Pyramid Schemes in Colombia

January 6, 2009

by Anastasia Moloney

In Colombia, everyone seems to know someone who has been affected by the recent collapse of bogus pyramid investment schemes. An estimated 4 million Colombians, from the political elite, members of the armed forces, to small businessmen and the poor invested in pyramid scams. Some have lost their life savings.

The biggest pyramid company, DMG Group Holdings, boosted high-profile investors, including local celebrities and offered its customers too-good-to-be-true interest rates of up to 200 percent. The government eventually closed down DMG in November, sparking widespread protests among investors who looted its offices in a desperate attempt to withdraw their savings. Local mayors, taken by surprise, issued curfews to stem civil unrest.

So far, the Colombian economy has weathered the global recession relatively well in comparison to other countries in the region, such as Argentina and Mexico. But the collapse of dozens of pyramid schemes has led to the country’s very own financial crisis. Local councils who invested in pyramid companies have seen their budgets shrink overnight and social projects put on hold.

In the past, President Uribe has been able to masterfully distance himself from the deluge of scandals that have confronted his government during his six years in power, from the so-called “para-politics” affair, which links lawmakers to illegal right-wing paramilitary groups, to human-rights abuses committed by the military.

But this scandal is different. The majority of DMG victims say the President is to blame. They say he failed to take action earlier and close down rogue pyramid companies. Journalists and judicial officials raised the alarm about pyramid schemes mushrooming across the country and their alleged links with drug money laundering two years ago. The affair has led many to question the Uribe government’s competence and attention to financial oversight, and revealed long-running tensions between the President and attorney general’s office.

During the height of protests in early November, in an unprecedented move, Uribe gave two television addresses within a week. In a rare admission of failure, he acknowledged that the government had not acted in time and tried to reassure investors that they would be compensated for their losses, estimated to be around $1billion. How this is possible, though, is unclear.

The DMG scandal appears to have brought irrecoverable damage to Uribe’s standing and continues to bring ramifications. David Murcia, the 28-year-old mastermind behind DMG, cultivated a cult-like following and promised the poor he would lift them out of poverty. He is now in jail and is starting to inform on politicians and state officials, who he alleges accepted bribes that allowed his multi-million dollar empire to flourish in Colombia and Panama.

The political fallout for Uribe is already apparent. Uribe has consistently basked in high approval ratings (around 70 percent) throughout his tenure, but recent opinion polls show his popularity slipping to around 50 percent. The Uribe coalition, which has been pushing for constitutional reform that would allow the president to run for a third consecutive term, is fracturing. Confidence in the Uribe government is waning and the DMG affair is playing a role in damaging Uribe’s prospects, should he decide to run, for re-election in 2010.

The DMG affair has also renewed the age-old debate about the lack of access to the country’s banking system among the poor and small businesses, who are deterred by low interest rates and extortionate fees charged by local banks.

The scandal has also led to soul searching among Colombians about the country’s so-called ‘get rich quick’ culture stemming from its cocaine trade. One office cleaner told me: “Just because I’m poor it doesn’t mean I’m gullible. I can’t believe so many people allowed themselves to be tricked and thought they would get rich.” However, the collapse of a pyramid investment scheme in Albania in 1997 that triggered anarchy shows that it’s not just a Colombian problem.

Rather than the release of FARC hostages and the government’s military victories over the guerrillas, for many Colombians, 2008 will be remembered for the DMG affair that rocked the Uribe government and left thousands of poor even poorer.

*Anastasia Moloney is a contributing blogger to americasquarterly.org. She is a freelance journalist based in Bogotá, Colombia.

Tags:: Colombia, Uribe

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