draining development.pdf - Khazar University

162 Draining Development?and overinvoicing exports, and fake labor remittances have been important.Rocha (1997) finds that illegal flows hidden in the current account ofthe balance of payments show that the value of underinvoiced imports andoverinvoiced exports, plus Central Bank foreign exchange purchases offake labor and other remittances, averaged about US$1 billion a year. 25Given that various estimates place the total value of annual illegal drugrevenue brought from abroad in the 1990s at between US$2 billion andUS$5 billion, it is clear that the latter methods were important. 26Physical contraband has been another important method for bringingdrug money into the country. As noted above, contraband is sociallyacceptable for many Colombians. Every city has a San Andresito, a shoppingcenter where contraband is known to be sold openly, mixed with similarlegal imports. 27 Computers and other electronic equipment are favoriteillegal imports. These and other bulky items with empty space in the interior,such as household appliances, are also used to bring U.S. dollars intothe country. Many of these items are imported legally.In the 1990s, cigarettes were a principal means of laundering drugmoney. The international tobacco industry was at least an implicit accomplicein this process. Both British Tobacco and Philip Morris exportedhuge amounts of cigarettes to Aruba, Curaçao, Margarita Island, Panama,and other Caribbean locations, from which the cigarettes were smuggledinto Colombia. At almost any traffic light, one could find someone sellingcigarettes. The case of Aruba is remarkable in this respect, as its cigaretteimports were equal to 25 percent of the island’s national income (Steiner1997). For many years, the Philip Morris advertising budget in Colombiaexceeded the value of official Philip Morris cigarette exports to Colombia.The official Philip Morris response to Colombian officials who questionedthese advertising expenditures was simply that they were trying toincrease their market share even though they had over 70 percent of themarket already. 28 When these facts became known, there was a public outcrythat led to negotiations between the government and the tobaccocompanies to suppress this contraband (Thoumi 2003). Several local governmentssued the tobacco companies for tax evasion, and, in a June 2009agreement, Philip Morris agreed to pay US$200 million without acknowledgingany wrongdoing or accepting any liability. Cigarette smugglingwas a case in which there was simultaneous capital inflow and outflow.The tobacco companies were selling their products in Curaçao, a free