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Financial Flows and Drug Trafficking in the Amazon Basin - Discussion paper n° 22
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Management of Social Transformations - MOST

Discussion Paper Series - No. 22


Lia Osório Machado (1)

This work examines some geographical effects of drug trafficking in the Amazon basin. From the symbiotic relationship between the organizations running the illicit drug trade and the banking and financial system, the author develops a methodology based on the role of networks in today’s political economy.

Money laundering, or the process whereby money illegally obtained becomes legitimate, or manages to conceal its illegal origins, is now a major international issue. This phenomenon covers not only the profits derived from illicit trading in drugs but also capital flight, tax evasion, corruption, contraband and all the activities that tend to go uncontrolled and unregulated by national governments.

In the money-laundering process the illegal economy reaches a parting of the ways, forsaking its illegal status and thus entering the lawful economy. This hiatus between before and after is only possible through the alchemy achieved by the banking and financial systems, which turn dirty money into clean money by means of digital operations and particular geographical transfer techniques.

The present-day symbiosis between the organizations running the illicit drug trade on the one hand and, on the other, the international banking and financial systems may be regarded both as the most crucial question of all those characterizing the drug economy and as the dark side of how the international money and currency market is in fact evolving, managed as it now is by a globalized banking and financial system.

Four aspects of this banking and financial globalization process deserve highlighting since they have a direct hand in increasing the scale and propagation of money-laundering arrangements:

    (a) deregulation of the system of buying and selling currency, credit or commercial paper, which makes it planetary in character since this lets it expand more or less independently of national governments (Strange, 1994);

    (b) the apparently contradictory duplication of such deregulation, which prompts some national governments to manipulate territorial boundaries for banks under their jurisdiction (for example, by establishing specific and functional territorial zones such as tax havens) and to admit and back up banks, stock exchanges and agencies carrying some weight in international investment for the purpose of ensuring their access to credit on the international market;

    (c) the tremendous increase in the volume, flow and variety of short-term capital circulating on the international financial markets, ranging from hot money to instruments of commercial credit, government bonds, bank deposits, short-term deposits, etc.; for all the potentially ‘destabilizing’ effect of short-term capital on the economies of individual countries, especially those more dependent on international credit, most of them do not reject it since, by still largely obscure processes, the inflow of this commercial capital starts to operate as a positive indicator for the country’s rating in the international market and as a kind of trump card in domestic politics (Kim, 1993);

    (d) the on-line operation of the banking and financial system, made possible by breakthroughs in computer technology and telecommunications, making for ever swifter and cheaper transfer of the money-bit of information and easier access to geographically scattered markets (Thrift and Leyshon, 1994).

Together, these factors increase the scope for money laundering by organizations running the illicit drug trade (or any other unlawful activity), with the proliferation of niches that can be used for operations of this kind (Machado, 1996).

Despite the importance and merits of the global character of banking and financial systems arouses, that feature can be identified as assisting the money-laundering process and even drug-dealing circuits. Implying the removal of territory-based regulatory structures like those of the nation-state, the term global denotes something abstract whose materiality in geographical terms and complexity can only be gauged in situ (Santos, 1996; Law, 1994).

    Brazil: the disorder of norms versus the order of space
The incorporation of Brazil into international money-laundering schemes is neither recent nor attributable to the expansion of drug trafficking on its territory. Factors making for such incorporation include the inflation of the 1980s, lasting until 1994; the fiscal and institutional crisis of the state that accentuated the instability of the credit system and, more generally, of the economic ground rules; the expansion of the informal labour market and small enterprises subsisting on contraband and tax evasion.

Inflation has permitted the development of a modern and well-interlinked domestic banking system based on a big nationwide increase in the number of branches. These branches are connected via a highly developed telecommunication infrastructure mainly patronized, of course, by the banks themselves (Dias, 1995). As regards leased global telecommunication networks, by the late 1980s companies, and chiefly banks, were already linked to the inter-company global telecommunication system, as shown in Figure A. The global network and the network of regional nodes and vectors provide higher quality connections and are less liable to disruption, which is very common in countries like Brazil, since they offer the option of several alternative routes (Langsdale, 1989).

