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Colombian Coca, Opium Output May Rise With Peso Rally April 29, 2005 bloomberg.com
Colombian coca and opium poppy production may increase as the peso's two-year rally drives farmers to move into higher-margin illegal crops, setting back efforts to curb drug trafficking, a central bank director said.
"An acute and prolonged appreciation hurts the production of legal crops and strengthens the production of illegal crops," Carlos Gustavo Cano, one of the bank's seven directors, said in an interview in Paipa, a town about 200 kilometers (125 miles) north of Bogota.
The peso's 27 percent surge against the dollar since January 2003 is making Colombian crops such as coffee, bananas and corn more expensive in dollar-terms, hurting farmers' ability to compete against imports and to sell in export markets.
Colombia's government and central bank, concerned the rally in the peso will curb the country's export-led economic expansion, bought more than $3 billion of the U.S. currency last year in a bid to weaken the currency. Cano declined to comment on whether the central bank will take more measures to try to stem the peso's gains.
Julian Cardenas, an economist at Corporacion Financiera del Valle in Bogota, said he doubts the peso rally threatens the government's efforts against drug trafficking.
"I don't see the exchange rate being a decisive factor that leads small farmers to start planting illegal crops," Cardenas said in a telephone interview from Bogota. "Deciding what type of crop to farm is a long-term decision. The peso's appreciation is expected to reverse at some point and therefore it doesn't make sense for farmers to go into illegal crops based on this."
Drug figures from 2004 show no signs of an increase in the farming of coca, the plant used to make cocaine, or opium poppy, which is used to make heroin. Farmers in Colombia, the world's biggest producer of cocaine, had 114,000 hectares under coca cultivation in 2004, unchanged from a year earlier, according to the U.S. Office of National Drug Control Policy. Opium poppy cultivation fell to 2,100 hectares in 2004 from 4,400 hectares.
Cano, who left his agriculture minister post in February to become a central bank director, said halting the peso's appreciation would help the government's battle against rebel insurgents and paramilitary fighters who control much of the drug trade in Colombia.
"Combating by all measures the farming of illegal crops is a matter of national security because that's where terrorist groups get their financing," Cano, 58, said in the April 24 interview. "We can't have a setback in this area because a setback in the future would hurt investor confidence again."
The peso was little changed today, falling 0.01 percent to 2,348.4 to the dollar at 2:45 p.m. New York time. It's up 0.3 percent this year and 13 percent in the past 12 months, driven higher by a surge in foreign investment amid the South American country's fastest economic expansion in a decade.