The Economic Cost of Violence: Reducing It to the Poverty Rate average Latin America's GDP would increase by half a point

report SRA 2024 / [PDF version]

Only Bermuda, Chile and Cuba are below the world average in homicide rates per 100,000 inhabitants; the worst figure is that of Jamaica, according to the United Nations.

° Homicides have decreased in Brazil since 2017 and in El Salvador since 2019, but increased in 2021 in Colombia and since then especially in Ecuador.

Although the perception of insecurity has diminished in some places, violence has become the main issue of political disruption, as corruption once was.

Latin America would be richer if it had less violence. The International Monetary Fund (IMF) estimates that if the region's homicide rate were to fall to average worldwide, its Economics It could increase by half a point more annually (and almost one point in the case of the countries most affected by violence, such as Central America, in recent decades). The Inter-American Bank of Agriculture and Human Services (IAB) development (IDB) determined that violence costs the region a expense equivalent to 3.5% of GDP.

The data published in 2023 by the United Nations Office on Drugs and Crime (UNODC) maintain Latin America and the Caribbean as the most violent region on the planet, where nearly half of intentional homicides are committed, when only 8% of the world's population lives there. This overall reality is not altered even when there are variations in different countries: for example, there has been a decrease in homicides in Brazil since 2017 and in El Salvador since 2019, while in 2021 they increased in Colombia and especially in Ecuador, whose homicide rate has doubled since then every year (this trend was already highlighted in our edition last year: SRA 2023).

The UNODC attributes the increased violence in Latin America, compared to other regions of the world, to the density of the ecosystem of organized crime groups. It establishes that there are three risk factors that are particularly decisive in the persistence of the problem: the maintenance of drug manufacturing at very high levels (especially cocaine, but there is also production of heroin and marijuana, as in Mexico and Paraguay, respectively); the proliferation and fragmentation of heavily armed criminal groups, and the increased use of firearms.

Some surveys record a relative improvement in individual perception. Thus, Gallup's Law & Order Index places sub-Saharan Africa as the region with the greatest sense of insecurity, surpassing Latin America in recent years. However, it should be noted that this is a subjective measurement, because together with parallel correlations (this is the case of the increase in crime in Ecuador and Chile, which have become the fifth and sixth countries in the world, respectively, where more citizens consider it unsafe to walk alone at night), the index also shows an improvement in perception in places with high levels of perception. fees (as in Venezuela and Mexico, countries that are still very unsafe).

From the public point of view, however, insecurity has become the main issue of political disruption at the regional level (in countries with high violence it already was), coming to the forefront of social discussion and replacing corruption, probably the big issue of the political discussion of the last decade or decade and average. The fight of Nayib Bukele's government in El Salvador against the maras has contributed to highlight this topicality.

Beyond the objective crime data , the public's perception of it and the articulation of Public discourse in this regard, there is also an economic aspect. However, there are few references to the economic impact of the phenomenon in the region, possibly because of the difficulty of calculating it. Some programs of study have approached it from a national perspective (for example, applied to the armed conflict in Colombia) and others have attempted to systematize it in an international context, more linked to war than to crime per se. The IMF has just contributed its own estimate.

Economic Measurement

Most Latin American and Caribbean countries have a homicide rate per 100,000 inhabitants much higher than the average worldwide, which is 5. Only Bermuda, Chile and Cuba are below, while the country with the highest rate is Jamaica (53.3), according to UNODC. At this extreme has also been El Salvador, whose rate has fallen sharply, and Venezuela, which no longer offers figures.

The IMF believes that, if the distance between the region's crime levels and the average Its global Gross Domestic Product (GDP) would also do so proportionally: with a reduction in the difference by 20%, GDP could grow by 0.05 percentage points; at 50%, it would grow by 0.1 points; At 100%, matching the global average, the increase could be as high as 0.5 points (and even 0.8 in the case of countries with the most violence).

The negative impact of criminality on the Economics it is mainly due to a reduction in capital accumulation and in the growth of total factor productivity (TFP, which is considered the main contributor to economic growth); Homicides do not have a significant impact on the participation of the labour force.

Governments in the region devote a significant portion of expense to security. Thus, a 1% increase in the homicide rate leads governments to increase expense in subject security by 0.2% of GDP. Following the IMF's accounts, a 1% increase in the homicide rate implies a rise in public expense on law and order items of 0.2% of GDP, while more public expense on security may be needed to prevent additional crimes. "This suggests that more effective crime-fighting practices could free up important resources for other expensepriorities," which in turn could further spur economic growth, "generating labor market opportunities to reduce crime levels in the region," says report.

expense

Apart from the economic impact of the increase or decrease in the homicide rate, it can be said that the problem of citizen insecurity represents for Latin American countries a expense that can reach 3.5% of GDP. This is mentioned in the latest IMF regionalreport , which specifies that Jamaica is the country that in the period 2016-2019 allocated the most funds to this chapter (over 3.5% of GDP), followed by El Salvador (close to 3% of GDP).

This is a similar calculation to that already made by the IDB in 2017, which also pointed to a cost of 3.5%, including the affectation both on victims and on companies and public coffers, expanding a previous report from 2015.

Of agreement with the IDB, the expense It would consist of the following three components:

–The social cost of crime, which includes the costs of victimization in terms of the loss of quality of life due to homicides and other violent crimes and the lost income of the prison population: 0.64% of GDP.

–The expense private security by businesses and households, which includes the expense of businesses and households in the prevention of crime, i.e. the expense in security services: 1.37% of GDP.

–The expense public, which includes the expense in the judicial system, police services and prison administration: 1.51% of GDP.