IMPLICATIONS FOR THE UNITED STATES OF THE COLOMBIAN DRUG TRADE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00302R000600990007-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 32
• Document Creation Date: December 22, 2016
• Document Release Date: March 4, 2009
• Sequence Number: 7
• Publication Date: June 16, 1983
• Content Type: SNIE

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S N I E 8/88-83
IMPLICATIONS FOR THE
UNITED STATES OF THE
COLOMBIAN DRUG TRADE
VOLUME I-THE ESTIMATE
Information available as of 16 June 1983 was
used in the preparation of this Estimate.
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THIS ESTIMATE IS ISSUED BY THE DIRECTOR OF CENTRAL
INTELLIGENCE.
THE NATIONAL FOREIGN INTELLIGENCE BOARD CONCURS,
EXCEPT AS NOTED IN THE TEXT.
The following intelligence organizations participated in the preparation of the
Estimate:
The Central Intelligence Agency, the Defense Intelligence Agency, the National Security
Agency, and the intelligence organizations of the Departments of State and
the Treasury.
Also Participating:
The Assistant Chief of Staff for Intelligence, Department of the Army
The Director of Naval Intelligence, Department of the Navy
The Assistant Chief of Staff, Intelligence, Department of the Air Force
The Director of Intelligence, Headquarters, Marine Corps
Intelligence units in the Drug Enforcement Administration, Department of Justice, and in the
United States Customs Service, Department of the Treasury, also contributed heavily
in the preparation of this Estimate.
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CONTENTS
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Page
SCOPE NOTE ............................................................................................................ 1
DISCUSSION .............................................................................................................. 5
A Long History of Smuggling and Narcotics ........................................................ 5
Recent Trends in Production, Imports, and Exports of Illicit Drugs ................. 5
The Mechanics of the Trade .................................................................................. 7
Risks and Markups .............................................................................................. 8
Economic Impact of the Narcotics Trade on Colombia ...................................... 8
The Spillover Into Politics ...................................................................................... 11
Corruption ........................................................................................................... 11
Political Influence ............................................................................................... 11
Traffickers and the Military .............................................................................. 12
Outlook and Implications for the United States ................................................... 12
Impediments to Controlling the Trade ............................................................. 12
Inducements ........................................................................................................ 14
Medium-Term Outlook ...................................................................................... 15
In the Longer Run .............................................................................................. 15
ANNEX A: Production, Trafficking, Prices, and Interdiction ................................ 17
ANNEX B: The Drug Trade and Colombia's Economy ......................................... 25
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SCOPE NOTE
This Special National Intelligence Estimate assesses the economic
and political impact of the drug trade on Colombia and examines
impediments and potential inducements that will affect the Colombian
Government's willingness to take more effective measures to suppress it.
The outlook and implications of this trade for the United States are also
analyzed.
The data on quantities and prices of drugs produced or trafficked
in Colombia are particularly soft; all figures used in this Estimate should
be treated as rough approximations at best. But this softness does not af-
fect the basic analysis and conclusions of the Estimate.
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Figure 1
Colombia: Major US Drug Supplier
United States
rth
ific
,an
tBOGOTA
7 '
anama,
2
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French Guiana
}(France)
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Canada
/S. Vincent ' Dominica
and the
' Grenadine 'St. Lucia
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KEY JUDGMENTS
. We judge that the factors impeding more forceful and effective
efforts against the narcotics trade in Colombia will continue to outweigh
those favoring such measures, at least for the next several years.
Colombia will nevertheless continue to cooperate with the United States
in suppressing the traffic at about the same level of effort it now exerts.
We doubt that President Betancur will agree to a large and sustained
program to eradicate the drug crops through aerial spraying.
Colombia now supplies one-half to three-fourths of the marijuana,
about three-fourths of the cocaine, and much of the methaqualone
smuggled into the United States each year. This trade generates
enormous profits for everyone involved, but particularly for the major
exporting and importing organizations that assume the greatest risks.
Perhaps the most basic impediment to more forceful action is that
Colombians remain apathetic about narcotics suppression and see it as a
problem for the United States but not for themselves. The need to
control narcotics thus ranks low on their list of priorities, well behind
coping with the worsening economic and internal security problems.
In addition, this trade constitutes Colombia's second-largest source
of foreign exchange (after coffee)
Profits from the trade also increase the size of the un-
derground economy that is beyond government controls. On balance, it
constitutes a net economic plus for the country, and this probably
contributes to Colombian reluctance to take more vigorous action.
With the tremendous resources at their disposal
But, thus far, the
traffickers have made few efforts to influence or control political events
on the national level, at least partly because they have procured
adequate freedom for their operations at the local level.
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There are, nevertheless, some factors that could in the longer run
induce Bogota to take stronger antinarcotics measures: the growing
number of narcotics abusers and addicts in Colombia, which may
increase local concern about the trade; the possibility that the tradition-
al elites will come to fear and resent the power of the trafficking
families; and the possibility that the involvement of local guerrilla
groups in narcotics trafficking for arms will raise the threat they pose to
the Colombian Government's control of the country.
Cuba has long supported insurgent activity in Colombia.
While
there are a number of other reports indicating Cuban complicity in
smuggling drugs from Colombia and elsewhere, we do not know the full
extent of such Cuban activity. The efficient trafficking networks,
however, offer great potential for moving arms as well as drugs
whenever Cuba chooses to use them.
Given the size of the potential growing areas and the profitability
of the trade, we see no chance that the growing and trafficking of
narcotics in Colombia could be suppressed-and kept suppressed-
without massive spraying or a bloody, expensive, and prolonged
coercive effort. We judge that Bogota will remain unwilling to accept
this cost. Even if Colombian drugs were cut out of the international nar-
cotics trade, these same factors-profits and ease of production-would
work to induce substitute flows from neighboring states.
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DISCUSSION
A Long History of Smuggling and Narcotics
1. Chewing coca and smuggling contraband both
have had a long and, for the most part, honorable
history in Colombia and neighboring states. The Ande-
an Indians chewed coca leaf as early as 3000 BC, and
coca played an important religious role among the
Incas. By the time of the Spanish conquest (mid-16th
century), coca use had spread from Argentina to the
Caribbean Islands, an indication of the vast range of
this tough and adaptable plant. As for smuggling, ever
since Spain imposed restrictive trade policies on its
American colonies, contraband has flowed both ways
across Colombia's borders. Public attitudes still are
deeply affected by this tradition of defying trade
controls. As illicit drugs became an increasing part of
this contraband, they were perceived as simply lucra-
tive adjuncts to the age-old practice.
2. Colombia's spectacular rise over the past decade
to dominate cocaine and marijuana smuggling into the
United States was aided by several other major factors:
- Geography. Colombia lies between the main
coca growers (Bolivia and Peru) and the sea
routes through the Caribbean; it has long and
little-patrolled Atlantic and Pacific coastlines, a
good communications system, numerous uncon-
trolled private landing strips, and lots of private-
ly owned small planes.
- Colombia's large, sophisticated, and aggressive
underworld. Colombians are said to dominate
the South American criminal world;
- An understanding of the intricacies of big busi-
ness as conducted by Americans and the presence
of a large contingent of Colombians in the
United States-a number of whom have family
and/or criminal ties with smugglers in Colombia.
Colombia's well-established smugglers could readily
expand their existing system to include drug traffick-
ing. By the late 1960s, Colombians were importing
coca base and paste from Bolivia and Peru, converting
it to cocaine hydrochloride, and exporting it to the
United States and elsewhere by the same routes they
had established for other contraband.