Figure A

Figure A

The expansion of the dollar black market, the development of transactions for the illegal transfer of currency abroad (2) and the fact that a great many gainfully employed people are forced to become conversant with financial schemes to avoid the depreciation of pay and savings, coupled with bank confidentiality, are all directly linked to the inflationary process but greatly transcend it. For these factors foster a climate or culture conducive to the growth of money-laundering devices.

Such arrangements therefore preceded the reform carried out with the introduction of the new currency, the real, in mid-1994. That reform covered the transactions of exchange offices and dollar sellers, the underpricing of imports and overpricing of exports, the diverting of subsidized credits for the financial market, and also bogus bank accounts linked to corruption schemes, and transactions relying on secret funds, like the use of LC-5 bank accounts (Central Bank Circular Letter No. 5 of 1969), for legal entities or individuals resident, domiciled or located abroad for the purpose of moving currency into the country that have become useful to banks and companies, but also to organizations involved in contraband and drug trafficking for the unlawful transfer of currency abroad (O Globo, 1995).

The damping of inflation and buttressing of national currency won majority public approval, as shown in presidential elections, plus the backing of financial agencies and international creditor banks with which Brazil maintains a debt of the order of $120 billion. While the countering of inflation and the steadying of parities conflict with the culture of inflation, the underlying economic policy is geared to an amplified market culture, thereby encouraging measures to change the prevailing norms, both economic and cultural. (3) These measures ultimately make the country more pervious to the international market as regards restructuring industry, reducing public spending and devising new norms for the regulation and the deregulation of socio-economic institutions. They are regarded as ingredients of a necessary policy to make the country more competitive both in the international commodities market and in the money market, the latter being already under pressure from a growing global demand for credit (Business Week, 1994).

Two objectives are therefore linked, both in relation to credit: money and confidence. Economic restructuring requires credit to be available, while the opportunity to join in competition and obtain resources on the international market depends on changes in norms, all of which is needed to secure the confidence of potential investors.

In connection with this new culture it is hoped to introduce, new tensions are emerging such as those caused by the gradual adjustment in investment (credit) policies according to the policy in regard to profits. In addition, exchange reserves act both as an economic and as a political variable since they have begun to be viewed by the market and by the public at large as a kind of guarantee for exchange rate stability and hence government stability. The reserves rose from $32.2 billion in December 1993 to $55.7 billion by March 1996 (Central Bank, 1996).

The success of this policy, based on the growth of investments labelled ‘external in foreign currency’, produces other tensions. The volatility and more wayward nature of these flows, whose behaviour is determined by the variation of interest rates and other indicators on the international market, impair the policy actually meant to promote them. Of all external foreign-currency investment in 1995, which comprised portfolio investment, direct investment and fixed-income and privatization investment, approximately 70 per cent belonged to the first category, up from $3.8 billion in 1992 to $22.5 billion in 1995. In addition, the proportion of repatriated funds from portfolio investment rose from 44 per cent in 1992 to 80 per cent in 1995 (Central Bank of Brazil, 1996). (4)

In turn, any heightened inflow of short-term capital, which may add to exchange reserves or provide companies with credit to finance consumption, obliging the government to buy dollars, tends to increase internal indebtedness. Legal incentives for the financial and credit market, both domestic and international, can be and are used in the laundering of money and its subsequent introduction into the lawful economy. National investors and enterprises can thus make use of these mechanisms to transfer capital abroad and bring it back, the idea being to launder the dollars into foreign funds for use in stock exchanges or fixed-income investment at home. Similarly, foreign investors and enterprises occasionally or permanently involved in laundering schemes can buy securities issued by Brazilian enterprises abroad or national treasury bonds.

The systematic nature of these interactions, the sensitivity of the system to the ambiance, and the resulting dynamic instability are some of the features that enable us to describe both the Brazilian and the international banking and financial system as open systems affected by international flows of money and paper. It is the connection between these flows, acting simultaneously as event and limit, and the variables and events situated within each state that will determine the stability or otherwise of how the system as a whole functions. Money laundering, considered by several governments to be a dysfunction in the banking and financial system, is an integral part of these macroscopic flows and only emerges as a problem when interfering with the evolution of ‘regions’ in the world geographical space.

