Essay on Regionalism and Criminal Economy

The current problem question includes several “vague” terms that have to be brought into perspective before continuing, as this will no doubt cause much room for discussion in interpreting the analysis. The term regionalization here is understood as going beyond the classical integration theories and including social, political and cultural dimensions as well as the conventional economic features. The newly defined phenomenon no longer covers mere geographical territory but convergence between states and regions in general as well . Under this definition the role of the United States (among other countries) in Latin America can also be included seeing as they too influence regional policies as a whole with their bilateral and multilateral agreements. The second term that needs clarification is the term criminal economy. For the purpose of this paper, I will focus mainly on the role of the narcotics industry within the criminal economy, as this is believed to be the most influential in the region. The third and final word that needs further elaboration is the use of words Latin America. For the benefit of simplification I will focus on a case study, namely that of Bolivia, as it represents one of the core countries involved in both neo liberal regional cooperation (that is MERCOSUR) as well as a key participant in the cultivation and production of narcotics within the region. These terms will be explained in more detail throughout the paper.

This paper therefore aims to link the newly defined phenomenon of regionalization with trends in the narcotics industry in Bolivia. The correlation or relation (if any is identified) between these two variables will prove to be of great importance in identifying the consequences of developments in current policies on the criminal economy and hence determine their success.

The main aim of this paper is thus, as identified above, to identify (if possible) the correlation between the neoliberal regionalization of Latin America (taking Bolivia as a case study) and trends in the criminal economy (focusing specifically on the narcotics industry). To be able to tackle this problem most efficiently, however, I first break the problem up into several sub questions that will aid in finalizing the analysis. The following sub questions will be considered:

a) How did the criminal economy develop throughout the region over the past three decades? Here the impact of Neoliberalism on the state is identified as well as the trends noticeable within the criminal economy over this same period.

b) How has the wave of Neo-liberalism affected Latin America economically? This will describe trends in levels of poverty, unemployment, polarization, and so on that can be attributed to the economic restructuring due to the rise in neoliberalism.

c) How have prospects of joining regional organizations changed the regulating policies of states with regard to the criminal economy? The role of Mercosur, the Andean community and the US among others are identified here in changing Bolivian policy towards controlling the narcotic industry. The efficiency of the policies will also be covered here.

The global criminal network has devastating effects on the world as a whole. The vast sums of money moved from place to place in short time spans with the hope of legalizing it (generally known as money laundering) increases the chances of destabilizing financial economies . The criminal economy also incorporates other activities such as the illegal weapon industry, prostitution, kidnapping, extortion and so on – all of which further destabilize the state, civil society and hence increases insecurity. The sale of illicit drugs has also been linked to increased levels of inequalities (between and within states) as well as decreases in economic development . In short, the criminal economy effects the state and its legitimacy, financial markets, civil society and thus indirectly also democracy.

The purpose for engaging in all of these activities is to benefit from the short-term financial profits that are produced. With the global trade in drugs amounting to some US$500 billion (larger than the global trade in oil) the goal of this paper is to analyze the effects of regionalism (a current phenomenon) on this lucrative market to be able to predict future stability on a financial and social platform.

The theoretical basis on which this problem lies can be said to be threefold. The first of the three is based on the idea that current levels of globalization has led to the weakening of the state therefore making it easier for criminal organizations to maneuver. The second theory describes a connection between the global instability (both social and financial) of the global criminal economy and increases in the information technology and globalization itself. The third and last theory argues that regionalism is but a counter-reaction against globalization by the state in an attempt to control the problems taking place within their territorial borders. In this section I will go into a little more in depth on each of these theories.

According to (what I personally term) the weakened state approach there are two main transformations taking place simultaneously both weakening the state, namely an economical and a political transformation. The economic element argues that since the emergence of increased globalization, coinciding with the liberalization of financial markets, states have lost control or rather autonomy on macroeconomic activities occurring within their geographical borders. The political dimension describes how globalization diminishes the sovereignty of states. This loss in sovereignty is a result from the highly encouraged growth of regulatory activities through nonofficial bodies (such as NGO’s for example). It is further diminished through the displacement of public sector governance from state levels to both substate and suprastate authorities and therefore becoming more multilayered. The state has thus lost its predominance as a site of governance . This has not removed the state from being the main actor within its territorial borders but it has significantly weakened its position. The demise of the westphalian international system can thus be said to correlate with a rise in globalization.

