Economic Impact

From WolfWikis

Contents 1 Colombian Economics: The Cliff Notes Version 2 Introduction 3 The Revitalization of Bogotá under Plan Colombia: Fact or Fiction? 4 Into the Black: Oil Production and the New Colombian Economy 5 A Penny for Your Crops: Problems with Alternative Development Among Coca Farmers 6 Conclusion 7 Media Links 8 Annotated Bibliography 9 References

Colombian Economics: The Cliff Notes Version

Coca Leaves Plus Cocaine Equals Money

Introduction

One initiative put forth by proponents of Plan Colombia has been the revitalization of the Colombian economy. The inception of Plan Colombia coincided with a recession in the Colombian economy in 1999. After enjoying nearly twenty years of growth at an average of 4%, the combined factors of inflation and weak foreign demand mitigated the country's slide into recession. Plan Colombia's stated intentions centered on "liberalization" of the economy in order to spur investment and international interest in Colombia. In addition, the U.S. sought to mold Colombia into a more capitalist-friendly economy and turn it away from the advancing socialism that already permeated the poor countryside.

Has it succeeded? While the numbers certainly look good, with current GDP growth among the highest in Latin America and numerous investments from companies such as Swedish telecommunications giant Ericsson and Harken Energy, a darker picture appears below the surface. While Bogotá enjoys success, the areas around the city continue to exist in extreme poverty. Even more troubling, the alternative crop development incentives in Plan Colombia, which were designed to stop coca farmers from growing the crop, are not working.

Certainly parts of Plan Colombia have been a success. However, many in the country feel the current economic boom masks underlying problems both within Bogotá's slums and the poorer countryside. It is a problem common to much of South America: that is, the rich become richer, while the poor become poorer. However, Colombia is slightly different from other countries, in that its poor rural class enjoys the support of a well-funded and well-armed guerrilla army.

The Revitalization of Bogotá under Plan Colombia: Fact or Fiction?

In a story published on May 28, 2007, BusinessWeek Magazine declared Colombia to be the "most Extreme Emerging Market on Earth."^[1] The article praised recent measures taken by President Uribe, such as bolstering the fundamentals of his economy and helping to drastically reduce the threat of violence. The result is an unprecedented supply of funds flowing into projects in and around Bogotá. In this aspect, Plan Colombia has been a success. With security as one of its stated purposes as well as enhancement of trade and investment opportunities for U.S. businesses and workers, Plan Colombia provided equipment, troops and training, all of which have been used in Bogotá and other cities to stem the kidnappings and rampant violence which had before paralyzed the economic structure of the larger cities.^[2]

However, not all assessments paint a flattering picture. Stock exchange values have increased 1,100%, meaning prices have multiplied 11 times.^[3] This sudden inflation has not occurred anywhere in the world because of strict regulation against it. Other national banks would not allow it and other banks and reserve systems would intervene, knowing that such rapid unchecked increases in value--which are not the result of growth but of pure speculation--will eventually cause a terrible recession. In Colombia this has not only been allowed, but actually encouraged through specific economic measures. An extreme example of this would be the Colombian state buying its own treasury bonds.^[4] Incredible, yes, but also true. This policy of borrowing and lending within the government itself has serious ramifications for the future economy. In discussing Plan Colombia, the government often takes the billions of dollars from the United States and then lends the money back to itself. Public health and pension funds are not immune from this practice either. In essence, with its system of unchecked borrowing, the Colombian government has set up serious questions for its future, most notable, what happens when they have to pay the money back?

But this unchecked system of loans and counter-loans doesn't fully explain Colombia's spectacular growth. There is a much more important explanation: the amnesty agreement with the paramilitaries which allowed billions of narco-dollars to flow into the stock market. In essence, the agreement allowed for the legalization of money the paramilitary groups made running cocaine. The very thing Plan Colombia was supposed to prevent.

