How much does organized crime cost Latin America?

Latin America almost certainly pays the highest economic price in the world for organized crime. According to the Inter-American Development Bank (IDB), crime costs Latin America and the Caribbean an average of 3,44% of GDP annually, equivalent to 78% of total public spending on education in the region. However, there are significant differences among Latin American and Caribbean countries. Brazil, Colombia, and Mexico stand out in particular, both in terms of the scale of the problem and the way organized crime operates.

First, a caveat is necessary. This analysis only includes economic costs - lost investment, lost productivity, and slower economic growth. It does not attempt to calculate the human cost of lost lives, displaced communities, and shattered families, not because these losses are not important, but because any attempt to quantify them would be inadequate and utterly trivializing. The figures that follow represent only a fraction of the actual damage.

For more than 40 years, Colombia has been held back by criminal networks built around a single illicit commodity: cocaine. Colombia's cocaine "industry" has practically become an export sector of sorts - and it's doing better than ever. According to one study, the cocaine trade alone brought in an estimated $16,5 billion for criminal organizations in 2024 - roughly 4,4% of GDP and more than the country earns from oil exports.

When added to the broader costs of crime and violence - estimated by the IDB and Fedesarrollo at 3,6% of GDP in 2022 - the negative impact on economic growth becomes even more pronounced. Colombia has been facing decades of armed conflict involving far-right paramilitaries, far-left guerrilla organizations and criminal cartels, with the drug industry playing a key role.

The government fought the Revolutionary Armed Forces of Colombia (FARC) for more than half a century before a peace agreement was reached in 2016. One study estimated that ending the armed conflict, which lasted from 1988 to 2009, could increase the average annual rate of economic growth by as much as 4,4 percentage points.

The 2016 agreement with the FARC has not brought the expected economic benefits of ending the conflict. The criminal economy that the agreement was supposed to dismantle has continued to flourish, with coca cultivation reaching a record 230.000 hectares in 2023. Where coca cultivation has increased rapidly, killings, forced displacement and attacks by armed groups have quickly followed.

The damage then spills over to the level of individual businesses: research into Colombian companies has shown that kidnappings targeting individual firms lead managers to cut back on investment for years afterward, as fear becomes a tax on business. Meanwhile, Colombian criminal groups have expanded their activities to include extortion and illegal mining - major obstacles to economic growth in Mexico and Brazil, respectively.

In Mexico, criminal organizations often levy an illegal tax - euphemistically called the derecho de piso ("right to do business fee") - on small and medium-sized businesses simply for doing business. As such fees are levied at almost every link in the distribution chain, prices gradually rise: a lime that leaves the farm at 13 pesos ($0,76) per kilogram can reach the consumer at a price of as much as 85 pesos. Unlike the cocaine revenue in Colombia, which at least brings foreign exchange into the economy, Mexican extortion is a net loss.

Estimates suggest that extortion costs Mexico about 2% of GDP annually. Similarly, the OECD’s chief economist for Mexico estimates that crime reduces annual growth in Mexican GDP by 1 to 2 percentage points. This helps explain why economic growth remains stubbornly weak, despite generally sound macroeconomic fundamentals. The situation is further exacerbated by the administration of US President Donald Trump, who is now treating Mexican cartels as a trade and security issue. Threats of tariffs, sanctions and the tacit threat of unilateral military intervention are increasing uncertainty and undermining investor confidence.

In Brazil, organized crime is increasingly acting as a sophisticated financial actor, and less as a predator seeking to control territory. Criminal organizations such as the First Commando of the Capital (PCC) and the Red Command (CV) have long since expanded their activities beyond drug trafficking to include fuel distribution, mining, real estate, and investment funds. The recent police operation "Hidden Carbon" (Operação Carbono Oculto) uncovered a scheme in which more than 1.000 gas stations and shell companies were used to launder illicit money through the formal financial system.

Interestingly, the number of homicides in Brazil fell by about a fifth between 2013 and 2023, while the economic cost of organized crime continued to rise - indicating the increasing professionalization and financialization of criminal groups. The Igarape Institute estimated that in 2025 the total value of organized crime would be 10,24% of GDP, or about 1,3 trillion reais ($250 billion). If Brazil were to reduce its crime rate to the world average, the IMF estimates that its GDP could grow 0,5 percentage points faster per year.

The prevalence of organized crime is becoming an increasingly important political issue in all three countries. In Colombia, Abelardo de la Esprijela has just won one of the most uncertain presidential elections in the country's recent history, promising to dismantle the criminal economy. He has the mandate to do so, but his position is very weak, having won by a narrow majority.

In Brazil, Luiz Inácio Lula da Silva has largely avoided public security issues during his current presidency, even as Rio de Janeiro police carried out a major crackdown on the CV and the US designated the PCC and CV as terrorist organisations. Now Lula’s opponent in the October election, Flavio Bolsonaro, is seeking to exploit that weakness and present himself as a law and order candidate. Although Lula has since signed his own 11 billion reais ($1.1 billion) anti-crime package – and he remains ahead in most polls – it is an area he would prefer to avoid fighting.

The stakes are high for Mexican President Claudia Sheinbaum. There is mounting evidence that organized crime has not only infiltrated her ruling coalition but also helped finance it, damaging her reputation ahead of midterm elections in 2027. This has led to increased pressure from the United States, which in April indicted ten Mexican officials for colluding with cartels. The government responded with a constitutional amendment that allows for the annulment of elections due to “foreign interference,” giving critics additional grounds for attack. More recently, the United States revoked the visa of former President Andrés Manuel López Obrador’s son, Andy, in a sign of a significant increase in American pressure that now extends to the inner circle of government.

Even when we exclude the lives lost, communities displaced, and families shattered, the economic cost of organized crime paints a grim picture: in the hardest-hit countries, it reduces annual GDP growth by 0,5 to 2 percentage points. As a result, these countries' economies are, over two decades, about 15 to 30 percent smaller than they would otherwise be. And this economic damage comes at a high human cost.

The author is a former Mexican Minister of Finance and Governor of the Bank of Mexico; he is a member of the G30 leadership, responsible for finance.

Copyright: Project Syndicate, 2026.