The second theory relevant to this paper is that of globalization’s perverse connection. What lies central here is the notion that increased globalization (with its state weakening effects) facilitates the movements of global criminal organizations and hence increases the insecurity in a wide array of areas. Among others, increased globalization is believed to lead to increased inequality, poverty, social exclusion and insecurity as well as an overall increase in the instability of international financial markets. Due to the vast amounts of money circulating in the international money laundering operations, linking up the criminal economy to the formal economy, the international financial framework is left unstable . All these activities further have an adverse effect on the political stage. Globalization is thus believed to facilitate criminal activity on a global scale as they grow and diversify faster than state controls can manage.

The third and final theory employed is the notion that regionalization is a counter-process or rather a political corrective for the growing globalized world disorder. Here it is argued that along with increasing globalization there will be those who will attempt to bring these globalization processes under some form of political-territorial control . Regionalism is thus seen as the political ambition of protecting the region from the negative effects or rather the growing disorder that coincides with globalization.

In order to produce a worthy historical report on the subject matter, I must focus on two processes, to be precise the historical processes of both regionalization and the narcotics industry within Latin America.

After disappointing results from former (post war) regional initiatives, regionalization programs in Latin America seemed like a something of the past. The collapse of the regional economy, after the Mexican debt crisis of 1982, along with the resulting economic restructuring necessary, made future prospects of regional projects only less likely.

The early 1980’s were characterized by economic structural reforms that put an end to the Import Substitution Industrialization (ISI) approach as well as the regional integration schemes that supported it. As Latin America opened up (and liberalized) its economies to the rest of the world it simultaneously started to deregulate them thus attempting to motivate more activity within their respective private sectors. Taking a closer look at the tariffs on trade within the region over this period acts as a simple illustration of this. Whereas tariffs were as high as 40 percent in the 1980’s it was a mere 12 percent by the mid 1990’s . These structural reforms were accompanied by some 30 regional initiatives since 1990, of which the NAFTA and MERCOSUR are the two broadest in scope. The opening of the region increased its economic growth to just below 11 percent, thus managing to exceed the world’s trade growth of that period of 6.6 percent . The 1982 debt crisis can therefore be said to have ended the ISI approach along with its regional initiatives and was replaced by a new economic approach (a liberal free trade approach) along with new regional schemes to support it. The new regionalism in Latin America thus complimented the structural reform, taking place in the region, promoting an open and competitive private market-base economy.

What is new about this wave of regionalism are its objectives. Among others (see problem question) new regionalism aimed at attracting foreign direct investment (FDI) and thus make their local private sectors more active. Countries hoped that increases in FDI would lead to improved export networks as well as spillovers in technological know how over to local industries thus modernizing national institutions. The importance of entering bi- or multilateral agreements and more so with the “North” seemed more valuable than ever.

The historical process of the narcotics industry for the purpose of this paper also begins in the 1980’s. The narcotics industry in Latin America is centered around the production of cocaine. Having become the central element in the production of cocaine, the demand for coca leaves had skyrocketed (mainly from the United States) making the coca leaf one of the most (if not the most) profitable crops for export throughout the 1980’s . The main contributors towards the production of this drug within Latin America were Peru, Bolivia and Columbia – due to the increased demand and price of the coca leaf, cultivation within these countries also increased rapidly over this period .

Bolivia, which ranked second after Peru in the cultivation of coca leaves, was specialize in the manufacturing of cocaine base paste while generally leaving the final refining of this, resulting in the finished product, mainly to Columbia . It is worth noting that virtually all of the necessary chemicals for the production of the illicit drug were provided from within the US.

As the Bolivian government, among other states, began to pursue an economic adjustment policy throughout the 1980’s, thousands of people were left unemployed which were virtually absorbed by the informal economy. It is no coincidence therefore that Bolivia’s cultivation boom is identified in the mid 1980’s . The actual trafficking of the drugs was often mainly done via Columbia’s based cartels, transporting the final product in small planes towards the US eager markets. Bolivia often acted as a transit state whereby the cocaine was often routed through Brazil and Argentina towards other destinations around the world.

Throughout the 1990’s, production trends began to change. Although the major production level had stayed relatively the same, the level of involvement had dramatically changed. Where as the Andean states did not really have a priority towards the increased cultivation of the illicit drug, the US had clear approach in mind. Tackling mainly the supply-end of the industry rather than the more local demand side, the US began to urge states in the region to pursue eradication programs. The motivation for these states to comply was fairly simple, namely the US “certification ultimatum”, no action towards eradication would mean no financial aid or loans . Whereas some states were more intimidated than others, Bolivia (having been “decertified” since 1987) and Peru began to implement a thorough eradication program with the financial backing of the US government through the Drug Enforcement Administration (DEA) – which further trained the national narcotic police force and military on tackling the problem. The four part strategy has been extremely successful in eradication, interdiction and alternative development and somewhat less so in prevention/rehabilitation . These new initiatives proved to be very successful from 1992 – 2000 although they were not met without resistance on behalf of the coca-cultivating farmers – who earned more money from the cultivation of the illicit crop than licit alternatives. Looking closer at the actual cultivation figures of the region, however, it becomes increasing clear that cultivation simply shifted towards Columbia rather than being completely wiped out of the region.