Since negotiations between President Uribe and the paramilitaries began, billions of dollars and euros in drug profits have entered Colombia. Knowing that anything sold prior to the amnesty agreement would also be granted legality, the paramilitary group known as the Autodefensas Unidas De Columbia (AUC) exported huge stockpiles of cocaine in order to reap the benefit of the amnesty agreement. Despite protestations of the U.S. government proclaiming that the paramilitary groups "had been immobilized," the groups continue to operate much as they had before, only now under a semblance of legality.^[5] In other words, legalized drug money, and not Plan Colombia's vaunted economic incentives, has been the real cause of Colombia's massive influx of investment capital. As Héctor Mondragón writes, "like an emperor of ancient Rome, Uribe was able to provide the populace with bread and circuses prior to the presidential elections of May 2006. Was Washington aware that Colombia's economic surge had been financed by he very narco-dollars it was trying to prevent? Of course it was.^[6]

Into the Black: Oil Production and the New Colombian Economy

In 1946, an article in Economic Geography summed up Colombia's future by stating that "All regions of the country covered by sedimentary rocks are potentially petroliferous."^[7] This statement foreshadowed Colombia's eventual rise as an oil producer, even though the process took longer than expected, given Colombia's estimated reserves. In the 1980s, agriculture still reigned as Colombia's leading export, with coffee accounting for 2/5 of that.^[8] However, in the 1990s, as countries such as China and India developed at a rapid pace, oil surpassed agriculture as Colombia's leading legal export due to the increased worldwide demand for oil. Coupled with this demand, Colombia's oil fields were considered virgin territory by most countries, due to the fact that large oil companies had largely stayed away from Colombia due to the violence. When the U.S. implemented Plan Colombia, they naturally saw oil as a major export which might help revitalize Colombia's economy. However, initial comments by the U.S. State Department about "ensuring human rights are protected as we help Colombia build an oil infrastructure" have given way to accusations of indigenous displacement, human rights abuses, pollution, kickbacks, and an overall sense by many Colombians in oil-producing regions that Plan Colombia was nothing more than an excuse by multinational companies to extract their resources, sell them, and reap the profits for themselves.^[9]

However in recent years, the plan to further explore Colombia's oil fields ran into problems. Rebel groups such as FARC stepped up attacks on pipelines, rendering the vital oil infrastructure useless in some areas. Because of this, many companies abandoned plans for exploration and drilling as well as refinery operations, leading to a steep decline in oil production in the early 2000s. Because of this, Colombia's Colombia's government, noting the importance of oil exports, is taking steps to improve the attractiveness of oil and gas exploration and development to foreign investors.^[10]

Since 1999, Colombia's government has taken drastic measures to spur investment by foreign oil companies. These measures included allowing foreign oil companies to own 100% stakes in oil ventures, meaning the country receives no profit except in taxes. Other measures include the "establishment of a lower, sliding-scale royalty rate on oil projects; longer exploration licenses; and forcing state-owned Ecopetrol to compete with private operators."^[11] The U.S. government considers the sliding scale royalty measure to be the biggest success because it "establishes an 8 percent royalty rate on the smallest oil fields; with over 90 percent of Colombia's fields containing less than 60 million barrels, the low royalty rate has encouraged investments by small- and medium-sized operators. The reforms have sparked a renewed interest in Colombia's upstream sector, with record levels of exploratory and development drilling. The improvement in Colombia's security situation has also been a significant contributor to the renewed interest by international oil companies."^[12]

For the time being, efforts by Colombia's military (funded by the Plan Colombia initiative) against rebel groups such as FARC have had a positive effect on oil production. The U.S. Department of Energy now lists Colombia as "one of the most attractive oil investment regimes in the world."^[13] Their website announced that the Agencia Nacional de Hidroarburos (ANH), the national hydrocarbons regulatory agency in Colombia signed "eleven new exploration and production contracts during the first half of 2007. Foreign oil companies invested an estimated $2 billion in the country in 2006. As a result, Colombia seems to have lessened the decline in its oil production: after declining by an average of 8 percent per year from 2000-2004, Colombia’s crude oil production declined by 0.6 percent in 2005 and increased by 1 percent in 2006."^[14] The increase is expected to continue as long as the security situation remains stable.