In the following parts, we shall show how the ‘system’ outlined above may be interacting with drug trafficking in South America and, more especially, in Brazilian Amazonia. The aim here has more to do with theory and method than with hard fact. First because we wish to introduce a geographical perspective in the study of these themes. We understand this as the spatialization of official or empirical data on drug trafficking and financial movements. Not only does this spatialization comprise visualization of the specific geographical disposition they assume in situ, but the act in itself of spatializing permits the discovery of relations that statistics and other types of information leave in the dark. This is the intention behind the innovative methodology offered here which, let us hope, will partly offset the lack of precision in some assertions. The difficulty of obtaining data and the unreliability of some information makes the work more speculative than demonstrable.

The methodology followed in this work is based on a the notion of networks as related to territory. An ancient word, it is now being employed in a large number of scientific domains with such different purposes that its meaning is becoming increasingly polysemic. If the speed in which the notion has circulated around the scientific world and beyond can be credited to the impressive technological advancements in the fields of computer sciences and telecommunication systems, as D.Parrochia’s survey (1993) shows, its success is not limited to the depiction of particular concrete objects but extends to its use as an heuristic aid.

One can argue that from a geographical viewpoint the usefulness of networks as an heuristic device lies in the representation of action at a distance, intermediated by territorial extension. In this representation territory is not a neutral element nor should its material condition be opposed to the presumed immateriality of action at a distance. Grounded in these premises, some working hypothesis are proposed.

First, the assumption that networks is the preferred mode of operation for both drug traffic and money laundering suggests that density and/or diversity of networks guides choice of territory. In fact one can surmise that today the blurring of territorial boundaries in so many places can be ascribed to the increase of network density and diversity. This diversity can be measured even by a simple classification such as: "natural" networks (stream network; trails); infra-structural or technical (transportation; communication networks); transactional (5) (political-economic power) and informational (cognitive). In short, networks as matter and as heuristic aid were taken into account in this work.

Second, choice of territory is also guided by the "environment", such as a frail institutional base and "disconnected arenas of social existence". The latter refers to social and economic processes and groupings that disconnect people of different classes and different sources of identity albeit sharing the same territory (M.Rosler in Amin/Thrift:412).

Third, close to the spirit of legitimate multinational corporations, criminal "organizations" also conceive and design complex strategies, mainly because they imply transnational networks. If this is correct than one can assume that a certain rationality guides the spatial arrangement of overall operations and likewise the geographical placement of each operational stage.

As already established by relevant literature, despite the dissimilarities between drug trafficking and money laundering, they share to a certain extent the same logistic facilities in chosen fields of operation, an event that does not imply that the same individuals or firms are responsible for both jobs. It is precisely this complexity that justifies building up an "organization". Whether rigid like the old mafias or loosely put together like many Latin American "cartels", some kind of organization is obviously called for, given the number of people and firms performing different assignments in very different environments and the very high operational risks involved. As the UNDCP reports puts it, illicit drugs is an industry because it implicates an extensive and complex process of production, manufacture, distribution and investment. Especially in the case of the cocaine industry, vertical integration seems to be dominant, that is, some, or all of the stages along which the drug passes from source to consumer are controlled by the same network (as defined by its upper echelon).

To suppose that drug trafficking and money laundering are somewhat connected in the field, sharing the same logistical support, is a reasonable assumption only to a certain extent. Due to the very high risks incurred in transit, drug trafficking networks are inevitably "flexible", meaning that they alternate chosen routes, change location of processing plants and stockage points, and even of shipping platforms.

On the other hand, money laundering operations depend much more on existing legitimate networks such as the urban network. Because they rely on specific services that are only available in some points of a territory (banks, foreign exchange bureaus, financial services and eletronic money transfer service,etc) laundering operations must follow more closely the urban hierarchy.

