Tuesday 20 January
2009, San José, Costa
Rica
Ghost Economics Spook
Uribe’s Colombia
As Bogota’s Financial
Pyramids Crumble,
Uribe’s Face Turns Red
as Questions Remain
While the world focuses
on the next phase of its
financial crisis,
Colombia is finally
coming to terms with its
own home grown tale of
impunity, exuberance and
ineptitude.
Until
November 13th, the issue
of its myriad pyramid
schemes which, like so
many other of the
country’s problems can
be found in its troubled
history.
This is an issue which
had artfully evaded the
full attentions of the
country’s political and
media elites in spite of
its enormity. This
scenario changed
dramatically on the 13th
of November when the
offices of what seemed
to be an increasingly
popular “investment
business” known as DRFE
(Fast, Easy Money in
Cash) were suddenly
abandoned, with the
owners mysteriously
disappearing without
trace.
The company had
successfully encouraged
hordes of people to
invest their funds in
it, with the promise of
significant returns
within 6 months.
The
disappearance of the
owners confirmed what
growing numbers had long
suspected – the
“business” was little
more than a fraudulent
pyramid scheme, designed
to convince as many as
possible to part with
their money, which was
then spirited away,
leaving behind shattered
dreams and empty
accounts.
The anger felt by the
deceived investors was
only enhanced by the
presence of taunting
messages left outside
the abandoned offices,
mercilessly telling them
that “now, you stupid,
superstitious people,
will have to work twice
as hard just to recover
what you gave us”.
“Dios Mio Gracias”:
DMG´s Spectacular Rise
and Fall
The resulting protests
by the enraged victims
induced the Government
into finally confronting
this troubling elephant
in the room, the
notorious multi-million
dollar phantasmagoria
known as DMG.
It was
named after its
mercurial founder and
owner, 28-year old David
Murcia Guzman.
Unlike DRFE and many of the
country’s estimated 200
pyramid systems, DMG for
three years consistently
had been fulfilling its
promises of rapid
enrichment of its
clients, and in fact,
benefited hundreds of
thousands of
“investors.”
DMG
distributed prepaid
credit cards to
investors, with which
they could buy various
electronic-domestic
products and other
devices from selected
retailers. In a
remarkable twist on
traditional brand name
loyalty strategies, DMG
then offered a return of
150-300% on the original
investment within 6
months.
In DMG’s
commercial heartland in
the province of Putamayo,
up to 85% of its adult
residents invested their
savings in DMG, lifting
its devoted subscribers
out of poverty and
allowing many to move
away from coca
cultivation. Some
observers warned of the
dangers of the resultant
culture of idleness,
easy money, and a
recessive lifestyle but
the overwhelming feeling
within this neglected
sector of the population
was one of huge relief.
Now able to pay for
their education,
healthcare, and home
improvements, the people
came to express the
company’s initials as
“Dios Mio Gracias” (My
God Thank You).
The DMG Way
Within a short space of
time, DMG expanded from
Colombia’s south to its
active metropolitan
economic heartlands in
Bogota, Cali and
Medellin, while
simultaneously rising
from being an exclusive
attraction to the poor,
to becoming an
increasingly attractive,
if problematic,
alternative for the
country’s middle and
upper classes.
Despite
persistent doubts over
its legality, not to
mention its financial
sustainability, the
country’s political
establishment and
society at large
appeared almost
amorously hypnotized by
Guzman’s ostensibly
miraculous ability to do
the impossible: multiply
people’s often modest
savings to levels beyond
their wildest dreams.
The final collapse of DRFE, in addition to the
pressure from Colombia’s
orthodox financial
sector (who had been
nervously watching the
increasing amounts of
money being withdrawn
from bank accounts in
favor of investment in
DMG), prompted the
Government to seize
DMG’s offices, while at
the same time issuing
arrest warrants for its
managers. Guzman was
dramatically captured in
Panama on 18th November
and extradited to Bogota
within a matter of
hours.