A Penny for Your Crops: Problems with Alternative Development Among Coca Farmers

While some aspects of Plan Columbia can claim success, the Alternative Development Strategy laid out in the economic initiative has been an unmitigated disaster. The idea was to offer coca farmers a cash settlement in return for their agreement to destroy their coca fields and grow another crop. The U.S. State Department heralded the beginning of the program by saying, "for the first time in Colombian history, a voluntary eradication program is being offered to all farmers who grow coca on small individual plots. If they agree to eradicate their coca crop, the government will provide them with cash recompensation and the tools they need to move into legitimate farming – such as seed, equipment and technical support."^[15]

Like many other aspects of Plan Colombia, the idea sounds good on paper, but the implementation of such ideas has proven difficult, with many difficulties owing to the incomplete nature of the alternative development program itself. For instance, the campesinos themselves claim that the cash offered to eradicate their coca crop amounts to 2,000,000 pesos or $950.^[16] Another problem with this program is that the $950 is not a recurring payment. Rather it is a one time cash payout, after which the campesinos must fend for themselves. If the campesino chooses to continue farming coca, he then faces fumigation from U.S. planes.

The problems stemming from this program illustrate the ill-conceived nature of the alternative development program. Firstly, coca leaves are a legal crop. Persons may sell it at the market. Growing, however, is illegal. Many campesinos see no difference between the two, nor should they. Secondly, the cash payout offered by the government does not equal to what the coca growers would make in a year with a coca crop. Because of economic hardship, many growers eschew the government offer of the cash payout and continue to grow coca, often times in places other than their farms. The threat of fumigation has led to more inventive ways of growing the crop.^[17]

Critics point out that the government has not given the coca growers much choice. Either accept the cash payout and avoid the wrath of the drug-dealing rebels, or reject the payout and risk death at the hands of the paramilitaries. As the farmers themselves said during a meeting in Bogotá, "We want the pact to succeed, but at this rate, we're all going to starve to death."^[18]

Conclusion

While Plan Colombia can legitimately point to some successes, such as increased foreign investment and rising oil production, questions remain about the implementation of Plan Columbia. Paramilitaries still roam the countryside, along with cocaine traffickers, military eradication units and FARC rebels. Too often, citizens and poor campesinos find themselves caught in the crossfire and having to choose one group over the other.

Outside observers note that they can gauge economic success more readily in the cities, especially Bogotá. As mentioned before, several noted foreign investors such as Ericsson, Harken Energy, and Vodacom recently signed contracts to operate within Colombia and based in Bogotá. However, the current stock market speculation and the hyperinflation of of stocks and bond prices has only hastened the gap between rich and poor. While those living in the wealthier parts of Bogotá enjoy a higher standard of living, those in the slums such as Ciudad Bolivár, continue their life in abject poverty. It is no surprise that much of the rebel support, as well as many of its recruits comes from slums such as these.

The current statistics, however, do offer some hope. Colombia, already a world leader in the production of coffee, petroleum, textiles, and flowers, currently lists its GDP as growing at 6.8% a year, two full points faster than the Latin American average. In the past 10 years, Colombia has slashed its monetary inflation rate from 18% to 5%, and since Uribe was elected, unemployment has dipped from 16% to 13%.^[19] Critics point to the fact that numbers can be manipulated, however Bogotá's own newspapers tell of falling murder rates and increased jobs and wages.

While in theory, Plan Colombia's intention was to bring about economic change, mismanaged funds, greedy speculators, and opportunistic rebels have stalled the process. While glimmers of hope slink at the margins of the economy in the form of growth numbers and inflation rates, the overall forecast continues to be uncertain given the current civil war and inflated stock prices (which differ from the monetary inflation rate). It's a familiar story in Colombia, one that has been told for hundreds of years. And, in likelihood, will be told for hundreds of years to come.