3. Colombians moved rapidly into marijuana pro-
duction, rather than just processing and transporting of
illicit drugs, when they took advantage of the paraquat
scare among US users as Mexico began spraying
paraquat on its marijuana fields. Colombia began to
grow increasing quantities of marijuana in the early
1970s. In the mid-1970s, Colombian traffickers began
to promote the cultivation of coca in Colombia for
processing into cocaine. (For estimated trends in pro-
duction and exports of these drugs over the past
decade, see annex A.)
Recent Trends in Production, Imports, and
Exports of Illicit Drugs
4. Colombia now supplies one-half to three-fourths
of the marijuana, about three-fourths of the cocaine,
and much of the methaqualone smuggled into the
United States. (See figure 1 on page 2.) It also grows a
small amount of opium poppy but, so far as we know,
this does not figure in the heroin trade with the United
5. Marijuana is grown in almost all departments of
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centered in the poor and underdeveloped northern
part of the country. Colombia probably prepares more
than 13,000 metric tons for shipment each year, of
which some 7,000 to 11,000 tons reach US shores,
according to estimates of the National Narcotics Intel-
ligence Consumers' Committee (NNICC).' Accidents,,
seizures, and sales to other markets are thought to
account for the difference.
' This committee is composed mainly of US Government agencies
with enforcement, policy, treatment, and.research responsibilities in
the field of drug abuse and trafficking.
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-+ -~ --, -i --, -- --- -, --, --~ -1 -, ---.. -1 -, --'-, -~ -,
coca leaf to coca paste to coca base to cocaine hydrochloride
6. Over the past two years, cocaine surpassed mari-
juana in terms of export value. In 1981, Colombia
probably grew enough coca to produce 5.5 metric tons
of cocaine hydrochloride and produced at least an
additional 30 to 32 tons from paste or base imported
from Bolivia and Peru. (For details on the manufactur-
ing process, see annex A.) Domestic production is
rising very rapidly as traffickers establish plantings in
the virgin forests of southeastern Colombia. Their
yield could rise to perhaps 15 tons by 1985. Thousands
of new fields have been observed from the air, but no
systematic survey has yet been made.
7. Total production-from domestic crops and im-
ported base and paste-destined for the United Sta es
in 1982 is estimated t
40 to 50 tons of cocaine hydrochloride. This is equiva-
lent to total US cocaine imports as estimated by the
NNICC for 1980, when the same committee conclud-
ed that Colombia supplied at least half of the cocaine
entering the United States.2 Clearly one or more of
these estimates is off, because there are no reasons to
think that Bolivian or Peruvian production has
dropped markedly since 1980. The United States may
be absorbing much more than we think, or vast
tonnages may be going to other markets, or the
acreage and production estimates may be too high.
(For further discussion, see annex A.) Whatever the
real tonnages of Colombian cocaine exports, it is clear
that local cultivation is growing rapidly in new areas
and that the region as a whole will have much more
cocaine available for export over the next few years
(and more than the US market can absorb) as things
now stand.
8. Methaqualone is the third major illicit drug
exported from Colombia. In 1980 and 1981, according
2 The Drug Enforcement Administration believes that the com-
parison made here between cocaine intended for export and that
actually imported into the United States is ill founded. It does not
take into account such factors as loss to interdiction, marketing
inefficiency, spoilage, and overproduction. This is a standing
to estimates of the Drug Enforcement Administration
(DEA), Colombia exported about 36 metric tons of
methaqualone-the equivalent of 90 percent of the
estimated US market for this drug in illicit form. West
Germany, Hungary, and China have since taken steps
to control bulk exports of methaqualone, Colombian
enforcement efforts have increased, and the volume of
illicit Colombian exports of this drug may be
dropping.
The Mechanics of the Trade
9. Relatively few "families" appear to control the
cocaine trade in Colombia; about the same number are
thought.to dominate the marijuana trade. In at least
some cases, the same family now handles both drugs.
Some of these families are thought to have begun with
old-fashioned contraband, expanded into cocaine in
the late 1960s, and added marijuana in the 1970s. The
marijuana-trading families fall into two main groups-
the "magicians," those who make no effort to explain
their sudden wealth, and who are based mainly in
Barranquilla and the Guajira Peninsula; and well-
established businessmen, who own legitimate enter-
prises and have added drugs to their other export lines.
10. The main trafficking organizations are large
and often sophisticated. Some control the whole proc-
ess from hiring labor to plant, cultivate, and harvest
the crop, through gathering together shippable lots, to
moving it by plane or ship to the United States. In
some cases they may also be the importers in Miami
and elsewhere in the United States.
11. Traditionally, cocaine traffickers must arrange
to buy and move much of the paste and base they
need from Peru and Bolivia and process it into cocaine
in Colombia (the labs are frequently sited in cities
where the necessary chemicals and chemists are more
easily arranged for). As domestic production increases,
the need to smuggle paste or base into Colombia will
lessen, as in all probability will the sometimes bloody
competition between Colombian and other traffickers
in Peru and Bolivia. Indeed, this competition is
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thought to be one reason behind the establishment of
coca plantations in Colombia over the past few years,
another being the additional profit gained by cutting
out the middlemen.
12. Most of the marijuana exported to the United
States is moved by ship, while most of the cocaine is
thought to go by airplane. (Routes used by traffickers
are shown in figure 3.) Methaqualone is shipped, often
with these other drugs, in both ships and planes. We
know much less about how all these drugs move to
other importing countries, but suspect the pattern is
similar.
Risks and Markups
13. The profits garnered by narcotics traffickers are
enormous. In 1980 and 1981, for example, an average
20-ton shipment of marijuana worth less than
$200,000 to the growers brought more than $9 mil-
lion-of which close to $6 million was clear profit-to
the importer in the United States. From the field to
the streets in the United States, marijuana increases in
value from about $4 per pound to $680 per pound, as
illustrated in table 1.
14. The largest markups are taken by the Colombi-
an exporters and by the importers into the United
States. These are the two most complex phases of the
trafficking and bear the greatest risk of failure. The
large organizations have developed risk-sharing mech-
anisms, however, that go a long way toward ensuring
their survivability, even in the face of high rates of
interdiction
exporters often extend credit or ship on
consignment to major and trusted importing organiza-
tions; and, at least in some cases, dependable importers
are not obliged to pay more than a fraction of the
value of the shipment if it is interdicted or otherwise
Value of Marijuana From Growers to US Retailers
(dollars per pound)
1980/81
1983
(mean)
(range)
Grower
4
Middleman/broker
16
Exporter
68
13-16
Importer
233
200-400
US retailer
680
500-800
lost to them. The downpayment or other minimum is
usually quite large enough to compensate the exporter
for his out-of-pocket expenses in Colombia. Importers
also minimize risk by a variety of tactics. One of the
more common appears to be to set up and man
alternate offloading sites for seaborne shipments. For
example, a Florida-based importer scheduled a 25-ton
load of marijuana into South Carolina; the first 5 tons
were slated for a secondary drop site that was more
secure but less convenient, and the rest was to be
smuggled into the primary site. The minimum success
rate this organization was apparently willing to accept
was thus 20 percent.
