(above) Workers break up a concrete layer in a building under construction on November 26, 2011 in south La Paz. Construction in Bolivia recorded an unusual growth as the result of an economic boom, the lack of options of productive investment and even due to resources from illegal activities--like smuggling and drugs. Photograph by: Aizar Raldes, AFP/Getty Images

Drug money shows in Bolivia housing boom
December 13, 2011 - Montreal Gazette (AFP)

LA PAZ — The skyline of Bolivia's Andean capital is being transformed by construction, reflecting general economic growth but also a less savory fact — an influx of cocaine money to one of South America's poorest nations.

The mountainous view from La Paz, nestled in a valley 3,600 meters above sea level, is gradually vanishing behind new apartment blocks, a trend seen in other cities such as Santa Cruz, Cochabamba, Sucre and Tarija.

Cement sales grew 12 per cent in 2008 and 13 per cent in 2009, according to industry figures, while construction has increased 10 per cent per year on average, double the country's growth rate.

"It comes from exports, helped by the spectacular price of raw materials," as well as remittances from Bolivians living abroad and favorable credit, according to economist Alberto Bonadana, of the University of San Andres.

The "exports" include minerals and hydrocarbons, but also cocaine, of which Bolivia has emerged as the world's third largest producer, with the area under cultivation increasing by 31,000 hectares per year.

"In countries with a lot of drug trafficking, one of the methods for laundering dollars is real-estate," said economist Napoleon Pacheco, of the Fundacion Milenio think-tank.

"It is possible that this factor is affecting the current boom."

There are no studies conclusively linking the real-estate expansion to drug smuggling, but the last major surge in construction, in the 1980s, also coincided with a peak in drug activity.

"For every eight dollars of legal exports, there is a dollar that is illegal," said Bonadana.

The UN Office on Drugs and Crime (UNODC) estimates that between 500 and 750 million dollars of drug money is laundered through the country each year, accounting for three to five per cent of the Bolivian economy.

The housing boom in La Paz in part reflects the city's topography, as the valley walls channel growth upward. In the eastern residential neighborhood Miraflores, houses have been razed in favor of five-story complexes.

City figures indicate that 70 per cent of La Paz's 200,000 properties have been built without permission, often on fragile soil, and around 1,500 homes were destroyed in February landslides.

Alvaro Cortez, of the Miraflores residents' association, pointed to a home he says has sunk five to six centimeters (more than two inches).

"This is what happens to the majority of homes that have the misfortune of being next to buildings under construction," he said.

City officials also worry that the speed of growth is outpacing any increase in the level of services for the population.

The new construction "requires the expansion of basic services, including transport. But given the topography of La Paz this is extremely complicated," said architect Javier Crespo, a consultant for the city.

"We are limited in the extension of the urban fabric," he added.

Bonadana, the economist, echoes those fears, saying a "housing bubble" is emerging that could eventually pop, leading many Bolivians into a new era of falling prices and deepening debt.