PERSPECTIVE ON LATIN AMERICA : Strike Now While Coca Is Hurting : Bush’s Latin trade plan is admirable and thrifty. But it fails to address the drug issue, even though the time is right for economic cures.

The Bush initiative calling for hemispheric free trade took Latin America by surprise. That’s what good strategy is supposed to achieve. The initiative had excellent timing and even a vision--except that it forgot the war on drugs--offering as a common goal for the Americas a Hemisphere ruled by the voting booth and the marketplace.

Yet, if behind the initiative you perceive the brains of a statesman, you’ll also notice the heart of an accountant, as the resources committed to put it in motion couldn’t be faulted for lacking thriftiness. Not that one should expect to find George Marshall’s spirit inspiring George Bush’s White House. But President Bush has amazed millions of people--from the freedom-stricken masses of Warsaw, Prague and Budapest to the poverty- and violence-stricken masses of Bogota, Rio de Janeiro and Lima--by telling them how many lofty things he expects them to achieve with so little. What is even more surprising is that he not only gets away with it, but does so to the sound of applause.

Bush’s Latin American initiative announced at the end of June was widely welcomed because many Latin Americans feared, and many U.S. academics and politicians had announced, that in the new world order, Latin America would become increasingly irrelevant--a big geographic and demographic expanse left largely untouched by increasingly freer and more sophisticated trade, and by dynamic and highly prized investment capital.

President Bush had, it appears, a more objective vision. Latin America is bound to increase in importance for the United States in the near future, and the reciprocal is true.

Also, the issues that have simultaneous domestic and hemispheric significance--immigration, the environment--will probably increase in scope. They are what the Inter-American Dialogue’s Abraham P. Lowenthal has called,accurately if not poetically, the “intermestic” issues, both international and domestic. You have to credit Bush for understanding what perestrioka- bedazzled academics and politicians failed to see.

The Bush initiative did, however, fail to address the one “intermestic” area, the war on drugs, that is most in need of an innovative, better-designed approach.

Bush showed innovation, for instance, on the environmental front. The U.S. economic initiative recommended the creation of “environmental trusts” to be funded through interest payments on U.S. government loans, a low-cost form of the currently trendy “debt-for-nature” swap. The funds would finance environmental preservation programs in debtor countries.

But this positive reinforcement approach, which takes into account the economic dimension of the problem, has been and still is entirely lacking in the drug war, the one that should have been fought primarily in the marketplace.

Obviously, positive reinforcement policies are easier on the environmental front, where governments are essentially given incentives to keep things (the environment) as they are. In the case of the drug war, we are trying to change things into what they should be. A major undertaking indeed, considering that hundreds of thousands of people depend directly on the coca economy, and that the national economy of even a virtually bankrupt country such as Peru (where about 60% of the world’s illegal coca is cultivated) depends to a significant extent on the hard-currency income that cocaine exports bring.

But probably for the first time since the cocaine boom began in the 1970s, market conditions are adverse to illegal coca production.

Since August, 1989, coca leaf, cocaine paste and cocaine base prices in the source countries have stayed below the break-even point. In Peru’s Upper Huallaga Valley, the world’s most important coca production region, the price of one kilogram of coca leaf ranges now from 22 to 53 cents, down from $2.64 to $3.52 during the first seven months of 1989. The break-even price, according to both coca farmers and U.S. Embassy officials in Lima, is 65 cents per kilo. Cocaine paste prices range from $110 to $180 per kilo (from $450-$600 during the first half of last year.) And cocaine base prices go from $400 to $450 (from $1,000 to $1,300).

During the last few months, the Shining Path rebels made the mistake Marxist movements are bound to commit and tried to order producers not to sell below the prices it set, about 30% above the going rate. The Shining Path has failed so far to enforce its price, even with executions, which is at least an embarrassing loss of face for the guerrilla organization.

At the same time, with cocaine stockpiles apparently depleted, cocaine prices have begun to climb in the United States for the first time in many years.

This is certainly a transitory situation, but it is also a historical opportunity to really reduce coca supply through vigorous efforts to develop legal economic alternatives in the producing areas. Most of the well-organized Upper Huallaga coca producers are now more than willing to engage in legal alternative economic projects. They tried to get in touch with Bush during this year’s Cartagena summit, but were rejected out of hand by image-conscious drug warriors. They have also written letters, so far unanswered, to “Jorge” Bush.

So, to seize the opportunity: why not a strategy strongly centered on developing legal alternative economies in the cocaine-producing areas, using security forces only as an adjunct? Throw out the military-centered approach, which the U.S. government keeps pressuring the Andrean countries to adopt.

And as part of it, why not a debt-for-drugs swap? This could be used, for instance, to finance the Peruvian or Bolivian contributions in joint efforts with the United States and other cocaine- market countries to create viable legal economies in the coca-producing areas. Rural development experts estimate that the cost of developing an alternative legal economy in the Upper Huallaga would be about $1 billion over five years of which about $800 million would be in long-term, low-interest credit and about $200 million in straight economic assistance. This assumes, of course, that people in the area have the will to participate in such a program, which is now the case.

A debt-for-drugs program would give otherwise bankrupt economies a way to participate meaningfully in coca-economy substitution efforts. And the cost is modest when compared with the military resources now enlisted in the drug war. Which is something not only a statesman but even an accountant would approve.