Speech by Chairman of the State Anti-Drug Committee of the Russian Federation, Director of the Russian Federal Drug Control Service V. Ivanov at the Davos World Economic Forum, January 26, 2012, Davos

http://fskn.gov.ru/includes/periodics/eventsmain/2012/0126/082817034/detail.shtml Settlement of the Problem of Afghan Drug Production will Allow to Cure Global Economy

Dear Chairman, Let me thank the Davos Forum organizers for the opportunity to deliver a speech to such a competent audience.   At the height of the first peak of the financial crisis in 2008 - 2009 deputy Secretary General of the UNO and Executive Director of the UNODC Antonio Costa said that about 352 billion narcodollars were injected into major world banks to avoid critical shortages of liquidity; later this money was used for interbank loans. Truly, according to documented investigations of criminal income laundry, major banks are critically dependent on dirty but liquid money from drug trade. Here it would be appropriate to mention a high-profile case of US Wachovia Bank which, according to official data only, pumped through its accounts $378 billion to exchange offices controlled by Mexican drug cartels (casas del cambio). Two more US banks were also suspected and fined: the American Express Bank and HSBC. What does it mean? First and foremost it means that drug money and its source – global drug trafficking – is not just donors of such scarce liquidity but, in fact, a vital and necessary segment of the whole monetary system and a component of the current financial crisis. Furthermore, it is this opportunity to permanently replenish such highly demanded liquidity, that is largely a driving force of the financial-economic and social order to continue drug production. The very existence of a global financial bubble is in its turn supported by the said opportunity for banks to attract liquid drug money. Actually the current economic system is being fertilized by sewage. And taking into account the fact that, according to commonly recognized assessments, including those made by UN experts, drug money annually accounts for a market of over $500 billion and that adverse after effects for real economy are twice or thrice higher than the said amount, total annual damage to global economy is $2 trillion: it is comparable to the GDP of such countries as France or the United Kingdom. The above makes it possible to affirm that drug money is a basis of the current financial system. It should be emphasized that global drug markets function according to the laws of a demand-driven market. Meanwhile drug demand, unlike legal market demand, is far from decline due to its integrated nature. The two components – a kind of drivers – of such demand are widely known biological demand of 200 million drug addicts and latent demand of financial institutions; financial demand, which is three times stronger than the biological one, is, like a giant collider, accelerating general demand for preservation and extended reproduction of drug markets. Thus, for instance, last year in Italy, according to the report by “SOS Impresa” business association, the mafia generated over 7 percent of the country’s GDP, or about EUR 100 billion of net profit. Therefore under conditions of the financial crisis, the Italian mafia acted as one of the largest financial institutions, while business crediting out of drug trade funds accounted for the most profitable part of financial operations of such groupings as Cosa Nostra (Sicilia), Camorra (Napoli) and Ndrangheta (Calabria). The Italian example is most exhaustive in terms that the whole existing global system is not just invalid but aimed at devastating the very foundation of national communities and of the humankind. The conclusion is evident: the world needs essentially new economy, which the Great Transformation as well as setting up new models of integrating nations, systems and technologies should be aimed at. What should form the basis of new economy? It should be a noneconomic principle of justice, going beyond pure economy toward political economy. Nowadays it is useful to reread Adam Smith, David Ricardo and Carl Marx, since one has to answer the question: where public wealth is originated from and to which extent it is really public, i.e. conforms to the interests of a majority of populations of our countries and humankind in general. Social stratification and inequality levels in the world convincingly prove that the arrangement of the existing global system is not involving generation of public wealth and positive added value, but is focused on targeted super profit made by up-market elites due to illiquid assets manipulation. Consequences are evident: the above is leading to damage to real economy and degradation of the population. Meanwhile the growing financial bubble and, consequently, lack of liquidity are heating the demand for services aimed at replenishing such liquidity via drug production; this can be defined as anti services and anti money in the global economy. The bubble’s impact, which is making the liquidity-starved financial system permissively absorb drug money, could account for a long-term phenomenon of large-scale heroin production in Afghanistan. $65 billion that the criminal world annually benefits from Afghan drug production, turn into losses of about $200 million a year for the global economy. In the meantime the society lost about one billion of young workers during the 10 years of the existence of this phenomenon, due to mortality from Afghan heroin. The above definitely proves that global economy is a kind of drug production hostage, and Afghanistan is in turn a hostage to sick global economy. So the question “How to deflate the financial bubble?” is to a great extent equal to the question “How to win a victory over global drug crime?” and, primarily, how to eliminate Afghan drug production. The key way to eradicate global drug production is to reformat the existing economy and to shift to the economy that excludes criminal money and provides reproduction of net liquid assets, i.e. to the economy of development where decisions are based on development projects and targeted long-term credits. An example of such an approach could be the Russian Plan of Eliminating Afghan Drug Production “Rainbow 2” presented two years ago to the Russia - NATO Council; its Clause 2 read: “Elaboration and Implementation of the Program of Afghan Economic Revival and Development via Infrastructural Development”. It is such resolute alternative Afghan development that can lead the whole world to the demolition of the global machine generating anti-value and to sustainable generation of added value in the interests of all humankind. What does it mean in practical terms? It means a buildup of the next generation infrastructures, not those with limited access, but intended for general use. In fact new global industrialization is required, where advanced technologies and infrastructures will be the main products and carriers of new public wealth. Here my point of view coincides with that of the Russian Prime Minister Vladimir Putin. Taking into account a tectonic nature of drug production impact on the global economy, I would propose to set up a working group to prepare a special report for the next World Economic Forum, involving leading experts of the UN, World Bank as well as other specialists in assessment of challenges to international economy from global drug production. Thank you for your attention.