An academic study sponsored by UAGRM's economics department and led by economist Alejandro Banegas estimates that drugs (cocaine and marijuana) generate a turnover equivalent to 5% of GDP.
A study, endorsed by the Universidad Autónoma Gabriel René Moreno (Uagrm), reveals that the economic movement of illicit drug activity generates an economic movement of between US$2 billion and US$2.5 billion per year in the country.
The study was prepared by Alejandro Banegas, former director of the Central Bank of Bolivia (BCB), and sponsored by the Uagrm, with the endorsement of its economics department. It will be published in a scientific journal.
The study aims to quantify and evaluate the importance of drugs, particularly cocaine and marijuana, in the Bolivian economy. It is also an experiment to determine what would happen if these drugs were legalized.
According to Banegas, there have been several approaches to the issue in the past.
For example, a study by Ricardo Rocha in 2001 came to quantify the illegal drug economy in Bolivia at 7% of GDP in the 1990s.
Subsequently, he said that in 2016 the Financial Investigations Unit (UIF) estimated that the illegal activity generated a movement of US$2.5 billion a year, or an equivalent to 8% of GDP.
Based on that background and the analysis of new variables, Banegas' study makes a more current approximation of the impact this has on the Bolivian economy.
"In terms of economic movement, we have estimated 5% of GDP, that is between 2,000 million and 2,500 million dollars. It is 5% with +0-1% as a confidence interval," he specified.
Two dimensions
The economist said that the impact of cocaine and marijuana is evaluated in the study from two dimensions.
On the one hand, the annual economic movement or flow and the other perspective seeks to establish how much is materialized in the economy as capital stock or patrimony. That is, how much of that movement has been transformed into houses, buildings and infrastructure via money laundering.
"Under that perspective, you have an annual economic flow of 5%. But in terms of capital, if you measure how these flows became houses and equity, we have estimated that this can have an impact of between 7% and 10% of GDP. This represents between US$2.8 billion to US$4 billion," Banegas pointed out.
To reach these estimates, the study took into account the potential production of drugs, which is a function of the number of hectares of coca leaf in excess.
It also analyzed the yield per hectare of surplus coca, the kilograms of coca paste obtained per hectare, and the domestic and foreign prices of the drug.
For this, police reports, United Nations documents and others were reviewed. "There are two variables that account for 95% of the explanation. Seventy percent is due to surplus coca leaf crops and 25% is oriented to the price of the drug," said Banegas. He explained that of the 100% of cocaine production, 3% is consumed domestically and 97% is exported.
Drug legalization
Banegas indicated that the study addresses in a second part the impact that an eventual legalization of drugs, particularly marijuana, could have as a source of new tax collection. According to the economist, this could generate an effective fight against drug trafficking, because if it is legalized, the business is taken away from those who are dedicated to the illicit activity and the State can take more advantage of it.
"Legalizing the production and domestic consumption of marijuana could have revenues between 200 and 400 million dollars per year from taxes and this represents between 0.5% and 1% of GDP",he stressed.
Marijuana, feasible
Banegas said that the legalization of marijuana for domestic consumption is more feasible than other drugs. "In some countries there are certain states where it has been legalized and some grams of marijuana can be consumed. In Uruguay there is an exportable industry with certified hectares and where consumers must register," he said.
Banegas pointed out that in the Chiquitania region of Santa Cruz, crops could be certified for consumption, medicinal purposes or tourism.
He pointed out that the price of a kilo of marijuana is estimated at 100 dollars in Bolivia, but at the borders it goes up to 400 and even 800 dollars per kilo and if it were legalized, the potential income for the country would be significant.
Analysts see impacts, but the country does not control surpluses
Economist Alberto Bonadona estimates that the drug circuit does not move more than 1 billion dollars, because the surplus is not controlled in the country.
"This has its weight in the economy, there are producers of coca, pisacocas and cocaine is produced, but it is in the export where more money is going to be earned. It leaves money in Bolivia, but not in the proportion that would be expected", the analyst pointed out.
According to Bonadona, the big mafias are not run by Bolivians, but by Colombians and Mexicans, who are the ones who appropriate most of the surplus in markets. "Bolivia should not exceed 1,000 million dollars, otherwise it would be observed in the economy, I do not think it would even exceed the flow of remittances," said Bonadona.
Economist Mike Gemio said that the money that originates in drugs is laundered into the economy with the exchange of goods and services. "When a vehicle is purchased, the importing company will issue an invoice and taxes will be paid, then the good can be sold, but the money enters the formal economy. In that way it enters the national accounts," he said.
The economist added that drug production and its weight in the economy is difficult to quantify, but some estimates can be made based on seizures, coca supply and surpluses generated.
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