15. We know less about the price chain for cocaine,
but the importers' profit margins are thought to be at
least as high as for marijuana. The exporter makes less
net profit when he has to buy the paste or base from
Peru or Bolivia, and he incurs extra expense to
smuggle it into Colombia for processing into cocaine
hydrochloride. Nevertheless, according to the spot
prices occasionally reported, processing a given
amount of cocaine base into cocaine hydrochloride
approximately doubles the price, and virtually all of
the cocaine exported from Colombia is processed
there. The relative costs of couriers, bribes, and trans-
portation are probably no higher than for marijuana,
and for the major trafficking organizations they may
be considerably less.
16. Methaqualone is probably even more profitable
than marijuana and cocaine because of its low cost of
production and large markup.
Economic Impact of the Narcotics Trade on
Colombia
17. On balance, the drug trade now constitutes a
significant economic plus for Colombia. The annual
value of contraband exports has been somewhere
between $500 million and $3 billion
It probably amounted to about $2 billion in 1980-and
dropped to around $1 billion in 1982 as the price of
both marijuana and cocaine at the point of export
reportedly fell over the past two years. By way of
comparison, total recorded exports fell from $4 billion
to $3 billion over the same period. Thus, drugs
constituted about one-fourth of total Colombian ex-
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Figure 3
United States
RE MOPAN
Be ize
Honduras
TEGUCIGALPA
Doml
Republic
-PORT---4, SANTOm
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PRINCE
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St. Vincent and
the Grenadines, Barbados
?Grenada
Main smuggling route
t~ o Alternate smuggling route
9 500
Boundary representation is
not necessarily authoritative.
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Colombia: Narcotics Smuggling Routes
NASSAU
Bermuda
(U.K.)
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British Virgin &
rupn. o rcjcV Vi Is. _
St. Christ H er?Nevis^ o ntigua?it Barbuda
N
eMontserrat (QeK.)
cGuadelo~e
Dominica' (Fr.)
Martinique
(Fr eI
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ports in 1982.$ Not all of the revenues from contra-
band remain in or return to Colombia; and illicit drugs
do not account for all the contraband. Nevertheless,
drug earnings, however estimated, constitute Colom-
bia's second most important source of foreign ex-
change; and illicit imports-mainly consumer goods-
financed by drug exports probably amount to $300-
400 million a year (recorded or legal imports have
been on the order of $4.5-5 billion a year).
18. Approximately one-third of drug earnings are
monetized and thus increase Colombia's foreign ex-
change holdings. Such earnings are converted to pesos
mainly through the tourism and services account and
through overinvoicing of exports. The services account
is probably the principal means of laundering illegal
foreign currency earnings. Estimates of the proportion
' Drug exports constituted the equivalent of at least 3 percent of
Colombia's gross national product in 1982. This is comparable to the
role that automobile manufacturing played in the US economy.
of reported inflows from tourism and services that is,
in reality, laundered money range between 35 and 50
percent of the total. Similarly, about 10 percent of the
recorded noncoffee exports are thought to be false and
thus serve to launder illegal funds.
19. Drug production employs an estimated 30,000
Colombians, most of whom are basically subsistence
farmers and casual laborers. This is equivalent to
about 2 percent of the agricultural labor force and has
had little or no effect on food production, because
almost all marijuana is grown on marginal land little
suited to other crops, and most of the coca is grown in
very thinly populated areas on virgin land. These
crops do, however, provide far better returns than any
alternative employment for their cultivators and exert
upward pressure on rural wages. Marijuana farmers'
family incomes, for example, probably average about
$5,000 a year or about five times the national per
capita income. (See figure 4.)
Figure 4
Colombia: Income per Hectare' by Export Crop, 1980
Cotton
Sugar
Tobacco
Rice
Marijuanab
a Calculated from statistics supplied to the World Bank by Colombia.
b Assumes yield of approximately 5,000 pounds per hectare (double
cropping) sold at a minimum price of $2 per pound. Because most
individual plots appear to be about one-half hectare, the annual income
for independent marijuana cultivators is about $5,000.
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20. Thus, monetized foreign exchange earnings,
employment for some farmers, and the financing of
significant contraband imports constitute the positive
contributions that drug revenues make to the Colombi-
an economy. The negative effects of this money are
equally difficult to quantify but include at least the
following: an additional inflationary impetus, a grow-
ing pool of illegal assets held at home and abroad that
could be used to "take over" much of Colombia's
small and fragile industry and financial institutions,
and additional corruption that can and does skew both
economic and political decisionmaking.
21. Monetized drug earnings exerted a strong ex-
pansionary pressure on the basic money supply be-
tween 1976 and 1980. Official statistics indicate, how-
ever, that variations in money supply have not had
much short-term impact on overall rates of inflation,
which is more attributable to'the growing fiscal defi-
cit, to inflationary expectations, and, perhaps most
important, to the poor performance of the agricultural
sector that contributed to rising food costs. Drug
money may have had its most significant impact on
the cost of luxury housing and other amenities in the
main drug-trafficking cities, principally Barranquilla
and Medellin.
22. There is a pool of "black dollars" in Colombia
that circulate in the underground economy, and an-
other and probably larger pool of Colombian-owned
"narco-dollars" held abroad. Somewhere between one-
fourth and one-half of the value of illegal exports is
thought to go into these pools each year. The domestic
black dollars were estimated to total between 800
million and a billion in 1979. Dollars held abroad may
total several billions, but there is no way of refining
this estimate. Taken together, these narco-dollars
could surpass Colombia's total official foreign ex-
change reserves.
23. Since Colombia's financial sector is thinly capi-
talized, little regulated, and already prone to irregular-
ities, some observers see considerable danger that the
financial and industrial sectors could easily be taken
over or disrupted by relatively small amounts of
repatriated drug money. The government of Colombia
has been making efforts to encourage the flow of assets
back to Colombia by a tax amnesty that fosters the
declaration of hidden assets, both inside and outside
the country. The benefits of such an influx of new
funds are currently deemed to outweigh the dangers in
Colombia's view.
The Spillover Into Politics
Corruption
24. Official corruption is endemic to the Colombian
system and long antedates the advent of the drug
trade. The corrupting influence of narcotics money is
different, however, at least in magnitude. With the
tremendous resources at their disposal, drug traffickers
are capable of buying influence, at one level or
another, in almost any government ministry or agency.
Officials, especially judges, who have rejected bribes
are known to have been murdered.
"Colombian hit men are
notoriously efficient, and their price is low."
ment Personnel rarely arrest growers or traffickers;
very few major or "class one" traffickers have been
convicted; important depositions and drugs seized as
evidence are often mi
Much or
most of such material must be presumed to find its
way back into the export process.
26. The influence of drug money is probably much
greater at the lower and middle levels of these govern=
ment organizations, where pay is meager and proximi-
ty to traffickers is greater.
Political Influence
27. While several known traffickers (from the ma-
jor drug families) were elected to Congress in March
1982, we are unable to assess the impact of drug
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money on the legislature. But we know of no instances
of drug industry influence on congressional delibera-
tions.
28. The political influence of traffickers appears to
be strongest on the local level, especially in the remote
and politically less important major drug-producing
areas such as the north coast departments (Guajira,
Cesar, Atlantico, and Magdalena) and in the eastern
regions. Influence in the cities is of a somewhat
different order. Every major city has a narcotics
trafficking element: Barranquilla and Santa Marta are
linked mainly to marijuana; Medellin to cocaine; and
Bogota to both drugs. Narcotics families do not appear
to be interested in obtaining public office in munici-
palities, preferring instead to exercise their influence
in such areas as building permits and liquor licenses, in
the traditional manner-the well-placed bribe. So far
as we know, they have rarely sought to control or
influence political events on the national level. Their
objective, at least thus far, seems to be simply enough
influence to assure freedom for their operations; and
this is most practically obtained on the local level.
