The Drug-Debt Link

LAST Christmas, my wife and I traveled in Peru, a country commonly associated with international drug traffic. Like all Andean (indeed all Latin American) nations it also figures prominently in the third-world debt crisis. While in two major cities I noticed an interesting everyday manifestation of how these two things - drugs and debt - interact. In almost every bank and currency exchange house there was an ``off-the-books'' window or teller's counter called la ventana siniestra. Translated, this essentially means the ``blind or underground'' window. These counters were almost always the busiest in each bank or exchange house I visited.

Throughout the day a constant stream of ``depositors'' - mostly teenage boys - brought large quantities of dollars to these heavily guarded windows. Always dollars, never the local currency, which has been massively devalued.

When I asked Peruvians about what I had seen, they evaded my inquiries. Some became hostile when they realized I was from the United States, although being African-American mitigated the hostility somewhat. But friends and in-laws finally took me into their confidence. These so-called blind windows are both a major source of hard currency and a key element of the national debt-repayment system.

It seems that local officials, usually with the connivance or active encouragement of the national government, extort what we would call protection money from small and medium-scale drug traffickers throughout their areas of jurisdiction. These traffickers - or narcotraficantes - must pay so-called insurance policies in dollars, which are in turn drawn into the national treasury by the central government. They either show up in the national accounts as ordinary revenue or they are not entered in the accounts at all.

Of course, all along the line government middlemen take their cut. But the profits from drug trafficking - at least up until now - have been more than sufficient to keep the ``narcos'' themselves in business, satisfy the protection demands of local officials, and make substantial contributions to the national treasury.

Doubtless, something similar goes on throughout the chain of supplying and intermediary countries that have outlets on streets throughout the US.

All this raises troubling implications about the connection between the health of northern hemisphere banks and the ability of heavily indebted Latin American nations to at least keep up interest payments on what they owe to those banks. These countries could become more and more dependent on their take from drug trafficking's local profits for the hard currency needed to either repay their debts or not slip further behind.

The same countries are faced with declining prices for their traditional hard currency-earning exports. These typically include one or two cash crops or unprocessed minerals, world demand for which fluctuates far too wildly to provide a sound basis for any debt repayment scheme likely to satisfy either US banks or the governments of the creditor nations to the north.

So place yourself in the seat of finance minister of Peru, or of any of the other eight or nine countries deeply entwined in the drug trade. You are under increasing domestic and external pressures to do what amounts to two mutually exclusive things: Repay your debts and cut down, or cut out, local drug production and trafficking. To do the first you need hard currency, which is being supplied by the very drug-related underground economy you ought to destroy.

To complicate matters further, the bankers and government creditors you must repay and the drug enforcement officials you must satisfy with your local war on drugs all come from the same northern country: the US.

Americans should carefully consider this dilemma. How would we resolve it? Faced with a local currency devalued almost to worthlessness, a partially failed above-ground economy and continuing fluctuations or drops in world prices for your major exports, as well as capital flight from the country by the would-be investors from a declining middle class, what other path is there but to become ever more reliant on the one dependable source of hard currency you have?

If the US is really to get serious about destroying the drug trade, it will have to root it out at its sources. But, to do this, some of the pressures on these source countries for repayment of their massive debts will have to be lessened. Without debt relief, or outright forgiveness, pressure on Latin American governments to collude in expanding drug-related underground economies could prove irresistible.

Ultimately, electoral democracy itself could fall victim to the downward spiral of debt and drugs. As is already happening in Colombia, the barons and tycoons of what may be a country's only growth sector will supplant or overturn the legal structures of society. Not only will the generals and admirals march back into the presidential palaces, they will do it on a red carpet paid for in lives wasted and broken by drugs.

Something has to give: the banks' bottom lines, or the national law enforcement and drug treatment budgets.