How Much Does the Conflict Cost Colombia?

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March 12, 2001

How Much Does the Conflict Cost Colombia?

by Paula Andrea Rossiasco

The armed conflict affects many aspects of our lives. One of the most important consequences is the cost of the war endured by everyone because of the reduction in the nation's wealth. There are two economic costs resulting from the conflict: the direct cost and the indirect cost.

The direct cost is the money that the government and Colombians spend on the conflict, such as arms, security guards, security systems, etc. The indirect cost is the money that Colombia loses through a reduction in

foreign investment, job opportunities, the ransoms paid to kidnappers and extortionists, as well as the increased overhead that results from property damage and theft.

The direct cost of the violence to our country totals 11.4 percent of the Gross National Product (GNP), almost US$10 billion per year. The military expenditures of the army, guerrillas and paramilitaries, including weapons, mines, bombs, etc. amounts to five percent of GNP (US$4.3 billion), equal to the amount the government spends on education each year. The Colombian army's share of government spending totals 3.5 percent of GNP annually.

Colombians spend two percent of GNP (US$ 1.7 billion) on security. And the loss of human capital (premature death or physical incapacity) is equivalent to the amount the government spends on public health (five percent of GNP).

At US$10 billion per year, the indirect cost of the conflict is almost as much as the direct cost. The violence reduces investment and productivity by 4 percent of GNP (US$3.4 billion). The reduced opportunities to work and to consume goods equals 6.9 percent of GNP (US$5.9 billion) and the loss of goods through robbery, extortion and kidnapping equals 4.4 percent of GNP (US$3.8 billion).

The violence is largely responsible for the difficult economic situation we are currently enduring. Some 500,000 Colombians lost their jobs last year and there was a 65 percent drop in economic investment.

What does the future hold for Colombia's economy? There are four possibilities:

If the government does not achieve peace or find solutions to the country's economic problems, each Colombian family could lose US$20,000 over the next 10 years.
If the government achieves peace but does not solve the country's economic problems, each Colombian family could increase their wealth by US$8,500.
If the economy recovers but the government does not achieve peace, each Colombian family could increase their wealth by US$19,000.
If the government achieves peace and solves the country's economic woes, each Colombian family could increase their wealth by US$31,500.

Source: An economic survey by Juan Luis Londoño and Rodrigo Guerrero which was published in Coyuntura Social, March 2000.

Paula Andrea Rossiasco is currently a graduate student of economics at Santo Tomas University in Bogotá, Colombia.

This article originally appeared in Colombia Report, an online journal that was published by the Information Network of the Americas (INOTA).