Media Links

El Plan Colombia: Part I - An overview of Plan Colombia's attempt to convert coca farmers to their alternative development programs. Also outlines the problems with this idea.

El Plan Colombia: Part II - Explains aerial defoliant operations which many campesinos claim causes sickness in their children and destroys legal crops.

Colombia Coca Farmers: Living Targets - The story of a widow who continues to cultivate coca, even after the paramilitaries killed her husband. She explains in the video that she must continue the farm. "How else will I feed my children," she asks.

Two Bolivias - Explains the Coca Movement in Bolivia, in which coca farmers led a social uprising against the paramilitaries and corporations, resulting in a former coca farmer being democratically elected to the presidency.

Colombia: Drug Wars - A snapshot of the violence that used to paralyze Colombia daily, including the rise of Pablo Escobar and the Cali cartels. WARNING: GRAPHIC IMAGES.

Colombia: The Pipeline War - A look at what many believe to be the real reason for Plan Colombia: Oil. This is the best documentary I have seen on Colombia so far.

Colombia: U.S. Helicopters Tear-gas Protesters - This took place at a rally in 2006 in Bogotá. U.S. or Colombian pilots? You decide.

Guerrillas in Colombia - Explains the long history of guerrilla warfare in Colombia and how the situation is unlikely to change soon.

Chiquita sued over killings in Colombia - From the article: "The largest U.S. lawsuit to date against top banana producer Chiquita Brands International was filed on Wednesday, claiming the company funded and armed a Colombian paramilitary organization accused of killing banana growers." This bears similarity to the case against Coca-Cola in Bogotá, in which the company is accused of hiring a hitman to kill a union leader.

Paramilitary Death Squads - Explains the relationship between wealthy ranch owners and the paramilitary groups. In the beginning, the paramilitary groups served the landowners. Now, with their own side cocaine business, the paramilitaries answer to no one.

Gangs in Colombia - More explanation of paramilitary groups and how they use gangs in Colombian cities as hit squads. WARNING: GRAPHIC IMAGES.

U.S. Marines Fueling Child Prostitution In Colombian City - Whether you believe the story or not, this is an example of the reporting done on Colombian TV.

Annotated Bibliography

• Farzad, Robin. Extreme Investing: Inside Colombia. BusinessWeek, May 28, 2007.

Although not an article by a historian, this economics article explains the author's trip to Colombia to learn about the extensive overhaul of their stock market. He points out how Bogotá's infrastructure has improved, noting that now people living in the slums can access the nicer districts via a cable lift. He mentions Colombia as a country whose financial institutions are sound and a country whose stock market looks ready to grow. After extolling the virtues of Plan Colombia, the author mentioned at the end of the article that he was there at the behest of an oil company, who was paying his salary.

• Mondragón, Hector. Democracy and Plan Colombia. NACLA Report on the Americas, Jan 2007, Vol. 40, Issue 1.

Mondragón's article points out how the rise in speculation in the Colombian stock market directly relates to the amnesty agreement the government brokered between the paramilitary groups, notably the AUC, which allowed them to keep the profits from their cocaine smuggling and legally invest into the stock market in Bogotá. In essence, they legally laundered billions of dollars and the Colombian economy looked better to foreign investors, who assumed the influx of cash was due to an economic upturn. Wonderful article which exposes the murky financial chicanery that exists in Colombia.

• Griess, Phyllis. Colombia's Petroleum Resources.Economic Geography, 1946.

The article, written in 1946, explains how Colombia's natural formations yield to oil discovery. At the time, the country was untapped, and the article went on to point out that before any drilling could be done, that infighting in oil-rich areas must be stopped. In essence, the writer of the article anticipated the problems oil companies would face a full fifty years in the future. She pointed out that Colombia's potential for oil production was vast, but she worried that oil companies might take advantage of this inexperience and drain the profits for themselves. In essence, exactly what has happened.

