Latin America: is cocaine production a shield from the rising dollar?

The strange correlation between local devaluation and rising coca crops

cocaine production 

Leer en Español: América Latina: ¿producción de coca como cobertura contra la devaluación?

President Donald Trump blamed the Colombian government for the rise in cocaine production within the South American nation. This growth was witness by both the Colombian Drug Observatory, the United Nations, and the U.S. Department of State. Venezuela and Bolivia were also signaled out for not fulfilling their obligations to half the drug production.  

According to the European Monitoring Center for Drugs and Drug Addiction Centre, the first 4 years of the current decade saw an overall decrease in the production of both the plant and drug production in Bolivia, Colombia, and Peru. Data from UNODC is consistent with U.S. Official trends.

Based on figures provided by the Insight Crime Organization, Colombia, as of 2015, has seen a rise in production that has reached 53,000 hectares. In 2016, it grew to 188,000 hectares; 80% higher than the average of 2008 through 2016.

What’s behind the sudden change?

The economy. For context, a dollar in January of 2014 was worth $1.937.85 Colombian Peso (COP). On February 2016, the same dollar was worth $3,382.94 COP. The 74% devaluation from peak to peak became a national issue as inflation in 2015 reached 6.77%, its largest value in 7 years.

The sudden devaluation of the Colombian currency was given by an effect shared between Bolivia, Peru, and Venezuela, as well: the international shock in the price of oil. This made Colombia a proper case study as its effect was seen and felt more due to the lack of other industries to help mediate the shock.

The Colombian case reflects the nature of adapting markets as president Juan Manuel Santos’ main objective between 2015 and 2016 was the peace negotiations with the Marxist guerrilla FARC. Part of the negotiations included the stoppage of air raiding of suspected illicit crops as said practice would diminish the land’s marginal productivity in the years to come.

As 25% of the total 45 million population of the South American nation is rural, being hit with a 6.77% inflation almost forces hundreds of thousands of people to bounce back into poverty/. Meanwhile, the government’s inspection decreased as the national budget was also cut; stronger operations could halt the peace process which was not a long-term solution.

On the other hand, a more expensive dollar boosts the incentives for exports giving it leeway for two of Latin America’s largest illegal industries to surge: illegal gold mining and cocaine production.  Nevertheless, gold is what backs up the dollar and since the American currency became stronger, the gold’s price sank.

Reports from El Espectador, a Colombian media outlet, revealed that current alternative for rural Colombians is to either work in a palm oil field earning $11.6 USD a day or at a coca field and make 229% more a day.

 

Latin American Post | David Eduardo Rodríguez Acevedo

Copy edited by Susana Cicchetto

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