VIII. Economic Effects of Violent Crime in Colombia⁴³

114. Colombia has experienced a surge in violent crime since the mid-1980s related to the growth of the illicit drug trade, the guerrilla insurgency, and a general increase in violent urban crimes, particularly robbery and assault. In 1996, the homicide rate was the highest in the world, at about 80 deaths per 100,000 of the population (Figure 1), which is about four times the Latin American average. Exports of illicit drugs (mainly cocaine) are estimated to have increased from about US$1 billion a year in the mid-1980s to an average of about US$2.5 billion in the 1990s, equivalent to about 25 percent of recorded exports (Figure 2). In the case of guerrilla activities, there are three main movements operating under the coordinating umbrella of the Coordinadora Nacional Guerrillera (CGN): the Fuerzas Armadas Revolucionarias de Colombia (FARC), estimated to have 7,000 guerrillas; the Ejército de Liberación Nacional (ELN), estimated to have about 2,700 guerrillas; and the Ejército Popular de Liberación (EPL), estimated to have about 700 guerrillas. Their combined annual income is estimated to be about US$570 million, about a third of which is income from “taxes” levied on the growers and processors of illicit drugs, about half is from kidnaping and extortion, and most of the rest is from investments in mining (gold and coal) and public transportation. Guerrilla activity accounted for 16,625 violent deaths between 1985-96.

Colombia: Homicide Rate, 1956-96

(Deaths by homicide per 100,000 inhabitants)

Citation: IMF Staff Country Reports 1999, 006; 10.5089/9781451808735.002.A008

Sources: Rubio (1995); and Echandia C (1997).

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Colombia: Homicide Rate, 1956-96

(Deaths by homicide per 100,000 inhabitants)

Citation: IMF Staff Country Reports 1999, 006; 10.5089/9781451808735.002.A008

Sources: Rubio (1995); and Echandia C (1997).

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Colombia: Homicide Rate, 1956-96

(Deaths by homicide per 100,000 inhabitants)

Citation: IMF Staff Country Reports 1999, 006; 10.5089/9781451808735.002.A008

Sources: Rubio (1995); and Echandia C (1997).

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Colombia: Exports of Illicit Drugs, 1980-95

(In percent)

Citation: IMF Staff Country Reports 1999, 006; 10.5089/9781451808735.002.A008

Sources: Steiner (1998); and Fund staff estimates.

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Colombia: Exports of Illicit Drugs, 1980-95

(In percent)

Citation: IMF Staff Country Reports 1999, 006; 10.5089/9781451808735.002.A008

Sources: Steiner (1998); and Fund staff estimates.

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Colombia: Exports of Illicit Drugs, 1980-95

(In percent)

Citation: IMF Staff Country Reports 1999, 006; 10.5089/9781451808735.002.A008

Sources: Steiner (1998); and Fund staff estimates.

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115. Estimates of the direct and indirect costs of crime (protection, insurance, property damage, loss of life, etc.) vary markedly, ranging from 5 percent of GDP to 15 percent of GDP, and also to have reduced the growth rate of real GDP by as much as 2 percentage points a year by one estimate over the period 1970-93. The negative impact on economic growth stems mainly from the loss of physical and human capital. Physical capital is reduced by damage and a poor investment climate. Oil and agriculture have been among the sectors most adversely affected. In the oil sector, damage is reported to have run at between US$150 million and US$200 million a year in the 1990s. The state oil company (ECOPETROL) has been a particular target, reporting around 700 serious attacks on the oil pipeline between 1986-97. Oil companies also spend substantial amounts on security: one company recently signed a three-year agreement with the ministry of defense to create a battalion of 150 officers and 500 soldiers to protect production sites; another is creating two platoons (totaling 80 soldiers) to protect oil fields, which increased its annual security bill from US$3.8 million to US$7 million. In the agricultural sector, violent crime and the high cost of private policing have contributed to falling land prices and led to the abandonment of many small land holdings. Agricultural production also has been affected adversely in that coca crop eradication methods have harmed other agricultural outputs, and disrupted production generally.

116. Human capital is reduced when people are killed, if education is interrupted, or if governments have to spend funds to maintain large security forces at the expense of education and health. In Colombia, violence is the principal cause of death, accounting for about 26 percent of the total deaths and about 60 percent of deaths of prime working age males (aged between 15 and 44 years); in Latin America as a whole, violence accounts for about 3 percent of total deaths. A recent study estimates the loss of human capital from violent deaths at equivalent to 1-1½ percent of GDP a year between 1991-96. At the same time, Colombia’s defense budget increased from around 1½ percent of GDP in 1985 to about 2½ percent of GDP (excluding the police) in the mid-1990s, and is about 1 percentage point higher than the average for Latin America as a whole (however, public expenditures on education and health has risen more than defense spending, from 4 percent of GDP in 1985 to about 6½ percent of GDP in 1996).

117. Violent crime also may reduce economic growth to the extent that it erodes the effectiveness of government and encourages the private sector to engage in less productive activities. An obvious example is the proliferation of private security agencies in recent years, with businesses and individuals estimated to spend about US$150 million (0.3 percent of GDP) to protect their properties. Eroded government capacity may also increase the incentives to engage in crime per se, rather than undertake productive activities. For example, in Colombia the judicial system takes a long time to process plaintiffs and settle disputes and only about 3 percent of criminal cases end up by sentencing someone for the crime; at the same time, average income from crime appears to be high.

118. Finally, violent crime has made the income distribution more uneven, which may be detrimental to economic growth. In Colombia, income disparities appear to have increased in the agricultural sector: the ownership of rural property has become increasingly concentrated, with about 50 percent of the best property in the hands of 1.3 percent of landowners (compared to 3 percent of landowners in the 1940s); and many land purchases appear to have been financed by drug-related income and facilitated by falling land prices because of the violence. By one estimate, illicit drug income is estimated to have been used to purchase about 4-6 million hectares of agricultural land (about 10 percent of the total) since the mid-1980s. Violent crime also has affected the poor the most in that they have lost a higher proportion of their wealth, had less access to the judicial system, and been less able to protect themselves by contracting private security (it is mainly the poor that have been abandoning rural land holdings, exacerbating the housing problem in some urban areas).