29. The growing wealth and sophistication of some
trafficking families, particularly those in cocaine, may
lead to another and more worrisome trend toward
their integration into the traditional political elite or
the Colombian "establishment." Such families are
sending their children to the best private schools,
joining at least some of the more fashionable clubs,
and becoming patrons of popular organizations like
soccer teams. On the north coast, some have built and
donated public facilities like parks and sports fields.
To the extent they gain more social respectability and
"clout," they may also gain entrance into the rather
narrow group that has traditionally governed the
country. Such trends are, clearly, hard to measure and
are probably being resisted by the establishment
which, at least until now, has not felt threatened by
the traffickers-each keeping to its own sphere.
Traffickers and the Military
30. The Army, in particular, has sought to distance
itself from the corrupting influence of the traffickers.
In 1980 the then Minister of Defense withdrew mili-
tary units from the effort to interdict drug movements
in the north coast areas, because he feared the effects
such efforts were having on the lower levels of officers
and men. We believe this concern persists and do not
expect military involvement any time soon. Moreover,
the military has long regarded itself as the guardian of
Colombia's reputation for progress and democracy. In
November 1982, President Betancur declared an am-
nesty open to almost all members of the various
insurgent groups, which has subsequently been reject-
ed by almost all of these organizations. The military
has become increasingly restive about this amnesty,
which it perceives as a futile attempt to end these
insurgencies and encourage the terrorists to participate
in the democratic political process.
31. Over the past several years, there have been
reports and rumors of connections between some
active and retired military officers and the MAS
(Spanish acronym for "Death to Kidnapers"), which,
since 1981, has served at times as the traffickers' hit
squad against insurgent bands that have kidnaped
members of wealthy trafficking families. for ransom.'
We do not know whether these connections are based
on drug money or influence, or stem primarily from
the desire of those military personnel involved to use
any available weapon against the insurgents. Both
explanations seem possible. In any event, any links
between the military and the traffickers would serve
to inhibit efforts to reduce the role of drug trafficking
in Colombia.
Outlook and Implications for the United States
Impediments to Controlling the Trade
32. Various Colombian governments, especially af-
ter 1973, when formal US assistance began, have
actively cooperated with US efforts to stem the flow of
drugs into the US market. US aid has included train-
ing, equipment, and money for the National Police's
antinarcotics units. Behind this routine cooperation,
however, lies a fundamental difference of opinion as
to the nature and seriousness of the trade. Colombian
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attitudes toward it have changed little, despite US
efforts to publicize the damage drugs do. Colombians
still see it as a US problem, arguing that US demand
for narcotics created the drug industry. The question
of illicit Colombian narcotics has not become a major
political issue. This, then, is a serious impediment to
the US goal of getting Colombia to attack the trade
more actively.
33. From it flows the second major impediment;
narcotics control as a focus of attention for the govern-
ment ranks well below the economic problem, domes-
tic security (including common crime) and pacification
of the insurgents, a desire to enlarge Colombia's role in
international affairs, and implementation of Betan-
cur's policies of improving the lot of the urban and
rural poor. Indeed, a significant reduction of the
narcotics trade could work against one or more of
these higher priorities.
34. The Colombian economy, for example, is cur-
rently in worse shape than it has been for years;
growth is off, foreign exchange holdings are down,
interest rates and inflation are high, and the budget is
in deep deficit by Colombian standards. Domestic
production of food and many consumer goods is costly
and inefficient, while demand for traditional legal
exports-coffee, sugar, and minerals-is sluggish. Any
major cut in drug exports would worsen the foreign
exchange problem, reduce the availability of imported
(contraband) consumer goods, and increase unemploy-
ment in those areas where drugs are grown. Moreover,
reduction of the trade would be expensive in terms of
men and equipment-some observers have estimated
that an effective effort would cost at least 10 times
what Colombia now spends on narcotics reduction.
35. Colombia's role in foreign affairs also ranks high
among Betancur's priorities. Upper class Colombians
who travel abroad are clearly embarrassed by their
country's reputation as a drug source and by the extra
attention they attract from customs officials. While
Betancur undoubtedly shares this embarrassment, the
trade is not an obstacle to his announced goal of
moving toward a more independent role in the hemi-
sphere and in the world by joining the Nonaligned
Movement and reducing the close alignment between
the United States and Colombia established by his
predecessor on many issues. Indeed the narcotics trade
seems to be a nonissue in Colombia's relations with
Latin America and the rest of the Third World. We
judge that President Betancur would be reluctant to
adopt a stronger narcotics policy, especially now if
that appeared to be succumbing to US pressures when
he is seeking a more independent stance.
36. Apart from this concern for appearances, a
serious suppression effort would entail other political
costs-at least some setback to Betancur's goal of
improving the lot of the poor (through the economic
impact), at least some increase in the already astro-
nomical levels of common crime and violence as some
of the newly unemployed flocked to the cities in
search of a livelihood or joined the insurgents in
protest, and very probably some boost to these
insurgencies.
37. The effect of the narcotics trade on these
guerrilla groups is now mixed. The largest, FARC, is
actively engaged in the drug business, which provides
an avenue for access to money, arms, and supplies.
The easy and sizable profits FARC reaps
from drugs also serve to "corrupt" at least some of its
members and reduce their revolutionary motivation
and the cohesion of the organization.
drugs as particularly destabilizing to that guerrilla
organization and effort, it remains the most powerful
insurgent group.
38. Another, and very significant, impediment to
an effective effort to suppress the narcotics trade is the
fact that Colombian law enforcement forces are
stretched extremely thin; the Navy and Coast Guard
are too small to patrol the coasts against contraband;
the Army and National Police writs do not really run
in the eastern half of the country, which is largely
beyond government control and where the FARC and
coca growers operate with relative impunity; and the
police seem almost helpless against common crime and
violence despite the fact that they impinge on almost
every citizen. Between rural bandits, urban thugs, and
terrorist groups, Colombia is now probably the most
violent society on the continent. If, as this seems to
indicate, Colombia lacks the means and/or the will to
suppress common crime-which is seen as a severe
problem by the public-then it is difficult to see
where the will and/or the resources to suppress the
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narcotics trade-which is not seen by the public to be
a serious problem-will come from.
39. Aerial spraying of drug crops with herbicides
would require far less manpower and equipment than
would manual eradication (the only method currently
in use in Colombia) for the same results.
An eradica-
tion program analogous to that in Mexico-the esti-
mated growing areas for each country are roughly
comparable-could make a big dent in the amount of
Colombian marijuana reaching the US market, espe-
cially if it lasted for a number of growing seasons. The
suggestion has provoked considerable opposition in
Colombia. Colombian public health authorities argue
that paraquat is dangerous and ask why they should
expose their people and lands to this herbicide when
the United States does not spray it on its own marijua-
na fields. Airborne eradication of coca plants also
remains problematical, but the government currently
seems more interested in spraying coca than marijua-
na. We judge that President Betancur is unlikely to
adopt a full-scale aerial eradication program any time
soon.
