Pubdate: Sat, 3 Apr 2010
Source: Wall Street Journal (US)
Copyright: 2010 Dow Jones & Company, Inc.
Contact:  http://www.wsj.com/
Details: http://www.mapinc.org/media/487
Author: Matthew Bristow

DRUGS FADE IN COLOMBIAN ECONOMY

BOGOTA-Colombia's cocaine industry, which once accounted for 6.3% of 
the nation's economy, has fallen on hard times since the days of 
Pablo Escobar's Medellin cartel.

Cocaine's share of gross domestic product has dropped as Colombia's 
drug cartels have lost control of key smuggling routes to cartels in 
Mexico and elsewhere, and as legal industries such as oil and mining 
have taken off. Illegal drugs now account for less than 1% of GDP, 
after peaking in 1987, said Ricardo Rocha, an economist at Bogota's 
Rosario University and expert on the nation's drugs trade. "Smuggling 
to the U.S. is now via Mexico," Mr. Rocha said. "We were left with 
the agricultural and agro-industrial parts of the business."

Over the past decade, Colombian authorities have broken up some of 
the country's most powerful cartels and extradited more than a 
thousand Colombians to the U.S. to face drug-trafficking charges. 
Investment dollars poured into the country amid a decline in 
guerrilla attacks, high commodity prices and the pro-business 
policies of President Alvaro Uribe's government, which attracted oil 
and mining firms.

Colombia's economy grew 0.4% in 2009 and has more than doubled in 
size over the past decade. Despite last year's slower growth, the 
expansion of legitimate business activity in recent years means that 
cocaine exports are now dwarfed by those of oil and coal, and may be 
even less than coffee, Mr. Rocha said. In 2009, Colombia posted $10.3 
billion in exports of crude oil petroleum products, $5.4 billion in 
coal and $1.5 billion in coffee.

Cocaine production peaked at some 650 tons in 2000, according to the 
United Nations Office on Drugs and Crime, up from around 19 tons in 
1985. Since then, output has slipped, with Colombia producing 430 
tons of cocaine in 2008-around 51% of the world's total-from 81,000 
hectares planted with coca, the raw material used to make cocaine.

However, the money made from growing coca bushes and processing the 
leaves into cocaine is paltry compared with the vast profits made 
from smuggling. The wholesale price of a kilogram of cocaine in 
Colombia was around $2,200 in 2007, a fraction of the average $31,000 
a wholesale buyer would pay in the U.S., or the $59,000 it would 
fetch in Europe. When adjusted for the fall in purity, the price 
difference is even greater. Moreover, with big Colombian cartels 
broken up and many kingpins in U.S. jails, local participation in the 
trade has somewhat "atomized," said Salomon Kalmanovitz, an economist 
and former member of the Colombian Central Bank's board of directors. 
"The Mexicans are [now] doing the intermediary wholesale business."

That marks a major change from the late 1980s, when Mr. Escobar, the 
Medellin cartel boss, appeared as the world's seventh-wealthiest man 
on Forbes Magazine's list. Today, the only drug trafficker on the 
list is Joaquin "El Chapo" Guzman, head of Mexico's Sinaloa cartel. 
The rise of the Mexican cartels began when U.S. and Colombian 
authorities stepped up naval and aerial interdictions of drug 
shipments in the Caribbean, said Alex Posey, an analyst for global 
intelligence company Stratfor. "It's largely due to the shift in the 
smuggling routes," Mr. Posey said. "In the late 1980s and into the 
1990s, the primary cocaine trafficking routes were from Colombia 
through the Caribbean into south Florida and the east coast of the 
United States."

When U.S. and Colombian authorities began to shut down that corridor, 
more cocaine began to enter the U.S. via land from Mexico, Mr. Posey 
added. Mexican cartels are estimated to generate anywhere between $10 
billion and $25 billion from drug trafficking, or as much as 2.5% of 
Mexico's GDP.
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MAP posted-by: Richard Lake