LA MACARENA, Colombia — In this farm town once ruled by drug-running rebels, Mayor Eliecer Vargas wants to pave the dirt roads, install water pipes and build parks. He wants to convince people that the government is on their side.

But hardly anyone living in and around La Macarena holds legal title to their land. As a result, they pay no property taxes, rendering the town hall nearly bankrupt.

“We should be taking in about 200 million pesos [about $100,000] per year,” Vargas said. “But there’s no way to collect.”

Here in the southern plains of Colombia where coca — the raw material for cocaine — has long been the main cash crop, the lack of land titles is more than just a tax concern: It’s a national security issue.

That’s because Colombia’s farm economy runs on credit. Coca growers trying to switch from drugs to legal crops can’t buy seeds, fertilizer or machinery because they lack the land titles required to secure bank loans.

Many peasants have lived on their land for decades yet have the legal status of squatters. This legal limbo makes it easier for drug traffickers — who are quick to provide start-up money — to convince them to grow coca and for guerrillas to recruit their sons and daughters into the war.

“People here are in a state of transition and are only now beginning to have confidence in the state,” said Eunice Ramirez, the government’s human rights advocate in La Macarena, a town that was formally turned over to the guerrillas during three years of peace talks that ended in failure in 2002. “But these bandits are still very influential.”

Part of the problem is government bureaucracy.

Whether registering a business, signing up employees for social security or selling a car, doing things the legal way in Colombia and elsewhere in Latin America, can turn into expensive, nightmarish, 50-step operations.

Peruvian economist Hernando de Soto has pointed out that a well-established system of property rights helped turn the United States and other Western nations into prosperous capitalist societies. In developing countries, he says, the great masses of poor people actually sit atop billions of dollars in assets but are unable to leverage this wealth because of their informal status.

“The existing legal system in the Third World conspires against them,” De Soto said in a recent PBS documentary.

Not only do land titles help raise property values, but they formalize the social contract between the state and its citizens — no small thing in areas like La Macarena where guerrillas and drug traffickers have long held sway.

For the past two years, La Macarena and nearby towns have been the focus of a two-year-old “consolidation plan” that has brought together troops, drug warriors and aid agencies in an effort to drive out the rebels, undermine the cocaine trade and bolster the legal economy.

Alvaro Balcazar, who manages the program, fears that the security patrols, new schools and crop substitution programs may fall short unless local peasants are brought into the legal system.

“Land titling is what’s going to make the difference in whether or not we can consolidate security and the rule of law,” he said.

Yet over the past two years, Balcazar admits that he doesn’t know of a single case in which a small land-holder has been awarded title to his land. And although plots can be bought and sold with informal documents, these papers are of no use when applying for loans.

Peasant farmers are not alone in their frustration. Despite his political connections, Vargas, the mayor of La Macarena, has been unable to secure title to his land — a 250-acre cattle ranch he inherited from his father.

“I’ve struggled for 15 years and have yet to achieve this dream,” Vargas said as he sat behind the desk of his Spartan office just off the town’s main square.

In addition, efforts to build health clinics and roads and to put up cell phone antennas to connect rural communities to the outside world often run aground amid uncertainties over who owns the land.

“It’s a vicious circle in which the lack of land titles blocks development,” Balcazar said.

Even the Colombian army has become embroiled in disputes with La Macarena residents over a military base built on the edge of town on land of disputed ownership.

Guillermo Giraldo grows mangoes, guavas and avocados on nine acres next door to the base. He’s just the kind of law-abiding small producer the Colombian government would like to see flourish.

But without title to his land, Giraldo has no chance for bank loans to upgrade his farm. Now, after five years of struggling, Giraldo points to the weeds taking over his fields and admits that he’s thinking of selling out.