40. A final major impediment to an effective nar-
cotics suppression effort in Colombia is the wide array
of countermeasures the growers and traffickers have
available to them. As shown by experience in other
regions (Southeast and Southwest Asia and Mexico),
traffickers are likely to shift their growing areas and
trafficking routes in response to government enforce-
ment pressures. Coca cultivation is agronomically fea-
sible in nearly 90 percent of Colombia (only the areas
along the Atrato and Cauca Rivers and in the high
Andes are unsuited to the bush).6 Moreover, growers
can reduce the size of individual plots, move them to
more difficult terrain, and camouflage the crop by
interplanting it with subsistence food crops. Much the
same countermeasures are also open to marijuana
growers.
The current coca-growing areas of Colombia, Bolivia, Peru, and
Ecuador could produce an estimated 150 tons of cocaine. But these
areas represent only a tiny portion of the area that could theoretical-
ly support coca. The latter amounts to roughly 2.5 million square
hectares or the equivalent of about 40 percent of the contiguous
United States. While studies of the area that could support marijua-
na have not yet been done, we suspect that at least two-thirds of
these 2.5 million hectares could also be used to grow marijuana.
41. Thus far, Colombian growers and traffickers
have relied on bribes and threats to ensure relative
freedom of action. But if narcotics suppression began
to bite deeply into their profits, they could turn to
violence. Much of the eastern half of the country is
accessible only by helicopter, small plane, or shallow-
draft boats-all of which would be at least somewhat
susceptible to small-arms fire.
42. Despite this discouraging catalogue of impedi-
ments to effective narcotics suppression, there are a
number of factors that could affect the balance in
Colombia and possibly induce this or the next Colom-
bian administration to move more forcefully against
the trade. For one thing, the number of Colombian
drug abusers is rising, and this is likely to increase the
public's appreciation of the dangers that drugs pose for
their society. Second, if the trafficking families contin-
ue to push their way into establishment preserves-
clubs, schools, industry, and other traditional areas-
they may provoke a social reaction. Such a trend
might be enhanced by increasing embarrassment over
Colombia's reputation as a major source of drugs or by
further bank or financial scandals attributable to drug
money. All of these potential developments would
tend to increase Colombian understanding of the
dangers that drugs pose to their society and foster
greater interest in taking more forceful action against
the trade.
43. Similarly, indications of closer and more fruitful
connections between the major guerrilla groups and
Cuba-that also involved trading narcotics for arms-
would induce the military to pay more attention to the
narcotics trafficking. Given the mounting economic
and crime problems, President Betancur must contin-
ue to pay heed to other forces in government and the
military that are more sympathetic to US interests and
more concerned about Colombia's resuming ties with
Cuba, which were severed by the previous administra-
tion because of Cuba's support for the guerrillas. But
we think that some time-probably several years-
would elapse before these factors, which might work
toward a change in Colombian perceptions of the
drug-trafficking problem, could make a significant
difference.
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44. In sum, we judge that the Colombian Govern-
ment over the next several years will continue to make
about the same effort that it has in the recent past to
meet its international treaty commitments on narcot-
ics. Other priorities-the economy, crime, and insur-
gency-will continue to rank well above narcotics in
the hierarchy of Colombian concerns. Unless Betancur
comes to see the narcotics trade as a major threat to his
other priority goals, we doubt the issue will attract
much additional attention during his term in office.
Medium-Term Outlook
45. Over the next several years, we expect the
Colombian Government to continue its present level of
cooperation with the US Coast Guard and with
narcotics enforcement team in
But we
think there is little chance that Bogota will implement
extensive aerial spraying programs or make other
major changes to improve the antinarcotics program.
Thus, Colombia will remain the dominant source of
cocaine and probably the single largest supplier of
marijuana to the United States. Indeed, cocaine ex-
ports will probably increase.
In the Longer Run
46. Over the longer run, we think that drug abuse
in Colombia will grow and that this, in turn, will lead
Colombians to view the narcotics trade as a domestic
as well as a US problem. We judge the odds are about
fifty-fifty that the Colombian military will also be-
come more concerned about the links between narcot-
ics and the arms in the hands of one or more of the in-
surgent groups. As these perceptions change, Colombia
can be expected to adopt more effective antinarcotics
policies-perhaps including aerial spraying and great-
er efforts to inderdict major shipments.
47. But we see no chance that the growing and
trafficking of narcotics in Colombia could be sup-
pressed and kept that way-given the absence of
attractive alternative crops, the size and inaccessibility
of the major growing areas, and, above all, the profit-
ability of the trade-without a bloody, expensive, and
prolonged coercive effort. And we judge that Bogota
will remain unwilling to accept this cost.
48. Even if Colombian drugs were cut out of the
international narcotics trade, these same factors-
profits and ease of production-would work to induce
a substitute flow from other countries such as Brazil,
Venezuela, Peru, Bolivia, and Central America.
49. Although eradication or substantial reduction of
marijuana and coca production is essential to any long-
term resolution of the Colombian drug problem, nar-
cotics control strategies in the short term are likely to
be more effective in areas where the United States
exerts more control or can apply pressure more direct-
ly. Risks for traffickers, for example, can be increased
by stepping up interdiction efforts on the high seas, in
the air, and at the point of entry into the United States.
Intelligence Community members estimate that
percent of the marijuana and cocaine en route
to the United States is currently seized or otherwise
interdicted. Identifying and impounding the assets of
major trafficking organizations also increases the risk
and reduces the final profits from the trade. Switzer-
land has recently agreed to lift some aspects of its bank
secrecy regime in order to cooperate in identifying
such funds. Other offshore tax havens where bank
secrecy is also strict-such as Panama and the Cayman
Islands-have thus far been reluctant to do the same
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ANNEX A
PRODUCTION, TRAFFICKING, PRICES, AND INTERDICTION
estimates of yield for
marijuana and cocaine and of conversion factors for
the various steps in processing coca leaf to cocaine
hydrochloride vary widely. There are several varieties
of coca plant, each thought to have different yields
under similar conditions; and yield is also thought to
vary considerably depending on the age of the plant,
the altitude, type of soil, and probably on rainfall.
2. Estimates of production and exports of these
Table 2
Estimates of Marijuana Hectarage and Production
in Colombia and Exports to the United States
Year
Hectarage
Production
(metric tons)
Exports to
the United States
(metric tons)
1977
3,000
1978
20,000-40,000
9,000
6,000-7,000
1979
30,000
15,000
1980
44,500
50,000
8,000-10,000
1981
25,000-44,500
50,000
1982
3,500-10,000
9,000-25,000
7,000-11,000
Table 3
Estimates of Coca Hectarage and Production
in Cocaine Equivalents in Colombia and
Total Exports From Colombia to the United States a
3. Finally, estimates of the volume of drugs reach-
ing the United States are derived from estimates of
what was available for export, less an assumed per-
centage for seizures in transit, accident, and sales to
other consuming countries. To some extent, they are
also checked against the estimates, separately ob-
tained, of how much of this drug is consumed in the
United States, less estimated imports from other
countries.
