By William Schomberg

LONDON (Reuters) - Guatemala is considering the possibility of earning taxes from the sale of opium poppies to help fund drug prevention programmes and other social spending, the country's interior minister said on Wednesday.

The Central American state is looking at ways to legalize poppy and marijuana production, part of a broader shift in attitudes across Latin America away from the huge financial and social costs of the U.S.-backed war on drugs.

"That is one idea that has been raised," said Mauricio Lopez Bonilla, a retired lieutenant colonel who served with Guatemala's special forces, when asked if the government would tax the sale of poppies if it opted to allow their cultivation for medical purposes.

"That option would mean raising taxes, fundamental resources for prevention, resources that could be used by the Guatemalan state for social development," he told Reuters in an interview.

Almost all of Guatemala's poppy production is concentrated in three municipalities located close to the border with Mexico and has been funded traditionally by Mexican drug gangs.

Lopez Bonilla said poppy cultivation was so widespread in those areas that a state clamp-down was hard to execute.

"If we followed the letter of the law, we would have to send the inhabitants of three municipalities to prison and that is impossible," he said, adding that eradication programmes destroy only around 10 percent of crops each year.

Lopez Bonilla was in Britain to take part in a conference on rethinking anti-drug policies at the London School of Economics.

Earlier this week, a group of Nobel-prize winning economists, a former U.S. secretary of state, the deputy prime minister of Britain and others called for a radical rethink of the war on drugs alongside an LSE report.

Guatemala, which sits on a major transit route for cocaine heading for the United States, is one of the most violent countries in the Americas and has suffered from incursions by violent Mexican drug cartels.

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Guatemalan President Otto Perez proposed drug legalization after taking office in 2012 to curb the power of organized crime groups and spare the country's scarce public finances.

"We think that there is not enough awareness that we are immersed in fighting a problem that is not ours, and in which we have to spend our own resources which could be focused on health and education, not on fighting drugs," Lopez Bonilla said.

As well as possibly legalizing production of poppies and marijuana, Guatemala might de-penalize low-level drug offences and offer an amnesty to people convicted of small-scale possession and sale of drugs, he said.

But he stressed Guatemala would not take a completely hands-off approach.

"We're not talking about the legalization of the drugs trade, of production or the use of drugs," the minister said. "We are talking about changes to a system that over the last 40 years has proven to be inefficient."

Other countries in Latin America have begun to turn away from U.S-led attempts to stamp out drugs through prohibition.

Uruguay's parliament in December allowed the cultivation, sale and smoking of marijuana. Colombia's president has called for a debate on alternatives to the war on drugs ahead of a United Nations drug policy summit in 2016

Lopez Bonilla said the initial U.S. reaction to Guatemala's plans to legalize drugs had been critical but since then the country had managed to explain its ideas better, and noted that voters in the U.S. states of Colorado and Washington have backed legalizing the possession and use of recreational marijuana.

(Reporting by William Schomberg; Editing by Kieran Murray)