According to the World Bank, violence is one of the principal risks to economic growth in Latin America, a finding that underscores organized crime’s potential to impact more than just security in the region.
A potential rise in already high levels of crime and homicide is one of four major risk factors that could negatively impact Latin American economies in the medium and long term, according to the World Bank’s January 2015 Global Economic Prospects report (pdf). The report stated that an increase in violence would discourage investment and slow the region’s economic growth.
South America, Central America, and the Caribbean already have homicide rates at least three times higher than the global average, according to United Nations statistics cited by the World Bank. At least 11 countries in Latin America and the Caribbean have murder rates above 10 per 100,000, the level the World Health Organization classifies as epidemic.
The World Bank also highlighted a reduction in commodity prices as another risk factor that could hurt Latin American economies, and identified Bolivia and Venezuela as the countries that would likely be most impacted if commodity prices drop significantly. Falling oil prices have already had devastating effects on Venezuela’s economy, and have contributed to the country’s increasingly unstable security situation.
InSight Crime Analysis
The World Bank’s report is a reminder of the impact criminal groups — as a principal driver of violence and crime in Latin America — can have not just on citizen security, but on the economy as well. Although some economic indicators such as foreign investment have previously appeared to be largely unaffected by high levels of violence in parts of the region, this could change if murder rates increase. Some businesses in northern Mexico have already migrated further south in order to escape drug war related violence near the US border.
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Criminal activity can also increase the cost of doing business in Latin America. The illegal tapping of oil pipelines by criminal organizations drains Mexico’s state-run oil company Pemex of $5 billion in profits each year, according to one estimate. Meanwhile, businesses are often the target of extortion, which serves as a major source of income for groups like the MS13 street gang in the Northern Triangle region (El Salvador, Honduras, and Guatemala), and forces companies to hire private security firms for protection.
Insecurity can also affect economic growth over the long term. High levels of violence and widespread political unrest have left Venezuela bereft of professionals, as the country’s middle class has sought refuge in neighboring Colombia, the United States, and Spain, among other countries.