4. With all these caveats, then, tables 2 and 3
indicate the range of estimated production and exports
over the past several years. The various differing
estimates are not related-that is, they come from
different sources, and yield was not necessarily fac-
tored into the hectarage estimates or vice versa
Year
Hectarage
Production
(metric tons)
Exports to
the United States
(metric tons)
1974
18
1976
12
1979
14
1980
3,000
5.6
19-23
1981
2,900-4,000
5.4-7.5
35-37
1982
4,500
8.0
40-50
a The Drug Enforcement Administration concurs with these 1980
and 1981 estimates but reserves its position on the 1982 figures
Marijuana
5. Marijuana is grown in almost all departments of
Colombia, but production for export is centered in the
northern part of the country. The bulk of it (70 to 90
percent) is probably grown in the undeveloped depart-
ments of La, Guajira, Cesar, and Magdalena by small
farmers for whom it is their only cash crop. The
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almost equally poor and undeveloped area south of the
Gulf of Uraba accounts for most of the rest of the
export crop area, which probably totals 7,000 hectares
(17,000 acres).
the Drug Enforcement Administration (DEA)
estimates that the average yield per acre per year is
about 1 ton, assuming two harvests. Since most of this
area produces two crops a year, Colombia is thought to
have a net harvest of 9,000 to 25,000 tons a year.
8. There have been a few reports that some mari-
juana cultivation has shifted to the west-near the
Gulf of Uraba-and that increasing amounts are being
shipped from the Pacific coast, where surveillance and
patrols are minimal at best. In any event, the Commu-
nity estimates that the tonnage of marijuana that
leaves Colombia for the United States each year
fluctuates widely, perhaps between 7,000 and 11,000
metric tons.
A Price Chain for Colombian Marijuana
(US dollars per pound)
1980/81
1983
(mean)
(range)
Grower
4
Middleman/ Broker
16
Exporter
68
12-16
Importer
233
200-400
US Retailer
680
500-800
the exporter role, and that the latter were receiving
$12 to $16 per pound at the point of export. This
represents an immense drop from the $60-to-$70
estimate that was made in 1980. (See table 4.)
11. We lack a satisfactory explanation for this shift,
particularly since prices obtained by the importer and
retailer in the United States do not seem to have
dropped. One explanation may be that the traffickers
are better organized and more vertically integrated,
that they have shifted the profits from exporter to
importer because the two roles are now being assumed
by the same organization; and that this reflects their
monopoly and coercive power-one great enough to
keep competition out. Another explanation, particular-
ly emphasized by DEA, is that competition from other
producing countries has grown and that the risks to
Colombian traffickers from seizures and eradication
have increased.
12. In any event, an exhaustive study by CIA of
prices prevailing in 1980 revealed that the typical
exporter and importer then earned $3 for each dollar
spent on buying, collecting, bribing officials, and
9. Marijuana is processed where it is grown by
being compressed into bales and wrapped with burlap.
It is then moved by pack animal or truck to collection
points-usually "warehouses" or sheds located in thick
cover near landing strips or beaches. Most of it moves
by boat or small ship through the Caribbean to the east
and gulf coasts of the United States. Most of the rest
goes by small planes to the same destination. The
density of private landing strips in sections of the
Guajira and Magdalena is high.
Price Chain
10. In early 1983, DEA estimated that the middle-
men or broker operations were now combined with
shipping the product,
Coca-Cocaine
13. Since the late 1960s, Colombia has dominated
the processing and trafficking of cocaine manufac-
tured from coca grown in Bolivia and Peru but, until
recently, grew relatively little coca itself. Now, how-
ever, Colombia may be on the verge of becoming a
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major coca-growing country as the trafficking organi-
zations encourage new plantings in the southeastern
lowlands.
14. This 400,000-square-kilometer area is tropical
rain forest, laced with small and medium-size rivers
that feed the major rivers flowing into the Amazon
and Orinoco and serve as the main means of transport.
The lowlands are thinly populated, mainly by Indians
along the Rio Vaupes
16. The main variety of coca now under cultivation
in these lowlands does not require the elaborate
seedbeds and careful transplanting thought to be
required by the varieties grown in the traditional coca-
producing areas of Colombia and in Peru and Bolivia.
Instead, a few "mother" plants can be severely pruned
for cuttings that are simply stuck in the ground to
grow.
The "Manufacturing" Process
17. Cocaine is one of the alkaloids in the leaves of
the coca plant. Traditional use-chewing-requires
only that the leaves be picked and dried carefully, but
the extraction of cocaine is a more complex process
that usually requires these separate steps. First the
cocaine is extracted from the leaf to produce a coca
paste, second the paste is further refined to produce a
base, and finally the base is converted to cocaine
hydrochloride (CHCL):
- The "chemistry" of the process is straightfor-
ward. The process itself does not require access
to "exotic" chemicals or equipment. Production
of coca paste is particularly simple, and "labora-
tories" are generally no more than a roof or tarp
stretched over supports. "Process equipment"
can be a 55-gallon drum, plastic funnels, garden
hose, etc. These "laboratories" can be located in
close proximity to coca fields (and are, particu-
larly in Colombia) and manned by unskilled
laborers.
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comprising nearly 2,000 hectares, plus another
not yet planted,
totaling an additional 800 hectares. This small area
alone is expected to produce the equivalent of 15 tons
of cocaine a year by 1985. Thousands of newly cleared
and planted fields have been spotted elsewhere in the
eastern lowlands.
15. Coca is a perennial bush or small tree whose
leaves can be picked frequently (the number of har-
vests per year 'seems to depend on variety, soil, and
climate) and whose yield of leaves rises dramatically
with age, as indicated in table 5.
Coca dry leaf weight
per hectare per harvest
(assuming one plant per
square meter)
Cocaine hydrochloride 0.36 kilo 2.99 kilos 9.33 kilos
yield per hectare of coca
cultivation
coca grown in Cauca along the slopes of the Andes will differ
considerably from these.
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- The second and third steps do require more care
and are generally conducted in somewhat more
elaborate facilities. Still, the complexity of the
process is minimal, though some of the chemi-
cals, particularly ether, pose a fire and explosion
hazard and require some care in handling.
- There are many substitute routes to purification;
alternative sequences of steps, chemicals used,
etc. For example, kerosene is often used in paste
manufacture, but other petroleum solvents would
function equally well-in the Llanos region of
Colombia, gasoline is employed. And where gaso-
line is scarce, it can be cut 50 percent with water
and serve equally well as a solvent.
- Finally, because of the tremendous variability in
facilities, skill levels, etc., processing efficiencies
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can and do vary widely. Accurate laboratory
data generally do not exist, and where they do
they represent only a small sample from which to
generalize.
18. There is considerable uncertainty over the proc-
ess ratios-that is, how much coca leaf is required to
make 1 kilogram of CHCL. Discrepancies among
sources vary. by a factor of 20 for this important
quantity. Moreover, there are unknown (and perhaps
unknowable) losses due to pilferage, spoilage, etc.
Collectively, these factors-termed here the "produc-
tion paradox"-prevent reconciliation of estimates of
coca production with estimates of cocaine imported
into the United States. Production estimates indicate
about 165 metric. tons of cocaine could enter the
market, whereas the Narcotics Intelligence Estimate
for 1980, prepared by the National Narcotics Intelli-
gence Consumers Committee, estimates that 44 to 48
tons did enter the US market-a difference we cannot
satisfactorily account for.
19. The final stage of cocaine hydrochloride prepa-
ration involves "cutting or diluting" the pure cocaine
hydrochloride with a variety of adulterants, including
"inert cuts" such as lactose, dextrose, and mannitol; or
"active cuts" such ? as benzedrine, procaine, and
lidocaine.
20. Ether, which is a vital precursor chemical in the
illicit production of cocaine hydrochloride, is not
produced in Colombia. About 90 percent of Colom-
bia's ether imports come from only two countries, the
United States and West Germany. The volume of
Colombia's 1981 ether imports corresponds in no way
to its legitimate domestic needs.
