George Soros has thrown his support behind the president of Guatemala's efforts to end the war on drugs.

Soros, who is best know for leading a run on the pound in 1992 that forced the UK out of the European exchange rate mechanism, said at the World Economic Forum in Davos that world leaders had their best chance in at least two decades to rethink their approach to drugs.

"Drug policy has endangered political stability and security in many countries, and not just in Latin America," he said, citing Mali as one of several African countries to suffer.

Soros told a press conference that austerity was encouraging politicians, even in the US, to rethink the war on drugs. "Incarceration is hugely expensive … The cost of alternatives is smaller than the cost of incarceration," he said.

The billionaire philanthropist was speaking alongside the Guatemalan president, Pérez Molina, who announced that he would host a meeting of Latin American leaders to discuss the issue in June. The gathering will involve several groups including the Beckley Foundation and Soros's own organisation. "Prohibition, this war on drugs, has seen cartels grow and the results are not what we looked for," Molina said. "There is a new trend towards drugs now – not war, but a new perspective and a different way of dealing with the problem."

Molina is determined to use Davos to shift the focus of the drugs debate from morality to science. He told the Observer last week that drug money had penetrated Guatemala's judicial system and security forces, and that he favoured a regulatory approach to drugs, rather than the extremes of a full-blown war on drugs or a policy of liberalisation.

Yasmin Batliwala, chair of Westminster Drug Project, agreed that politicians must tackle the problem by helping users rather than punishing them. "Drug dependency should be seen as a health and social problem, not a crime. Offenders with drug dependency and mental illness should be sent into treatment rather than to prison," she said.

"It is time to take drug dependency out of law enforcement and into the health framework, where it belongs. The war on drugs has failed and it is clear that we need a new approach at both a national and a global level."

Soros admitted that he did not know what the best solution to the problem was. "The answer will only be found by trial and error," he said.

• This article was amended on 24 January 2013 because the original referred to the Berkeley Foundation where the Beckley Foundation was meant.