There are a number of techniques for money laundering but nearly all of them involves the banking system at some stage or other. Thanks to the current "openness" of the international financial and banking system, risk in laundering operations tend to be localized in the first stage of the laundering process, known as placement , that is, the disposal of bulk cash in banks. Currency can then be exchanged for other monetary instruments such as cashier’s checks, credit transfer, bank drafts, travelers checks and eletronic payment systems. In the other stages, known as layering (disguising the origin of initial deposits through money transfers) and integration (to use layered funds to purchase "clean,legitimate" assets) risk tends to decrease very significantly.

A final assumption is that some networks can curb the tendency of spatial processes towards centrality. This happens when a connected structure that is both hierarchical and heterarchical develops (Leew&McGlade,1993:218). The telecommunication network has been a powerful stimulus to the development of heterachical structures by permitting that places/towns located at the lower level of the urban hierarchy be directly connected to places located at the higher level, bypassing intermediate levels. The extended (and extending) territorial scope of the banking and financial system is in fact a consequence of the world’s evolving telecommunication network. This is highly favorable for money laundering operations because it means that money transfers between places can be done in less time and can incorporate a great number of places thus diffusing risk.

Technical, transactional and informational networks are ‘inter-graded’, meaning that they link up nodes belonging to different spatial organization levels - local, regional, national and international. This means that they can cross national and international boundaries without heeding the principle of spatial contiguity that generally determines the base territory of the sovereignty of a nation-state. Not only do these networks permit a cartographic representation of the connections between micro-spaces and other levels of graded organization, but they represent in themselves the preferred form of organization for drug-trafficking and money-laundering operations.

    The drug-trafficking network and the Amazon River drainage basin
The incorporation of Brazil and of its Amazonian portion into international drug trading is effected through the intermediary of the coca-cocaine complex. The main coca-producing areas are located on the western side of the major drainage basin of the Amazon River in the upper and middle valleys of its headwaters and tributaries (Huallaga, Ucayali and Apurimac in Peru; Beni and San Miguel in Bolivia; Putamayo, Caqueta and Uaupés in Colombia). Thus, for the cartography (location of the coca-cocaine complex and its links with Brazil, we have taken the Amazon River drainage basin as a spatial reference unit, which is a larger sector than that of South American Amazonia, normally demarcated on phytogeographical (area covered by rain forests) or topographical-climatological (low-altitude hot areas) criteria.

From the angle of drug-trafficking logistics, the great South American hydrographic basins, both the Amazonian and that of Paruguay-Parana, are becoming a major alternative for the setting up of an inter-modal transport system for the transit of drugs. It is interesting to note that, despite the difficulties of river navigation, these basins provided the principal communication route within the South American continent for centuries.

In addition to the river network there is a road and air transport network that permits a reasonably good link between the Pacific and Atlantic coasts. Despite much debate on the part both of national governments and of the World Bank about the advisability or otherwise of building a transcontinental road link, such a connection, albeit precarious, is an irreversible fact. We do not really know how far the drug economy has directly or indirectly contributed to its gradual construction (6). It is noteworthy that neither the air nor the road transport network in South America is confined to intercontinental routes or official airports. A precarious grid of routes and minor roads, in addition to farm and village runways scattered around the interior of the continent, shows that beside a formal network structure there is another that could be termed ‘informal’. Consequently, although we are aware that drug trafficking takes advantage of both networks, we do not know how far the trafficking organizations are responsible for maintaining and extending this secondary grid.

The main trafficking corridors and routes between the Andean countries and Brazil and the virtual network of transit points and drug-processing sectors have been so identified as to produce a map portraying the ‘Atlantic’ dimension of the drug-trade logistics network (MAP A). It is noteworthy that the association between drug trafficking and contraband is equally true of Brazil. The routes and corridors used by the traffic are two-way and serve to smuggle gold, electronic goods, commodities (coffee, soya) and stolen cars, which are all exchanged for coca, cocaine, arms and manufactures.

Map A

The sources used have been many: the information gathered from field.