21. About 12 kilograms of ether is required to
produce a kilogram of cocaine hydrochloride. DEA
estimates
that 3 million kilograms of ether were import-
ed into Colombia during 1981. Some unknown per-
centage of this ether was transshipped to Bolivia and
Peru, while some was probably stockpiled in Colom-
bia. Also, the ether business in Colombia was so
lucrative (with profits of over 100 percent common),
that many newcomers entered the market generating
upward pressure on imports which may not accurately
reflect current demand by traffickers. Transshipment
and oversupply notwithstanding, however, such ether
imports strongly suggest that Colombian cocaine hy-
drochloride production may be significantly higher
than previously estimated.
22. Most of the cocaine exported from Colombia is
still made from paste and/or base imported from Peru
and Bolivia over four major routes: the Pan-American
highway from Peru through Ecuador, across the po-
rous borders with Peru and Ecuador in a wide variety
of vehicles, by small boats from Ecuador to Pacific
ports in southern Colombia, and via the many rivers
that connect southeastern Colombia with its neighbors.
Price Changes and the Price Chain
23. Prices for coca leaf, paste, and base appear to
have dropped precipitously over the past several years
while prices for cocaine at the point of import into the
United States and on the "street" have remained quite
stable. As in the similar case for marijuana prices, this
may reflect the Colombian traffickers' growing power
over this trade. The drop in coca paste and base prices,
however, has been much greater, and the price paid
the farmer for leaves now appears to be only 10 to 20
percent of what it was in 1980. These
price shifts appear to point to overproduction by the
farmer, possibly greater competition among paste and
base dealers, and the development of a working cartel
or oligopoly among the cocaine exporters and import-
ers which serves to shift the profits to this latter stage.
Seizures of shipments may also be having an effect.
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24. Whatever the real explanation for these changes
in the price chain, we have no indications that coca
plantations are being reduced-instead there is evi-
dence of sizable new coca-growing areas in Bolivia as
well as in Colombia. Thus, it seems almost inevitable
that cocaine exports from Colombia and the region as
a whole will rise in the next few years. We expect
more and more of it to go to Western Europe.
Eradication and Interdiction
25. The Colombian Government officially acceded
to the Vienna Convention on Controlled Substances on
12 May 1981. A bilateral extradition treaty with the
United States, originally signed 4 September 1979 and
promulgated through Colombian Law 27 of 3 Novem-
ber 1980, was finalized by an exchange of Diplomatic
Notes on 4 March 1982. A bilateral Mutual Legal
Assistance Treaty with the United States is currently
before the Colombian Congress. The Congress is also
considering a bill that would waive the confidentiality
of bank records of Colombians suspected of involve-
ment in drug trafficking. During 1981 the Colombian
Supreme Court overturned a 1979 constitutional re-
form that was designed, among other things, to im-
prove the prosecution of drug traffickers, and to create
a Prosecutor General's Office.
Enforcement and Legal Process
26. Colombia's basic narcotics law, Decree Number
1188, makes ample provision for the apprehension,
prosecution, and conviction of drug traffickers. Unfor-
tunately, the enforcement and judicial apparatus of
the country has not been conspicuously successful in
arresting, prosecuting, and convicting Colombia's ma-
jor narcotics traffickers. The reasons include inadequa-
cy of personnel, equipment, and training;
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ANNEX B
THE DRUG TRADE AND COLOMBIA'S ECONOMY
Impact on the Affected Local Economies
1. Marijuana is a profitable crop for some 17,000
Colombian farmers who derive from it an average of
at least $2,000 and possibly close to $5,000 per year.
Few of these farmers have any other cash crops, and
most use marginal land for the marijuana plants;
hence, such earnings are of major importance to them.
2. In addition, an estimated 3,000 Colombians are
involved in transporting, hauling, and guarding the
Coca is also grown in the traditional mountainous
areas of southwestern Colombia, but we have no basis
for estimating the number of laborers it employs.
5. Similarly, we lack estimates of the costs of bribes,
"chemists" employed to process base into paste, and
transportation of cocaine. Its seems reasonable to
suppose all such costs are higher than for marijuana,
because the product is so much more valuable.
Impact on the National Economy
6. There are practically no firm data on the size
and impact of drug earnings on the national economy,
partly because these transactions are illegal and there-
fore largely hidden, and partly because Colombian
3. The marijuana boom years of the late 1970s also
saw a marked rise in the prosperity of northeastern
cities such as Barranquilla, where traffickers built
expensive houses and indulged themselves in other
luxuries. Since 1980 much of this visible prosperity has
evaporated as local prices for marijuana have fallen.
4. The recent growth of domestic coca production
will dramatically increase the importance of the coca
trade to local sectors of Colombia's economy by
pumping millions of pesos into them. In addition to
those harvesting coca leaves, there is employment for
workers to transport and refine the leaves into coca
paste. Clearing the land is a labor-intensive operation
and probably provides good pay and steady employ-
ment in what is otherwise basically slash-and-burn
subsistence agriculture.
the average salary for those
harvesting coca-probably the lowest paid individuals
in the coca-growing chain-is about $20 per day, a
good picker can earn five to 10 times the standard
rural wage. the number of
campesinos employed in the Llanos growing coca at
5,000. This estimate seems near the mark, given that
there are several thousand separate fields in the Llanos
that very likely employ at least one worker per field.
trade and other statistics are imprecise."
the value (f.o.b.) of Colombian drug
exports in the past several years could have been as
low as $500 million a year or as high as $3 billion, as in
table 7.
7. We doubt that either the maximum or minimum
values have been approached in the past several years
because the lower tonnage reports tend to be associat-
ed with the higher price reports. A more plausible
range would be $1-2 billion per year. Separate esti-
mates made by CIA
put the value of Colombian drug exports in 1980 at
$1.6-2.0 billion.
8. Since 1980 there has been a marked decline in
the f.o.b. price of marijuana and a considerable rise in
domestic production of coca, plus overproduction in
Bolivia and Peru. These have reduced the price of
coca paste and thus the cost of importing it into
Proportionately, errors and omissions in Colombia's official
balance-of-payments accounts, for example, are among the largest
among the less developed countries. Also, Colombia's figures on its
exports and imports differ substantially from those reported by
many of its trading partners.
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Colombian Drug Exports in Recent Years
Marijuana - Maximum plausible tonnage, 15,000
Minimum plausible tonnage, 8,000
Maximum reported average price per pound, $70
Minimum reported average price per pound, $15
Maximum value, $2,100 million
Minimum value, $240 million
Cocaine - Maximum reported tonnage, 50
Minimum reported tonnage, 30
Maximum reported price, $20;000 per kilo
Minimum reported price, $9,000 per kilo
Maximum value, $1 billion
Minimum value, $270 million
reports of marijuana wholesaling at $100 a pound in
Mexico and Belize.
Uses of Drug Earnings
9. Dollar earnings accruing to Colombians may be
converted into pesos, may be used to finance imports,
may circulate in the Colombian black-market dollar
economy, or may remain outside of Colombia. Drug
exports are not the only source of black dollars. On the
basis of studies of other contraband export
estimates that earnings from illegal exports of
traditional products in 1982 were probably about $100
million. In the calculations that follow, therefore, we
assume that earnings from "traditional" illegal exports
(nondrugs) account for 10 percent of Colombia's illegal
cash flow.
