DRUGS FADE IN COLOMBIAN ECONOMY

BOGOTA-Colombia's cocaine industry, which once accounted for 6.3% of
the nation's economy, has fallen on hard times since the days of
Pablo Escobar's Medellin cartel.

Cocaine's share of gross domestic product has dropped as Colombia's
drug cartels have lost control of key smuggling routes to cartels in
Mexico and elsewhere, and as legal industries such as oil and mining
have taken off. Illegal drugs now account for less than 1% of GDP,
after peaking in 1987, said Ricardo Rocha, an economist at Bogota's
Rosario University and expert on the nation's drugs trade. "Smuggling
to the U.S. is now via Mexico," Mr. Rocha said. "We were left with
the agricultural and agro-industrial parts of the business."

Over the past decade, Colombian authorities have broken up some of
the country's most powerful cartels and extradited more than a
thousand Colombians to the U.S. to face drug-trafficking charges.
Investment dollars poured into the country amid a decline in
guerrilla attacks, high commodity prices and the pro-business
policies of President Alvaro Uribe's government, which attracted oil
and mining firms.

Colombia's economy grew 0.4% in 2009 and has more than doubled in
size over the past decade. Despite last year's slower growth, the
expansion of legitimate business activity in recent years means that
cocaine exports are now dwarfed by those of oil and coal, and may be
even less than coffee, Mr. Rocha said. In 2009, Colombia posted $10.3
billion in exports of crude oil petroleum products, $5.4 billion in
coal and $1.5 billion in coffee.

Cocaine production peaked at some 650 tons in 2000, according to the
United Nations Office on Drugs and Crime, up from around 19 tons in
1985. Since then, output has slipped, with Colombia producing 430
tons of cocaine in 2008-around 51% of the world's total-from 81,000
hectares planted with coca, the raw material used to make cocaine.

However, the money made from growing coca bushes and processing the
leaves into cocaine is paltry compared with the vast profits made
from smuggling. The wholesale price of a kilogram of cocaine in
Colombia was around $2,200 in 2007, a fraction of the average $31,000
a wholesale buyer would pay in the U.S., or the $59,000 it would
fetch in Europe. When adjusted for the fall in purity, the price
difference is even greater. Moreover, with big Colombian cartels
broken up and many kingpins in U.S. jails, local participation in the
trade has somewhat "atomized," said Salomon Kalmanovitz, an economist
and former member of the Colombian Central Bank's board of directors.
"The Mexicans are [now] doing the intermediary wholesale business."

That marks a major change from the late 1980s, when Mr. Escobar, the
Medellin cartel boss, appeared as the world's seventh-wealthiest man
on Forbes Magazine's list. Today, the only drug trafficker on the
list is Joaquin "El Chapo" Guzman, head of Mexico's Sinaloa cartel.
The rise of the Mexican cartels began when U.S. and Colombian
authorities stepped up naval and aerial interdictions of drug
shipments in the Caribbean, said Alex Posey, an analyst for global
intelligence company Stratfor. "It's largely due to the shift in the
smuggling routes," Mr. Posey said. "In the late 1980s and into the
1990s, the primary cocaine trafficking routes were from Colombia
through the Caribbean into south Florida and the east coast of the
United States."

When U.S. and Colombian authorities began to shut down that corridor,
more cocaine began to enter the U.S. via land from Mexico, Mr. Posey
added. Mexican cartels are estimated to generate anywhere between $10
billion and $25 billion from drug trafficking, or as much as 2.5% of
Mexico's GDP.