3work in several areas of Brazilian Amazonia; reports by the Federal Police and the Drug Enforcement Administration (DEA); bulletins issued by the Observatoire Géopolitique des Drogues (OGD); articles, books, reviews and a variety of newspapers, both national and international. A study on the seizures (7) of drugs and laboratories carried out over the last six years was essential not only for mapping the roads and determining the probable location of laboratories, but also for establishing what geographical conditions were the most likely to turn a town into a wholesale buying and selling drug centre and/or a place of transit (Machado, 1995).

Brazil’s incorporation into the drug economy also comes about through the sale of chemicals used in transforming the coca leaf into cocaine (Figure B). Although this market is taken somewhat into consideration by the industries of central countries (such as the United States and Germany), the Brazilian chemicals and fuel industry, confronted with the instability of the domestic consumer market, is encouraged to sell what it can to Andean countries, where most of the transformation of the coca leaf into cocaine is carried out.

Figure B

By way of conclusion (for this part), the ‘disorderly’ use of traffic-circulation networks - in the sense of an alternative use of routes and of an inter-modal transport system (air, road, river, rail) - can be said to seek an ‘optimized disorder’, to borrow a concept developed by Albert Hirchman to describe situations where organizational control operates at minimum levels and interactions with the environment are unstable. This seems to be so in the case of the drug-traffic network in that organizational and security considerations dictate the actors’ choice, but the conduct adopted in shifting the goods depends on their sensitivity and the level of information, which may be regarded in this case as random variables. It is true that the relative disorder in the choice of routes and means of transport is partially offset by the agreed adoption of a rigid and violent code of conduct on the part of the actors. Yet, the same cannot be said of the spatial dimension of the producer-to-consumer chain of the traffic. In this case, perhaps, the only way to get round the variations inherent in the use of the networks would be to increase interaction with the environment, i.e. with legitimate institutions and local communities. When this type of communication is established, even if such interaction is based on corruption, the normally unstable network may be maintained in ‘stable state’. This means that the nature of the subsystems making up the drug business is identical with that of ‘open systems’.

    The spatialization of money movements in Brazilian Amazonia
In the context of the galloping inflationary process and the government policy of occupying the Amazon region (tax inducements and support for the growth and establishment of towns and settlement projects), it is not surprising that this albeit sparsely inhabited region has been incorporated in the domestic banking system. The link between local bank branches and the headquarters of banks in the south-central part of the country has been secured by substantial government investment in such services as telecommunications, one of the prime conditions of the national integration policy (PIN), introduced in the 1970s. The relative success of this policy can be gauged from the reorganization of internal migratory flows, increased population numbers, expansion of the urban and transport network, and exploitation of the region’s natural resources along capitalist lines. The tapering form of the territory, as characterizing the geographical pattern of settlement, does not prevent the recognition of initial spatial structuring set around the major river and road routes, the settlement projects, and the towns and villages.

From the 1980s onwards, the withdrawal of government support from infrastructure siting policies only exacerbated the social and economic problems that arose since the establishment of the first regional settlement plans (Becker, 1990; Becker et al., 1990). The main problems were the land-appropriation process, which reproduced in the region the property concentration model that characterizes the country’s agrarian system; the shortage of credit at lower interest rates; and the limited debt-carrying capacity of rural smallholders in the old settlement areas.

On the other hand, activities related to the international market are more capitalized. They include: soya agribusiness, which is spreading in the savannah (bush) areas of Mato Grosso; mining projects (Carajas, Oriximina); the assembly of electrical and electronic goods (Manaus free trade zone); and logging. The spread of gold-mining in various Amazonian sub-areas and even the urbanization process itself may be associated with an incipient process of capital formation.

The question raised, which we cannot answer here with any precision, is whether the drug trade and money laundering have had a hand in the region’s economic development, that is, in the financing of wholly legal productive activities. If and where this is happening in the region are still outstanding issues. What can be said from the data available is that movements of money through the banking system are in several cases incompatible not only with most urban economies but also with the subregional economies.

