The Complex Relationship Between Organized Crime and Economic Development in Latin America and the Caribbean

A recent report by the World Bank shines a critical light on the nexus between organized crime and economic development in Latin America and the Caribbean. The study outlines the cyclical impact of poverty and crime, showing how deeply entrenched issues impede progress and exacerbate the region’s ongoing struggles.

Economic Prognosis: A Bleak Outlook

The World Bank’s latest Latin America and the Caribbean Economic Review (LACER) anticipates that the region will experience the slowest economic growth globally over the next two years, projecting an increase of only 2.1% in 2025 and 2.4% in 2026. These figures are disheartening, particularly in the context of prevailing persistent poverty and dwindling international aid, which are significant barriers to recovery.

Organized Crime as a Catalyst for Economic Decline

The report establishes organized crime as a formidable force aggravating economic challenges. It describes four primary mechanisms through which criminal organizations devastate development:

1. Market Monopolization: Criminal groups often control both licit and illicit markets within their territories, stifling competition and failing to provide adequate economic opportunities.

2. Criminal Governance: By substituting state functions, these groups impose taxation on basic services, further burdening already struggling communities.

3. Extortion of Legal Businesses: Local enterprises face additional financial strain from extortion attempts, leading to increased costs that can drive them out of business.

4. State Capture: Organized crime infiltrates state institutions, manipulating political actors and corrupting governance processes. This erosion of public trust is further amplified by the state’s inability to provide basic services effectively.

Violence: A Disturbing Reality

The violence linked to organized crime in Latin America and the Caribbean far exceeds that seen in other regions. Between 2000 and 2009, the region’s victimization rate was three times higher than the global average, while average homicide rates were a staggering 5.4 times higher. Alarmingly, this figure surged to eight times higher in the subsequent decade. Such statistics reveal an “excess” level of violence, suggesting that the brutality of criminal actors in this region is notably disproportionate.

William Maloney, Chief Economist for Latin America and the Caribbean at the World Bank, pointedly asked why organized crime is both prevalent and lethally more violent in this part of the world. This inquiry delves into systemic issues, notably poverty and inequality, which provide fertile ground for criminal enterprises to flourish.

The Economic Toll: A Heavy Price to Pay

Beyond the immediate repercussions of violence, the economic ramifications are severe. The Inter-American Development Bank (IDB) recently highlighted that crime and violence cost the region approximately 3.5% of its GDP. For instance, this loss translates to an estimated $76 billion for Brazil and nearly $63 billion for Mexico in 2023. The International Monetary Fund (IMF) has also reported that a 10% rise in homicide rates can lead to a 4% decrease in local economic activity at the municipal level. This illustrates a direct correlation between increased violence and diminished economic productivity.

The Cycle of Poverty and Insecurity

The World Bank’s insights reveal a troubling cycle: organized crime thrives in economically depressed environments, and in turn, this criminality perpetuates poverty and instability. The COVID-19 pandemic exacerbated this situation, leading to what the United Nations Economic Commission for Latin America and the Caribbean described as the most severe contraction in economic activity in the region’s history. The chaos provided fertile ground for criminal organizations, particularly in areas where governance was already weak.

Case Studies: Haiti and Venezuela

Two poignant examples of this destructive cycle are Haiti and Venezuela.

In Haiti, gangs like 400 Mawozo wield considerable power, controlling 85% of the capital, Port-au-Prince. The country’s spiraling political and social unrest following the assassination of President Jovenel Moïse in 2021 has allowed gang violence to flourish. As the nation faces profound shortages of basic goods, it is forecast to enter recession by 2025, marking a significant decline in its already fragile economy.

Conversely, Venezuela showcases a different but equally dire trajectory. With hyperinflation and recession following the collapse of oil prices, the Maduro regime’s corruption and patronage networks weakened, causing many to turn to organized crime for survival. Groups such as paramilitary colectivos and Colombia’s National Liberation Army (ELN) now collaborate with state actors, effectively creating a criminal hybrid state that threatens both governance and social order.

External Factors: A Thorny Landscape

Compounding these internal issues, recent cuts in overseas development assistance by the United States and other nations, along with tariffs introduced by the Trump administration, have only added uncertainty to the region’s economic landscape. As international support wanes, organized crime may prosper anew, entrenching Latin America and the Caribbean further within this vicious cycle of crime and poverty.

The multifaceted relationship between organized crime and economic development in Latin America and the Caribbean presents a complex challenge that requires a nuanced understanding of underlying issues. Empowering communities, rebuilding trust in governance, and fostering economic opportunities are essential steps in breaking this cycle and paving a sustainable path forward.