Meanwhile, the
Government promised to
repay some of the
citizens’ investments in
exchange for turning in
the necessary documents
and handing back the
prepaid credit cards. It
opened up the Camping
football stadium in
order to expedite the
return of the tainted
funds to investors. Of
course, the actual
amount of funds found
sitting in DMG’s
immediate accounts
amounted to far less
than the amount owed to
investors, meaning that,
to date, it is far from
clear how many people
will get their full
deposits back, if at
all.
What Is Being Revealed?
These episodes,
reminiscent of the
magical realism
highlighted by Colombian
author Gabriel Garcia
Marquez, open up serious
questions concerning all
levels of Colombia’s
society.
In many ways, DMG can be seen as
maintaining a Colombian
tradition of extra-legal
“ghost economies,”
operating in an
atmosphere of legal
impunity, and apparently
defying conventional
laws of economics in
order to offer
unimaginable benefits to
otherwise neglected
sectors of society.
The
extent to which
significant amounts of
the population have kept
relying on ghost
economies as the primary
means of their economic
advancement belies a
reality far detached
from the Government’s
conventional discourse
on economic growth and
political stability
along with a populace
apparently immune to the
often outlandish
“populist” promises
handed out by
neighboring Venezuela
and Ecuador.
The
majority of investors in DMG were poor Colombians
who would not otherwise
have benefited from the
country’s high growth
rates in recent years,
making Guzman’s
invitations to join “the
DMG family” extremely
attractive. In contrast
to the venom now being
directed against DRFE,
average DMG investors at
first mobilized in
various cities to defend
the company from what
they saw as
discrimination against
the “poor people´s bank”
by the Government.
Protestors in Putamayo
virtually paralyzed the
province, targeting
banks and government
institutions, and even
talked about separating
from the Colombian state
in order to allow DMG to
keep operating.
Underneath questions
over why it was so easy
for DMG to build up such
a committed support base
lies doubts over the
nature of the
Government’s response to
the phenomenon. While
the authorities now
openly accuse DMG of
having links to drug
trafficking and money
laundering operations,
this does not explain
why the operation was
allowed to carry out its
activities in the open
for over 3 years.
One
potential answer to this
might rest in the
company’s usefulness in
satisfying sectors of
the population which
otherwise would not have
benefited from the high
economic growth
registered during
President Alvaro Uribe’s
tenure:- good for
statistics, good for
Uribe’s political
standing. In fact, the
sheer quantity of people
who benefited from DMG
and other pyramid
schemes raise questions
about the Government’s
claims to have reduced
poverty with its free
market policies.
Alternatively, the
Government’s inaction in
light of these massive
acts of fraud might be
ascribed to basic
cowardice – a clearly
justified fear that any
intervention would, and
ultimately did, lead to
concerted opposition to
the Government. However,
given Uribe’s highly
pro-active style of
Government (he is
self-gratifyingly known
for the refrain “iron
fist, big heart”), and
his willingness to
aggressively confront
“delinquents” such as
the country’s guerrilla
groups and drug
traffickers, his failure
to take any significant
action against DMG for
so long appears bizarre,
if not downright
strange.
Capturing the State
Perhaps the real answer
behind Guzman’s ability
to mesmerize the
authorities in Bogota
into over 3 years of
inaction lies in the
emerging revelations
about his influence in
the very elite circles
which now condemn him.
DMG went far beyond
simply operating in the
poorer sectors of
society, as could be
seen by the well dressed
businessmen queuing
outside the Camping
stadium in desperate
hope of recovering some
of their funds. Various
pillars of the
establishment had
invested money, or
maintained healthy
relations with the
enterprise, from high
profile politicians and
businessmen, down to the
celebrated soldiers who
rescued Ingrid
Betancourt and even the
President’s children.
By
employing high profile
lawyers and journalists,
as well as financing
regional politicians, DMG had managed to
penetrate the inner
circles of the
modernizing,
progressive, efficient
Colombia so often
portrayed by Uribe. It
is now known, moreover,
that Guzman ordered the
formation of a “lobby”
in Congress to guarantee
the legal protection of
DMG.
This was all part
of his strategy of
co-opting power from the
centre in order to allow
his enterprise to keep
functioning in impunity.