• Tokatlian, Juan. Colombian Foreign Policy in the 1980s. Journal of Interamerican Studies and World Affairs, 1985.

Tokatlian, an agricultural historian, identified Colombia's stagnant growth as having to do with over-reliance on such staples as coffee. He predicted that in order for Colombia to grow, oil must account for a part of the GDP. He also advocated a place for coca growers in the lower regions of the Andes, in a safer environment where they could grow a new crop away from the threat of cocaine traffickers and rogue paramilitary units. He explains that until these farmers are given a substantial alternative, they will continue to grow coca.

• Ottaway, Marina. Reluctant Missionaries. Carnegie Endowment for International Peace, 2006.

Wonderful article in which Professor Ottaway traces the search for oil in Angola with the problems facing Colombia regarding human rights. She chronicles abuses of power in Angola, and the poor human rights record there. She then explains that the new oil companies operate much as charter companies did in the discovery of the New World, with the government granting them an operating license and access to vast profit margins if they could secure the area in which they operated in. This, she explains, leads to human right abuses. She mentions Colombia and details accusations of indigenous displacement, human rights abuses, pollution, kickbacks, and an overall sense by many Colombians in oil-producing regions that Plan Colombia was nothing more than an excuse by multinational companies to extract their resources, sell them, and reap the profits for themselves. All in all, a well-written, well-thought out article.

References

1. ↑ "Extreme Investing: Inside Colombia," by Roben Farzad, BusinessWeek, May 28, 2007
2. ↑ "Plan Colombia and the Andean Regional Initiative," by James Mack, Testimony Before the House International Relations Committee Subcommittee on the Western Hemisphere, June 28, 2001
3. ↑ "Democracy and Plan Colombia," by Héctor Mondragón, NACLA Report on the Americas, Jan 2007, Vol. 40, Issue 1
4. ↑ "Democracy and Plan Colombia," by Héctor Mondragón, NACLA Report on the Americas, Jan 2007, Vol. 40, Issue 1
5. ↑ "Building Block for Columbia," by R. Nicholas Burns, Speech to the Council of the Americas, November 20, 2006
6. ↑ "Democracy and Plan Colombia," by Héctor Mondragón, NACLA Report on the Americas, Jan 2007, Vol. 40, Issue 1
7. ↑ "Colombia's Petroleum Resources," by Phyllis Griess, Economic Geography, 1946.
8. ↑ "Colombian Foreign Policy in the 1980s: The Search for Leverage," by Juan Tokatlian, Journal of Interamerican Studies and World Affairs, 1985.
9. ↑ "Reluctant Missionaries," by Marina Ottaway, Carnegie Endowment for International Peace, 2006.
10. ↑ http://www.eia.doe.gov/emeu/pgem/ch3e.html
11. ↑ http://www.eia.doe.gov/emeu/cabs/Colombia/Oil.html
12. ↑ http://www.eia.doe.gov/emeu/cabs/Colombia/Oil.html
13. ↑ http://www.eia.doe.gov/emeu/cabs/Colombia/Oil.html
14. ↑ http://www.eia.doe.gov/emeu/cabs/Colombia/Oil.html
15. ↑ http://www.colombiaemb.org/opencms/opencms/plancolombia/
16. ↑ http://www.youtube.com/watch?v=q_yY8sNVuKo El Plan Columbia, Free Will Productions, dir. by Gerard Ungrman and Audrey Brohy
17. ↑ http://www.colombiajournal.org/colombia92.htm
18. ↑ http://www.youtube.com/watch?v=q_yY8sNVuKo El Plan Columbia, Free Will Productions, dir. by Gerard Ungrman and Audrey Brohy
19. ↑ "Extreme Investing: Inside Colombia," by Roben Farzad, BusinessWeek, May 28, 2007

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