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Decriminalization and the Impact of Drug Trafficking in Central America

22 Feb

Decriminalization, or legalization, of drugs in Central America is a hot topic in El Salvador and Guatemala right now. Last Friday, Inside Story Americas, an Al-Jazeera news program, ran a program on the effects of drug trafficking on Central America, touching on the pros/cons of decriminalization.

The program was in response to comments made last week by Guatemalan President Otto Perez Molina, who said he would be open to decriminalizing drugs in an effort to address Guatemala’s security issues. The comments came after a meeting with Salvadoran President Mauricio Funes who also said he is also open to the idea. President Funes stated,

“Our government is open to discussion on any proposal or measure which achieves a reduction in the high levels of consumption in our countries, but particularly (to reduce) the production and trafficking of drugs. As long as the United States does not make any effort to reduce the high levels of (narcotics) consumption, there’s very little we can do in our countries to fight against the cartels, and try to block the production and trade in drugs.”

After returning to El Salvador from his meeting with President Perez Molina, President Funes backtracked a bit, saying that he does not favor decriminalizing drugs.

Saving the discussion about the pros and cons of decriminalization or legalization for another blog post, an interesting point of these recent conversations is the growing emphasis on the failure of the U.S. to curb its demand for drugs. Al Jazeera cited a recent government report that found that 22.6 million Americans used illicit drugs in 2010, nearly 9% of the population. While the number of users dropped from 2.4 million in 2006 to 1.5 million in 2010, the U.S. remains the largest consumer of cocaine in the world.

The Inside Story panelists said the heads of state in Central America, and even Mexico and Colombia who have talked about decriminalization, may be discussing decriminalization in order to pressure the U.S. into taking more actions to decrease demand. Experts from around the world agree that the “war on drugs,” as it has been fought over the past 40 years, has failed. Even President Obama has acknowledged that the U.S. needs to address the demand issue, and treat the issue as a public health problem.

U.S. policies have yet to change, though. In 2011, the National Drug Control Strategy had a budget of $15.5 billion, and the expenditures were roughly the same as in previous years. Approximately 1/3 ($5.6 billion) of the federal budget for the war on drugs was allocated for treatment and prevention – an increase of $0.2 billion from the 2010 budget. The remaining $9.9 billion was allocated for law enforcement, interdiction, and international support, the same as previous years.

In addition to the well-documented affects on Mexico and South America, the U.S. demand for illicit drugs produced in South America and trafficked through Central America and Mexico have very real consequences in Salvadoran communities.

El Salvador, Honduras, and Guatemala now comprise the most violent region in the world. While police officials blame 90% of the murders on local youth gangs, other government agencies, recently demoted police officials, and civil society organizations believe the violence is the result of international organized criminals who are trafficking drugs, guns, people, and laundering money. They estimate that only 10-20% of El Salvador’s murders are attributable to local gangs. The high murder rates have resulted in such insecurity in El Salvador that the U.S. aid program, Partnership for Growth, indentified it as one of the country’s two primary barriers to economic growth.

Traffickers use border communities, coastal villages, and other regions to move shipments from South American producers to North American markets. But they don’t just use these communities quietly – they often take them over, corrupting local government and police officials, making sure that local citizens and law enforcement do not interfere with their activities.

Along the coast, traffickers use small villages, ports and tourist destinations to refuel the small boats they use to transport drug shipments by sea. They also use these villages to transfer shipments that arrive by boat to cars and trucks, which then continue the journey north via land routes. Traffickers use communities along El Salvador’s borders with Honduras and Guatemala to move shipments without interference from border agents.

The cartels control these towns by putting local government and police officials on their payrolls. In turn these officials arrange for locals to move and provide security for shipments, and make sure that law enforcement agencies do not interfere. The local government and police officials maintain a culture of lawlessness that prevents political opposition and limits civil society.