10. Drug earnings are converted to pesos (mone-
tized) principally through the tourism and services
account and through overinvoicing of exports:
- False exports. Knowledgeable observers estimate
that 10 percent of reported noncoffee export
revenues do not represent actual physical trans-
actions and are used to launder illegal dollars.
Applying this ratio to expected noncoffee exports
in 1982 ($1.2 billion) suggests that about $110
million in drug earnings could be monetized in
this way.
- Tourism and services. The tourism and services
account (excluding interest receipts) is the princi-
pal means of laundering illegal foreign currency
earnings.
For 1982 it estimated
that about $225 million in drug earnings was
monetized in this way.
11. Financing Imports. Drug dollars are used to
finance imports in the following ways:
- Underinvoicing of legitimate imports. This prac-
tice facilitates the evasion of sales taxes and
import duties and is particularly prevalent for
articles controlled by licenses.
T is cou accoun or
a out 180 million in drug money "imported" in
this way.
- Illicit imports. The most important use of drug
dollars probably is to finance illicit imports,
mainly consumer goods such as television sets,
textiles, and cigarettes. The chief entry points for
contraband are San Andres, the free trade zones
of Barranquilla and Cartagena. and the Gulf of
ports amount to $1 billion per year.
estimate seems clearly inflated, a figure of $400
million is possible. This would account for about
$360 million of Colombia's drug earnings, again
assuming that 10 percent of the total is not drug-
financed contraband. 10
12. Another major use for narco-dollars is incorpo-
ration into the pool of Colombian "black dollars,"
which in 1979 was estimated to be $800 million to $1
billion. There is no way of telling how much drug
10 We have very little information as to where the money comes
from to pay for imported coca paste, but we estimate that such
imports cost approximately $150 million last year.
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money actually enters Colombia. We can estimate
how much is monetized and how much is used to pay
for illegal imports. The residual floats in the Colombi-
an black dollar market, is taken out of the country in
suitcases, or indeed never enters Colombia. Another
analytical "joker" is the disposition of funds accruing
to Colombian nationals who may be involved in the
"downstream" aspects of marketing cocaine and mari-
juana in the United States. There is no way of
quantifying these sums, either.
Estimated Relative Importance to Colombia
of Coffee Exports and Monetized Drug Earnings
Coffee Monetized
Exports Drugs Percent of
in Million Earnings in Coffee
Year US Dollars US Dollars a Exports
1977 1,580 470 29.7
1978 1,820 460 25.3
1979 2,000 600 30.0
1980 2,351 610 25.9
1981 1,562 450 28.8
1982 1,452 b 335 23.1
a Calculated by assuming that, because of overinvoicing or ficti-
tious exports, 10 percent of nontraditional export certificates do not
have corresponding physical volumes and that 35 to 50 percent of
tourism and services accounts do not reflect actual activity.
b Coffee federation estimate.
earnings from contraband, 60 to 85 percent of the
total, return to Colombia either as monetized additions
to official foreign exchange holdings or as illicit
imports.
14. Earnings and the Exchange Balance. Mone-
tized drug earnings, while lower in 1981 and 1982
than in previous years, remain Colombia's second most
important source of international reserves. Drug earn-
ings are a definite second to coffee, however, and as a
percentage of coffee exports have not grown signifi-
cantly except in 1981 when coffee earnings plummet-
ed 34 percent. (See table 8.)
15. Monetized drug earnings have been important
in contributing to the surplus in the current account
from 1976 to 1980 and their evident decline in 1981
and 1982 contributed to the negative performance in
Colombia's current account in those years. As table 9
shows, however, coffee earnings are much more im-
portant in explaining changes in Colombia's current
account balance than are drug earnings.
16. There is little doubt that monetized drug in-
come has exerted a strong expansionary pressure on
the basic money supply. Between 1976 and 1980,
growth in net international reserves constituted the
Colombia's Coffee Exports
and Monetized Drug Earnings in Current Account
Total Drug Income Coffee Income
Monetized Current as Percent as Percent
Drug Acccount of Current of Current
Year Earnings Inflows Account Account
1977
1978
1979
1980
1981
1982 a
(million US dollars)
470 3,208 14.7
460 3,598 12.8
600
610
450
335
4,622 13.0
5,653 10.8
4,985 9.0
4,650 7.4
49.2
50.5
43.2
41.5
31.3
31.2
principal factor in primary monetary expansion. How-
ever, declining monetization of drug earnings has
meant that, while still a significant part of primary
monetary expansion, drug earnings were less impor-
tant in 1981 and 1982 than in the period 1976 to 1979.
(See table 10.)
17. Official statistics indicate that variations in
money supply and consequently variations in mone-
tized drug earnings have not had much short-term
impact on inflation rates. The Colombian central
bank's explanation for the lack of responsiveness of
inflation to variations in money supply is that "the rate
of inflation is beset by a kind of inertia caused by
factors outside the realm of monetary control." These
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Colombian Drug Income
SECRET
trolled repatriation of these funds could be
considerable.
Monetized
Drug Income
M-1 a
Drug Income
as Percent
1977
17.3
103.5
16.7
1978
18.0
134.9
13.3
1979
25.5
167.6
15.2
1980
28.8
214.2
13.4
1981
24.5
259.7
9.4
1982 b
22.7
270.2
8.4
factors are inflationary expectations of both workers
and industrialists which are codified by indexation.
18. Apart from inflationary expectations and the
growing fiscal deficit beginning in 1981, the success of
the noncoffee portion of the agricultural sector ap-
pears to be-the key determinant in establishing infla-
tionary levels. This is logical because foodstuffs have a
52-percent weight in the consumer price index. The
correlation of inflation rates between 1971 and 1981
with nominal agricultural growth rates is more signifi-
cant than that with money supply growth.
Norco-Dollars Abroad: A Potential Threat?
19. Colombian private assets held abroad probably
total several billion dollars, or the equivalent of a very
substantial fraction of the country's legitimate foreign
exchange reserves. these
sums are very large relative to the size of the Colombi-
an economy. For example, 1982 drug earnings of $1
billion equals the combined sales of the nine largest
Colombian companies. The disruptive effect of uncon-
20. A number of events could encourage the return
of assets held abroad:
- A marked decline in US interest rates that could
make returns in the Colombian financial market
more attractive.
- Increased US enforcement efforts and the US
civil forfeiture law against drug traffickers.
- The Colombian Government's tax amnesty,
which encourages the declaration of hidden as-
sets (without penalty) both inside and outside
Colombia.
Given the current domestic economic problem, Bogota
has clearly indicated that it considers the benefits of
an influx of funds to outweigh the dangers.
21. Drug funds, however, do pose some potential
danger to the financial and industrial sectors of Co-
lombia's economy. The case of Felix Correa, president
of the failed Banco Nacional, is instructive. Correa was
able to purchase control of Colombia's second-largest
textile company for only about $10 million. The
failure of his Banco Nacional-which may have been
related to narcotics seizures in the United States-led
to the most serious financial panic in Colombia since
the 1930s. The fact that most large depositors in the
Banco Nacional have not come forward to claim their
assets tends to confirm suspicions that the Banco
Nacional was used to harbor undeclared drug money.
While this disaster has increased the government's
awareness of the need to strengthen regulation of the
financial sector, we have seen nothing yet to indicate
that the effectiveness of its regulatory agencies has
increased. In short, Colombia's financial sector and its
undercapitalized stock companies could easily be dis-
rupted by relatively small amounts of new money.
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