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Drugs and Economy in the Andean Countries, Methodological Approaches

Pierre Salama[*]

Published in Tiers Monde

When studying the weight of the aeronautic sector, for example, on overall national industry, we have figures on which to go on to analyze its influence on growth, its share in the country’s foreign exports balance, and to determine whether it has a significant impact on the country’s trade balance and foreign exchange rates.

Illicit crop cultivation and processing is another matter. Their illicit nature makes it difficult to be able to count on precise statistics. The only available data comes from estimates based on observation and deduction, which are thus debatable.

It is undoubtedly important to study, on the one hand, the macroeconomic effects of production and distribution of illicit products and, on the other, of repatriation of a portion of the proceeds from sales of these products abroad. Nonetheless, this is not easy to do. Possibly, sustained growth and low inflation rates in Colombia during the 1980s ¾while most of the countries in Latin America where plummeting into inflationist or hyperinflationist disindustrialization¾ owes it part to capital inflows from production and sale of illicit products. Similarly, but otherwise, Bolivia’s extremely high inflation until 1985 and Peru’s economic, social and political disaggregation were also conditioned by this activity. Inversely, Bolivia’s growth recovery ¾if weak¾ and relative control of price hikes is probably a byproduct of repatriation flows of laundered monies. These contrasts are an enigma and, as such, constitute a stimulating source of research in the quest for an answer to the relationship between drugs and a society’s structural changes as concerns its socio-economic, and accordingly, political realms.

Considering their illicit nature, it is difficult to measure the effect of these activities on changes in aggregate income. Are we dealing with a product which is a source of income ¾as in the case of other raw materials¾ and as such, a product which, from an economic perspective, can be analyzed in terms of income when measuring aggregate income tendencies and distortions? This comparison is necessary since prices are fixed differently, depending on whether referred to production or to processing. This gap between prices for raw materials and production costs seems to be a result of the correlation of forces at an international level. Prices of illicit product are barely affected by production costs; they are, however, markedly conditioned by interdiction of production and distribution. The gap between production costs and export prices, not to mention street prices in Western cities, allows for this comparison even if one is a renewable natural resource while the other is not. Is it then possible to apply knowledge from theses regarding income economy to estimate ¾assess¾ the impact of proceeds from illicit activities on society, economy and, as a result, on politics?

These are the questions to which this study responds. It is centered on two aspects. Firstly, problems pertaining to foreign currency inflows from illicit activities and secondly, the macroeconomic effects of the drug economy on its immediate environment.

[*]Professor Paris XIII - GREITD-CEDI

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