One preliminary observation is that the choice of the Brazilian Amazonian area as a spatial reference unit for analysing the flow of money has not been prompted by the idea that the region is the chief one for money laundering schemes. On the contrary, in the Brazilian regional context, Amazonia probably occupies a peripheral place in relation to the main laundering operations. As noted in the first part of this article, the laundering mechanisms are virtually open to the country as a whole. The reasons for our choice have been purely practical, on account of knowledge gained from over 20 years of work in the region and the fact that, compared with the south-central part of the country for example, the low degree of development of productive activities and a lower population mass are factors suggesting that the movement of money depends on the economy of each place or is a singular event calling for more detailed explanation.

The mapping of the movement of cleared cheques throughout 1995 is based on information provided by the Central Bank of Brazil (Map B). For the sake of spatialization, we requested that the information, the value and the number of the cheques cleared, be classified by banking centre, that is, locations where there are both private and public bank branches. These places are mostly in towns, as seats of municipalities, since under Brazilian legislation a built-up area is not considered a town unless it meets the condition of being a seat of a municipality. There are exceptions, as in the case of company towns like Vila Carajas, situated inside the sector under the jurisdiction of the Vale do Rio Doce Company, a concern responsible for mining the large mineral reserves of the Sierra des Carajas in the south-east of Pará State.

Map B

The settlement frontier status and the big rise in the number of municipalities created, mainly under the 1988 Constitution, which entitled the various states of the federation to grant municipal autonomy, mean that many built-up areas are now considered towns even though urban services and a minimum of self-sustaining capacity are lacking. However, a small centre like Eurinepé, whose economic life is linked to river trade in the middle reaches of the Juruá (south-west Amazonas State), with an urban population of 13,451 and a total population of about 20,000 (1991), lodged cheques that were cleared totalling R$1,344,411 in the town’s three bank branches. As in 1995 the value of the real was slightly higher than that of the United States dollar, this meant a movement of more than $1 million (a monthly average of a little over $100,000). Federal tax revenue in the municipality (1995), including income tax from individuals and legal entities, was 144,220 reals. Even not discounting the likelihood of tax evasion and the fact that a number of economic activities in the Amazon region (and in the country generally) do not pay tax because they belong to the ‘informal market’, the gap is considerable.

There are cases indicating another path, namely towns which grow and whose economic activities develop without the origin of the capital being clear. In the town of Tefé, which lies on the banks of the Solimöes (in the west of Amazonas State) and boasts a total population of almost 60,000 (72.3 per cent urban), the movement of cheques cleared in the town’s three bank branches amounted to R$4,877,002 while the federal revenue was R$692,858, a figure close to that of Claudia in the north of Mato Grosso in the heart of the soya-producing area (R$697,333). Tefé is one of the oldest (and best-known) transit points for the cocaine trade in the Amazon valley. Despite many indications that it is an air transit point for the coca and cocaine trade, Tefé is also well placed with respect to river transport, a fact known since pre-Colombian times. On travelling up the Solimöes, one arrives at the mouth of the Japurá, or Caquetá for Colombians, whose central valley is the site of one of Colombia’s main coca- and cocaine-producing areas. Downstream, also on the Solimöes, lies the mouth of the Juruá, which flows down from Peru’s coca-producing area via Cruzeiro do Sul, Eurinepé, Itamarati and Caruari (see Map A). To some extent, Tefé typifies the group of towns where the spin-off from drug trafficking may be stimulating the emergence of absolutely legal urban-based economic activities.

Cruzeiro do Sul, in the extreme east of Acre (upper valley of the Juruá), is an old town of the rubber period which, still today, depends on trade. It is hard to say what kind of trade it depends on. Transformed into a free trade zone, it is a type of ‘cul-de-sac’ town, for it lies at the end of the east-west road crossing Acre State. This fact and the relative closeness of the coca-producing areas of the Urubamba valley in Peru must have had something to do with its becoming part of the network of cocaine trafficking and, probably, the trade in coca-based paste. The logistics of this routing include transport by air, river and road. The town, of about 30,000 inhabitants, has five bank branches which handled cheques totalling R$17,213,386, corresponding to 49,431 cleared cheques. Despite its status as a free trade zone which exempts it from paying some taxes, the amount of federal revenue netted in the municipality was R$1,511,862, which in the Amazon region can be considered a substantial sum.

