DRUG WAR / CURBING THE SUPPLY : Land Called Key to Legal Crops in Peru

The man who won respect for Peru’s squatters and street vendors now wants to apply his capitalist thinking to the nation’s coca-growing peasants--and in the process, get them out of the cocaine business.

Hernando de Soto, one of Latin America’s most renowned analysts of the problems of poverty, hopes to make property owners of up to 200,000 farmers now growing illegal coca. Giving them title to their land, he says, is the fundamental first step toward allowing them to join the market economy, obtain loans and switch to other crops.

De Soto’s idea has been endorsed, with reservations, by the U.S. Embassy, the coca growers’ cooperative and Peruvian President Alan Garcia. No one sees it as a simple solution to the coca problem, but virtually everyone agrees that anti-cocaine policies have failed so far.

Over the last two decades, peasant families have poured into the jungles on the eastern slopes of the Andes to grow coca, the source of cocaine. Most of them live in the Upper Huallaga Valley, where an estimated 60% of the world’s coca is grown.

“Seventy percent to 80% are small owners, with one to two acres of coca,” De Soto, 48, said recently. “To grow crops other than coca they need an economy of scale, to associate with other growers. But for that they need property rights. They can’t combine their resources unless they can contract their services. For that, they need to be legal.”

De Soto’s Institute for Freedom and Democracy in Lima has been acclaimed for its work in the 1980s studying and assisting Peru’s “informal sector”--the hawkers, squatters and drivers operating outside the formal economy.

The institute quickly became more than a think tank, evolving into a forum for legislative proposals. Its centerpiece is his program to legitimize the hundreds of thousands of squatters who have invaded Lima’s outskirts. A law to this end, drafted by his center, took effect in January.

Last year, De Soto, an ebullient, balding former businessman, began working with officials in neighboring Bolivia who wondered if his property idea also could help the rural squatters producing coca for the cocaine traffickers.

He said he can work out the mechanics of a property registration system for the Upper Huallaga in four months, and that in three years at most, the valley’s 200,000 or more households could be engaged in legal agriculture.

The idea of getting the growers to switch to legal crops had fallen out of fashion, given high profits in coca and the lack of incentives to plant other crops. Through the 1980s, drug-enforcement emphasis was on coca eradication, a program conducted by U.S.-funded Peruvian police.

Further, police repression of the growers served to drive them into an alliance with the Sendero Luminoso--Shining Path--a band of Maoist guerrillas whose insurgency has caused at least 18,000 deaths since 1980.

Last September, the Bush Administration shifted its anti-narcotics policy from destroying crops to attacking the traffickers. And it revived the notion of crop substitution.

De Soto argues that the Sendero Luminoso, which has developed networks of community committees in the valley, could be supplanted if residents had a stake in their region.

He has won an ally in the Upper Huallaga Agricultural Cooperative, an association of 1,500 coca growers.

The growers have proposed a voluntary substitution program--if the government will help offset their lost coca income by providing processing plants and better transport. Potential substitute crops include coffee, cacao and fruits.

Justo Silva, general manager of the cooperative, said De Soto’s plan is “a vital part of the entire concept” of crop substitution.

President Bush’s plan calls for $63 million in aid to Peru as part of the anti-narcotics program in the year starting Oct. 1, up from $3.1 million this year. Given the security problems caused by guerrillas and drug traffickers in the valley, the U.S. program will at first emphasize agricultural development elsewhere in the country, an embassy official said. The main goal is to help Peru increase its exports to offset coca revenues--roughly $800 million a year.