As stated in the initial problem question, in this paper I take Bolivia as my case study. I apply the problem question on Bolivia for the simple reason that it is located in the heart of the Andean region (the main coca cultivating area within Latin America) that is under scrutiny in this paper. Apart from its mere geographical location it has also fully participated in the cultivation of coca and thus directly in the narcotics industry. Regarding Bolivia’s regionalization connection, Bolivia became an associated member of MERCOSUR along with Chili in 1996, allowing analysis of the influence of regionalism on narcotics industry within the country since then. As explained in the historical context, Bolivia’s eradication policy has been influenced from several angels. On the one side we can identify the influence from the international community, most notable the US and to a certain extent MERCOSUR, on the other side we can also recognize the influence from within the country, namely the affected farmers in the coca cultivating region of the country. This section of the paper will take a closer look at current developments in the economy, government and the coca cultivation within Bolivia in recent years.

The economic aspect of the country seems fairly bleak continuing one of the poorest countries in Latin America with an estimated 70 percent of the total population living in poverty . Although remaining one of the poorest countries, the country has made considerable progress towards the creation of a market-oriented economy over the years. Economic growth in recent years has begun to slow down after years of heightened growth levels. In 2000 economic growth was held down to 2.5 percent after major civil disturbances had broke out throughout the year. The global economic slowdown the following year resulted in no growth at all for the South American country.

Having indicated the poor economic situation in which Bolivia finds itself highlights why the current President, Sanchez de Lozada, is having difficulty rooting out corruption within the country. The economic performance further illustrates why farmers decide to grow coca seeing as their standards of living is considerably increased by doing so. Although licit agricultural products in the Chapare region (one of the major coca cultivation areas in Bolivia) increased the annual family income from US$1706 in 2000 to US$2055 in 2001, the economic recession of Bolivia along with the economic crisis in Argentina have led to a 67 percent decrease in value of licit produce leaving the region . Such reductions in value may ultimately prove to result in decreases in annual incomes leading farmer to consider entering the informal economy for increased returns.

In august 2001, President Banzar resigned from office after being diagnosed with Cancer. Banzar’s Vice President, Jorge Quiroga, led the transition administration completing Banzar’s final year of term. The elections, held in 2002 announced former President Gonzalo Sanchez de Lozada, of the Nationalist Revolutionary Movement (MNR), as President of Republic of Bolivia for the coming five years. The runner up in the 2002 elections, Evo Morales an infamous cocalero leader, demonstrated unsatisfaction on behalf of the Bolivian population with regards to the coca eradication programs.

According to figures produced from the International Narcotics Control Strategy Reports of 1999, the eradication program in Bolivia seemed to be operating effectively (since 1996) demonstrating eradication figures for the year of some 43 percent nationwide . Bolivian law authorizes the cultivation of up to 12,000 hectares of coca for traditional use, it is therefore quite astonishing that from the 48,100 hectares of coca cultivation in 1996, a mere 14,600 hectares were left by 2000. A more recent report, however, demonstrates how this downward trend has come to a halt indicating a general increase in coca cultivation since 2000 . The cultivation increase in 2002 can be traced back to worsening economic prospects, the transition government administration, as well as the run-up to the 2002 presidential elections (where-by Evo Morales, the cocalero leader ended runner up). Along with further violent opposition on behalf of the coca cultivators, the government has been hesitant to conduct forced eradication in particular areas, especially the Yungas (one of the currently leading areas of coca cultivation within Bolivia). Although eradication programs within Bolivia have proven to be successful over the past, Bolivia currently remains to trail Columbia and Peru in the production of coca base in Latin America.

Another noticeable trend taking place within the Andean region is Bolivia’s growing importance as a transit state for Peruvian coca base destined for its more vulnerable neighbor states such as Argentina and Brazil . Trafficking patterns demonstrate that Peruvian cocaine crosses into Bolivia in the lake Titicaca region and continues towards Brazil. From there a large portion of the lower quality is consumed in Brazil and indications have led to believe that some is consumed in Europe, Mexico and the US. Peruvian cocaine is also destined through Bolivia for Argentinean, Chilean and Paraguayan markets .

Now that I have explained a little more about what it is I intend to do in this paper and a brief introduction to the trends taking place within the covered region, I now go into more detail on these trends and analyze them in relation to eachother to determine the relation (if any) between them. The following chapters will therefore cover the material summarized above in more depth and focused mainly on Bolivia as this is the case study chosen for the purpose of this paper.

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