Market Scene : Emerald Lords Versus Squatters: Round 2 : In a brutal corner of Colombia, plans for a commodity market threaten to reignite the war for control of fabulous mines.

Four years ago, rival villages waged a brutal war here in Colombia’s emerald zone for control of the world’s largest mines. Enemies bombed each other out of their homes, butchered each other in cafes and dropped each other from planes. An estimated 3,500 people--5% of the local population--were killed.

Then peace broke out. The exhausted, decimated towns buried their comrades and signed an accord.

“We met in the local priest’s house, talked, shook hands and embraced,” recalled Luis Murcia, a local emerald lord who lost a brother and two cousins in the fighting. “The next day thousands of people poured into the streets to celebrate, sing, dance and drink.”

Now a proposal to revolutionize the emerald trade threatens to renew the violence. The handful of emerald lords who control much of the trade are backing the creation of the world’s first commodity market, or bourse, for emeralds. They say it will bring prosperity and peace to the region; opponents say the market would allow the giant operators to corner the international trade, with no incentive to better the lives of impoverished miners who slog through knee-deep mud in search of the green gems.

“We want to bring the price of emeralds close to that of diamonds” for the benefit of the vast majority of miners, said Murcia, a squat, stocky man wearing a large emerald heart that dangled from a golden chain at the neck of his flowered shirt.

With a pistol in his holster, and backed by a small band of swaggering, heavily armed youths, Murcia enforces order over the mud streets and tin shacks of Cosquez, one of the mining villages at the center of the last emerald war. He is now in business with his former rivals, and they are enthusiastic supporters of the commodity exchange as a way to legitimize their sometimes clandestine, often brutal business.

The exchange would be housed at a $50-million, four-building facility in Bogota and would create a legal system for emerald commerce. Currently, the few men who dominate emerald production conduct most of their sales on the black market to avoid paying taxes and to maximize profits.

Colombia’s zone is the world’s No. 1 producer of top-quality emeralds, experts here say. It also produces miners whose savagery rivals that of this country’s more notorious drug traffickers and guerrillas. “The more you legalize the whole chain of the emerald trade, the less violent the zone will become,” said Foreign Trade Secretary Juan Manuel Santos Calderon, who backs the project.

Supporters here say that the market, scheduled to begin operations late this year or next year, will revolutionize a semi-clandestine business. They describe an ultramodern facility with an advanced communications system, a helicopter shuttle from Bogota’s El Dorado airport and vaults brimming with emeralds for sale at the site or through branch offices in New York, Tokyo and London.

But many in the emerald trade are wary. In an irony that has not been lost here, one of Murcia’s partners in the project and its key promoter is Victor Carranza, 58, a billionaire whose forces fought Murcia’s brother, Carlos, in the last emerald war.

Carlos Murcia, killed during that struggle, had allied himself with the Medellin drug cartel in its bid to take over the emerald zone as a paramilitary base--and as a source of gems that could be used in laundering drug money.

Carranza raised a private army of Uzi-wielding peasants and became a local hero by defeating the Medellin traffickers. He has been linked by prosecutors to right-wing paramilitary groups and the rival Cali drug cartel and was investigated in 1989 for the murders of 80 activists of the left-wing Patriotic Union movement. He has insisted he is innocent.

Some emerald traders now fear that the alliance among Carranza, Murcia and other once-irreconcilable foes will allow the emerald lords to monopolize the world market. They point to the tens of thousands of dollars that it will cost to participate in the exchange--a fee within reach of the emerald lords, but way beyond the means of most others.

“The emerald bourse is going to end up as a monopoly for those who administer it,” said one emerald salesman, who predicted a surge of violence if 30,000 emerald workers are left out in the cold.

Colombia’s government tried to gain control over the mayhem of the emerald zone by nationalizing the mines in 1946, but it could not overcome emerald armies determined to hang on to what is today a $1-billion-a-year business.

Since the state retreated in 1973, pulling the police and army out of the zone, thousands have died in internecine wars for control of the so-called green gold. The emerald lords, with their private mining concessions and private armies, now run the territory. They administer justice at the point of a gun. Most people in the area live in wretched poverty while bare-chested teen-agers, pistols tucked into their jeans, wander the region, intimidating people.

The zone is a caldron of violence. “There are still many blood vendettas, family disputes and fights for honor,” said Javier Guerrero, a sociologist who has written on the problems of Colombian violence.

Last summer, an explosion caused by gases in the mining tunnels of Cosquez killed 11 prospectors. The local emerald company and the government responded by prohibiting all informal mining, effectively putting out of work tens of thousands of landless peasants and poor urban laborers.

The emerald lords argue that the bourse will improve the lives of miners and bring lasting peace by creating an emerald cartel that will drive up prices for all producers, from the most humble to the bosses themselves.

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They seek to have all of Colombia’s emeralds sold through the exchange and are trying to persuade Zambia, reputed to be the world’s second-largest producer, to sell its emeralds there too. While production figures in the gem industry are treated with unusual secrecy, Bogota’s bourse might thus gain control over the sale of most of the world’s emerald production, determining supply,demand and price. Local producers, according to this scenario, would earn money that was unimaginable before. The emerald zone would be pacified with profit.

But in Quipama, outside the gates of Carranza’s Teciminas mines, one of the world’s largest, the poverty of thousands of prospectors raises doubts that such a revolution will be engineered.

Here at these mines, thousands stand knee-deep in a filthy, jet-black river digging for emeralds, unaware of the transformation about to hit their business. Some are small children, coated in mud and bent over heavy mining shovels. Some are illiterate women and old men, who have thrown away low-paying jobs to search for a miracle. Nearly all of them live in abject poverty, just out of sight of Carranza’s small army of 400 heavily armed security guards.

On the slopes above Carranza’s mines stands a field of wood and concrete shacks perched precariously on stilts. “Don’t forget,” said an emerald merchant standing nearby, “to ask why the vast majority of people here live in misery while the wealth ends up in the hands of one man.”