The highest amount from cleared cheques in the area corresponded to two regional metropolises, Manaus and Belém. The development of the free zone, and more recently, international tourism may have helped to make the town a major link in the regional, national and international air traffic network. It is also the natural entry point for the valley of the Negro River, and consequently for its tributaries the Içana and the Uaupes, where in mid-valley lies the agricultural frontier of the coca-producing areas of Miraflores and S. Jose do Guaviare in the south of Colombia (Map A). But recently a road, which is currently being surfaced, has linked Manaus to Venezuela, Colombia and Guyana, one of the alternative ports for dispatching cocaine to the United States and Europe. The building and surfacing of this road cannot ascribe solely to the interests of traffic-linked organizations. In both economic and geopolitical terms, it is one of the major strategic routes for access to the Caribbean. Manaus is ahead of Belém where the total value of cleared cheques is concerned, the respective amounts being R$9,048,642 and R$8,058,771. Cuiaba, with a little over a quarter of the two metropolises’ population, represents the third largest amount of money in cleared cheques, at R$6,535,768.

As regards these three towns, the most important in the Amazon region, it is difficult to distinguish the contribution of national and international drug trafficking to their expansion. However, all three occupy strategic positions in relation to the main regional and international traffic corridors.

The Bank of Brazil, which is in charge of clearing-house operations for the entire country, is currently setting up clearing service centres (CESECs) in some banking sites. The choice of location for a CESEC obeys geographical criteria of subregional centrality, but mainly banking criteria to do with the volume of cheques cleared.

Rondonia State has two CESECs, of which one is in Porto Velho (the state capital) and the other in Cacoal, in the south-central part of the state. While the approximate population of Porto Velho is 250,000, the population of Cacoal is around 50,000. Cacoal’s CESEC clears cheques for 19 towns (8) (urban + rural population = 684,761). In 1995, the cheques’ total value was R$1,318,775,265 for a total federal tax collection of 42 million. Porto Velho’s CESEC covers six towns in addition to Porto Velho, including Humaitá (in Amazonas), Ariquemes, a major cassiterite mining centre and Guajará-mirim, now a free trade zone like its sister town, Guayara-mirim on the Bolivian border, an old transit point for the routing of Bolivian paste base. The total population of the area is approximately 500,000, over half of whom live in Porto Velho, the state capital. The total value of cleared cheques was R$2,678,255,697, a remarkably high figure for the sector covered by CESEC despite the large cattle ranches, the mining and the logging.

The figures from the CESECs of Porto Velho and Cacoal add up to a total of almost R$4 billion. In 1995, according to Central Bank data, the revenue of Rondonia State, derived mainly from federal government transactions (58.8 per cent) and the tax on the circulation of goods and services (ICMS), totalled R$534 million.

The cheque clearance data do not give us a full picture of movements of money in the Amazon region. As in the rest of the world, electronic transfer is the main channel for banking movement. From the data of EMBRATEL, which in April 1994 supplied an inventory of the points in the Amazon region connected by the DATASAT-BI satellite communication network service, it was possible to identify the towns directly linked to the rest of the country (Map C, Map D). This network service operates around the clock, so that the lease of this service is only justified when the data transmission movement offsets the higher price of the service. The banks are DATASAT-BI’s main clients and, as the maps show, most of the towns in the region are directly linked to Sao Paulo, the seat of the principal banks.

Map C

Map D

The existing connection lines also show the importance of some places like the small town of Tabatinga, site of an old eighteenth-century fortress owing to its strategic position on the Solimtes River (between Colombia and Peru), and which now has about 20,000 inhabitants. Being much smaller and poorer than its neighbour, Leticia in Colombia, Tabatinga has only two banks that handled cheques totalling R$2,330,609 and still maintains a direct satellite link with Sao Paolo. It is to be noted that Tabatinga’s transformation into a free trade zone failed to materialize as a result of competition from Leticia.

