumption has remained about the same or has diminished somewhat, the

193

amount of cocaine produced continues to increase. leaving 3 surplus a c h year. And this has

been occumng for the pas four or five years. creating a huge stockpiIe of cocaine. To sum

up. 1 think this is a geat oppoonunity for P m kause the price for coca I d have fàllen. and

because the psai-~uit who ~ m w the coca teaf have been convinced for some time that it is

necasary to combine their traditional crops nith some cu1tivation of coca leaf for traditional

use and for knekia i products. Thmefore. it is exmmeIy important that nationaify and

intrmationally there is support for projets for integrai sustainable ntizil deveiopment that not

only look at the issue of crops. but aiso at marketing the products both domestically and

international&-. and aiso d d s with infnsmicture such as roads and highways to facilitate

access to new- markets.

In addition the suates mus dso combine eradication/interdiction prograns to lower

h g a w renuïis on the one hand and alternative dewlopmmt to nise the retums h m

nltmativr on the odier. Moreorsr. efforts to bolster the capacity of the states in the region to

pencrtrate remote. contlict-dden rural areas bsxt by drug tratr~c. to rein in paramilitary and

cuemlla violence. and to deliver asrntiai govemment smices must be s=nC&ened dong C

aith h g law enforcement efforts. It has been seen that the US. government could and

shodd provide support for comprehensive derelopment prograns as part of its overall

mridmg strategy. The United States clrarly nivil1 not be abIe to fwt the entire bill for the

Andean countrîes. much Iess for the entire hemisphere. but it codd and should contriiute

si-pificandy to nich efforts and encourage other developed nations to do so as weLl.

Bq. itself. h g law enforcement onnot be expected to solve the problem by itseK It

must be complemented by strong diplornatic initiatives. viable economic alternatives for

drug-Cp~ing pesants. effective criminal justice systems- and eaupandeci use of relatively

1 24

new approaches. such as rernoving the profit of h g nafficking and controllin_o precursor and

t s e t itial chemicais.

The .Amcrican administration must move kyond symbolism to serious and sustained

coopcration with the Andean and other source and d i c k i n g countries in Latin America

Excessive emphasis on military ruid police repression will not work and poses multiple nsks to

civilian leadership. human rights. and dsmocncy in the .Andes and dsewhere in the

hmisphrre. Insinnionai-building. rnultilatm1 coordination and sconomic development

musr dl be incorponted into a comprehensivr responx to the regional dmg trade.

Hard and sofi drugs pose serious challenges to societies. They shouId not be

decrimindized or Iqaiized Both supply and dsmand approaches are required ranC@.ng h m

crop endication (on the supply side) to greater public awarenrss. Wlat is required is a mass

mobilintion of consciousness about the sffrct of h g use m d rn invol~ement of ewq- -or

of the community. fiorn fàmilv to school. tiom workplacr to social clubs. in a sustained

propan ro discourage espaimentation w i t h totemce. and consumption of narcotics.

Moreover. there should be more tiequent regionai and intrrr%ional training xminars and

workshops for h g law enforcement personnel: protision of n p i d secure and direct means

of communication: and establishment of bilaterd agreements behveen States with common

problmis arising fiom the illicit WIC.

Thou&tfûi Pennians of varieci pditicai view. including members of the armed forces,

argue thar the spread of Sendero. the cuItivation of coca and the unheaithy e.upansîon of

rni1ita.q- power ttithui a democratic state are p r o b l a tvhÏch cannot be res~hed nithout a

cohaent strategy for deveiopment and national integration, Therefore, serious attention must

€x given to the medium and long terni h u r e of the drug phenornenon. US. and LaM

125

.Amencan leaders must anticipate and plan a MabIe strategy. and then implementhg it

consistently. This wil1 necessitate si_pificantly higher levels o f U.S. funding both

domestically and interriationally and sustained efforts to cooperate with Latin hericans,

Policies m u t include policing to atrack the indu- in the short tem. Hi& cos% and

low results do not Iqitirnize the existence of this mategy in the long term and thus.

dswlopmcnt of Pm's economy and reduction of the world's cocaine dernand must be

initiated on a large scale immediately. The longer the wait for this change in policies. the

more remote the possibiIity of reducing the coca industry.

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Anrzex-Maps

1 . Coca and Cocaine: .Major Cultivation and TntXcking Routes.

2. Principal Coca Growing Areas in Pem.

3 Vdieys with Coca Cultivation.

4. MADEWS.MD - Action Zone of the Alternarive Development Program.

5. Alternative Devefopment Project in the Valley.

6. COKTRADROGAS - Target Zones of the .Alternative Drvtiopment National Pro*m.

PRINCIPAL COCA GROWING AREAS IN PERU

Huailaga Valley

Pachitea Valley

La Convenc of

ibn y

I' OBRAS EJECUTADAS

ECUADOR COLOMBIA

CONTRADROGAS . . . . ZONAS OBJETNO '. .

-1 \ OEL PROGRAMA NAClONAt t s

1E OESARROUO ALTERNAmO "3

'%

--.\