One of the best examples of how traffickers work in El Salvador is the Texis Cartel, which was exposed in a report put together by El Faro in May 2011 and a companion video produced by the Washington Office on Latin America. The Texis Cartel ran a land route that trafficked drugs and other contraband from Honduras through northern El Salvador and on to Guatemala.

While it remains unclear how decriminalization or legalization would affect Central American communities, experts and even President Obama agree that the long-term solution must include a decrease demand in the U.S. Unfortunately, U.S. officials have yet to shift their priorities, forcing Central and South American governments to discuss other options. And until the U.S. can kick its cocaine problem, the violence will continue and the cartels will continue to control communities throughout the Americas.

Partnership for Growth: Part 1

14 Nov

On November 3rd, government representatives from the U.S. and El Salvador signed the Partnership for Growth Agreement with the goal of promoting economic development in El Salvador. The five-year program seeks to overcome two constraints to economic growth in El Salvador – crime and insecurity, and low productivity in the tradables sector.

Partnership for Growth “is a signature effort of President Barak Obama’s development policy, focused on economic growth as the core priority for United States development efforts.” El Salvador is, so far, one of only four countries to sign a Partnership for Growth agreement. The other countries are Philippines, Ghana, and Tanzania.

Over the next few weeks, Voices on the Border will examine what the Agreement says, what the Agreement does not discuss, and what the Agreement means for communities in El Salvador.

A fact sheet released by the U.S. Department of State lists five general goals for the Partnership Agreement:

-       Reduce the effects of the constraints to economic growth (crime and insecurity, and low productivity in tradables) over the next 5 years;

-       Provide conditions so that other countries can participate in the Partnership;

-       Demonstrate to the people of El Salvador the commitment to addressing the constraints to economic growth;

-       Increase the partnership between the government and private sector; and

-       Reinforce a bilateral relationship of mutual respect and action.

A team of economists from El Salvador and the United States spent the first few months of 2011 generating an economic report that defines the main constraints to economic growth in El Salvador. A link to the report can be found on the U.S. Embassy in San Salvador website, along with a statement of Principals and the Joint Country Action Plan. According to the report, the “shadow price” (potential GDP missed due to the constraints) of crime and insecurity and low productivity in the tradables sector is substantial.

In addition to providing a detailed review of the country’s economy, the report states,

“ the prevalence of crime represents a weakening of property rights because it demonstrates government failures to protect property from unlawful seizure and reduces the ability of economic actors to reliably recover returns on their investments.”

Citing statistics from the World Bank, the report says that small businesses in El Salvador lose an average of over 7% of their sales to crime. Medium size businesses report a 5% loss to crime. Businesses also have to pay for security, costing small and medium businesses an average of 3% of their total sales. Combined, the loss of sales and cost of security are 10% of sales for small businesses and 8% for medium size businesses.

The El Salvador Constraints Analysis (CA) determined that the effect of crime on El Salvador is between 4.8% and 10.8% of the country’s GDP, depending on whether health costs are included. Both figures are higher than the Central American average, and double the figure in Costa Rica, the only country in the region that does not have an epidemic level of crime. The report also states, “in the Global Competitive Report, El Salvador ranks last out of 139 countries under the Organized Crime Indicator, and next-to-last in Business Costs of Crime and Violence.” In coming blog posts, we will consider the Joint Country Action Plan and the activities the governments are planning to minimize insecurity as a constraint to economic development.

The CA also determined that low productivity in tradables is another constraint, suggesting that Salvadoran goods and services are less competitive internationally than those from countries such as Nicaragua, Honduras, and Costa Rica. As a result, El Salvador exports less than it could, and imports products that could potentially be made domestically. The CA calculates that the effect of low productivity in the tradables sector is “as much as 8 percent” of GDP.

The Partnership for Growth Agreement was just signed a couple weeks ago, and people and economists are still trying to fully understand its implications. Some have already begun holding it up as the most important development for El Salvador’s economy in recent history. Others are calling it the worst thing that could happen to El Salvador. In the coming weeks we will try to present a balanced analysis of the Agreement and how it fits into the larger picture of sustainable development in El Salvador.

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