More suggestive than conclusive, the observations in this paper are merely a first step in investigation of the role of the Amazon region in the South American drug economy. Our research is thus aimed at contributing to various lines of inquiry being conducted under the MOST project on ‘The economic and social transformations connected with drug trafficking’.

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Santos, M. (1966). A natureza do espaço, Sao Paulo, Hucitec.

Thrift, N. and Leyshon, A. (1994). ‘A phantom state? The de-traditionalization of money, the international financial system and international financial centres’, Political Geography 13(4): 299-327.

1. Department of Geography, UFRJ. CNPq/FINEP researcher. Those participating in the research include Murilo Cardoso de Castro (SIG) and fellowship-holders Rebeca Steiman, Paula Liaffa da Silva and Eduardo Souto.

2. Some of these transactions are effected with companies’ secret funds, which increases the volume of capital fleeing instability and/or Brazilian currency devaluation. A 1991 International Monetary Fund study compared official data provided by the authorities in 33 world financial centres and concluded that non-residents of Brazilian origin, banks not included, had held approximately $17.4 billion in deposits abroad at the end of 1990 (against $9.7 billion in 1985). See also the interview given by the jurist L.O. Baptista in the review VEJA, 26/8/1992.

3. Norbert Lechner suggests that one of today’s most noteworthy features is the extension of the market to non-economic sectors: ‘Los nuevos perfiles de la política. Un bosquejo’, in Drogas, sociedad y estado, Nueva Sociedad 130:32-43, 1994.

4. Of the short-term capital invested in the Brazilian stock exchange in 1995, 43 per cent came from Central America (i.e. tax havens), 33 per cent from North America, 21 per cent from Europe, 2 per cent from Asia and Oceania, and 1 per cent from South America (CVM, 1996).

5. A term coined by G.Dupuy (1991). Following Raffestin’s suggestion that place is where individuals or organizations reason their action towards other places, Dupuy introduces the notion of transactional projects as the ultimate source of networks: the will of individuals or organizations to connect with other places, that is, other actors, by way of active or virtual/imagined connections thus incorporating other places into one’s territory.

6. This applies to the road (for the most part surfaced) which runs from the Chilean port of Iquique, crosses the Andes at Oruro and Cochabamba and, from Santa Cruz de la Sierra in Bolivia, branches off in the directions of Cáceres and Corumba in Brazil, Assunçao in Paraguay and Tucumán in Argentina. Santa Cruz, still considered recently one of the main centres of the coca-cocaine complex, is now an expanding ‘frontier’ of soya cultivation. The link with the other ports on the Pacific has prompted the immigration of Brazilian farmers, with the organization of enterprises, thereby helping to change the profile of the department of Santa Cruz and the use of the road (Source: fieldwork and the VEJA review, 12/4/1995).

7. According to Federal Police data, 44.25 per cent of all cocaine seized in 1995 was in the west-central region (Mato Grosso, southern Mato Grosso and Goias), 34.19 per cent in the south-eastern region (San Paulo, Rio de Janeiro, Minas Gerais and Espirito Santo), and 6.65 per cent in the northern region (Acre, Amapá, Amazonas, Pará, Tocantins, Rondonia, Roraima).

8. Cacoal, Western Ouro Preto, Western Alvorada, Western Alta Floresta, Cerejeiras, Western Colorado, Vilhena, Ji-Parana, Rolim de Moura, Jaru, Pimenta Bueno, Pres. Medici, Western Espigao, Western S. Luzia, Costa Marques, Cabixi, Urupa, Mirante da Serra and Western Nova Brasilandia.

    About the author
Lia Osório Machado, a Brazilian geographer, holds a Ph.D. in geography from the University of Barcelona (1989) and does research and teaching at the Federal University of Rio de Janeiro (UFRJ). Her recent publications deal notably with land-use planning in Amazonia and expansion of the illicit drug trade. She currently belongs to the MOST network on The Economic and Social Transformations connected with Drug Trafficking (E-mail: Liamach@igeo.ufrj.br).

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