Such events draw
comparisons with the
ability of Colombia’s
drug traffickers to
wield significant
influence over Bogota’s
major political actors
since the 1980s.
Stupid People, Greedy
Banks, or Something More
Obvious?
Meanwhile, the debate as
to the roots of the
crisis has largely
divided into two
categories of critiques,
both of which are
somewhat lacking in
explanatory power.
For
those on the right,
wing, moralistic
explanations are used to
blame the DMG phenomenon
on a culture of “lazy,
ignorant” people, who
prefer to take a risk
than engage in hard
work.
The other
explanation, more common
among leftists, is to
blame the problem on the
restrictive nature of
Colombian banks. The
first theory is
essentially unrealistic
and contributes little
to the debate. How many
people in the world,
particularly those
living in poverty, would
resist the opportunity
to multiply their
savings? What right do
middle and upper class
people, many of whom
inherited their economic
and educational status,
have to lecture the poor
on “easy” money?
And
while most people could
sense that there must
have been something
illegal or immoral about DMG, it actually did
operate legally in
venues such as shopping
malls, as well as in
paying taxes; therefore,
it was logical to
conclude that it was no
more “immoral” than any
other aspect of the very
thoroughly corrupted
society found in
Colombia.
As for the
financial system, it is
indeed true that
Colombian banks are
generally restrictive in
terms of the
availability of credit,
particularly when it
comes to poorer sectors
of society, but to
conclude that the DMG
catastrophe never could
have occurred if the
banking system had been
more “progressive,” is
illogical.
A bank’s
function is not to only
multiply savings, and no
bank in the world could
possibly have competed
with what DMG was doing.
Moreover, in cases where
individuals did get
access to bank loans,
they often invested
those loans straight
into DMG (the same was
also true of many
recipients of social
services like Familias
en Accion).
There are only two
really clear policy
implications to draw
from the entire DMG
affair. The first is
that, as has been seen
in the United States,
deregulation of the
formal financial sector
invites recklessness,
and simultaneously
causes an accelerated
deregulation of the
informal and illegal
sectors.
Ironically, the
deregulation of the
financial system
demanded by the banks
worked against their own
interest by weakening
the regulating body that
likely could have
stopped DMG years
earlier. The other, more
profound implication, is
that DMG provides the
strongest proof yet of
the catastrophic failure
of Plan Colombia to
weaken the grip of
sordid illegal actors in
the margins of
Colombia’s economy and
society.
This thesis is
nothing new: It has been
known for years that
eradication of coca in
one area only causes a
“balloon effect” of
greater cultivation in
other areas. Despite
billions of dollars of
investment, the quantity
and quality of cocaine
arriving at North
American and European
airports has not
diminished, suggesting
that its production and
availability remains
stable. Given that it is
now widely accepted that DMG worked primarily by
laundering profits from
drug trafficking, we can
infer its spectacular
rise as good reason to
believe that Colombia
will never be free from
the economic and social
distortions of the drug
trade until there is a
radical rethinking of
cocaine prohibition.
Colombia´s Uncertain
Future
Regardless of such
implications, the
fallout from DMG and the
pulverized pyramids left
many Colombians waking
up on New Year’s Day
with a headache far
worse than that
typically associated
with excess aguardiente
on New Year’s Eve .
DMG’s rise and fall
revealed a face to
Colombia’s society that
had been proclaimed by
Government officials to
be a thing of the past,
and its demise leaves
behind a hard core of
citizens determined to
vote against a President
they previously had
adored.
Along with other
recent scandals such as
the authoritarian
treatment of indigenous
protests, revelations
about military
commanders ordering the
assassination of
civilians in order to
inflate statistics of
killed “enemy
combatants” the
reconstitution of
supposedly disbanded
paramilitaries as
“aguilas negras,” and an
increasingly uncertain
macro-economic outlook,
the fallout from the DMG
crisis, is enough to
leave the country facing
an increasingly
uncertain future, with
excuses and braggadocio
some of the few weapons
the government has at
hand |
|
|
|
|
|
