By Hugh Bronstein

BOGOTA, April 3 (Reuters) - Colombia's second-biggest rebel army has moved from kidnapping to drug smuggling as its main source of money, and time is running out for it to agree to a cease-fire, the country's peace negotiator said.

The government has been in preliminary talks with the left-wing National Liberation Army, or ELN, for more than a year.

The 5,000-member guerrilla group has long been seen as Colombia's most ideologically-driven rebel force, in part thanks to its traditional reluctance to get involved in the country's multibillion-dollar cocaine trade.

But that has changed, said Luis Carlos Restrepo, the government's peace commissioner.

"For the first time, we are seeing evidence that drug trafficking is a bigger source of financing for the ELN than kidnapping," Restrepo told Reuters in an interview on Tuesday.

The ELN was organized in 1964 by radical students and Catholic priests inspired by Fidel Castro's Cuban revolution.

It is known in this Andean country for bombing energy installations, kidnapping for ransom and planting land mines that are often detonated by poor farmers and their families.

Colombia will open a six-week round of talks with the ELN in Cuba on April 12 aimed at clinching an initial cease-fire agreement to set the stage for the group's disbandment.

"If we cannot get a cease-fire agreement in the next set of meetings, I believe the process will lose credibility and go into permanent crisis," Restrepo said. "It would really be difficult to continue."

ELN negotiator Francisco Galan told Telesur television on Monday that there were "difficulties" in the talks but that a cease-fire deal was close.

Colombia's biggest rebel force, the 17,000-member Revolutionary Armed Forces of Colombia, or FARC, has rejected President Alvaro Uribe's conditions for starting negotiations.

FARC leaders are wanted in the United States for drug smuggling.

Both the FARC and ELN say they are fighting for land reforms to narrow the wide gap that separates rich and poor. But even left-wing Colombian politicians say the groups have almost no popular support.

Thousands are killed in the guerrilla war every year.

Restrepo said the government, with help from foreign donors, will finance the demobilization of the ELN once it agrees to cease hostilities.

He disagreed with critics who say that to pay ELN members for their promise to stop bombing and kidnapping would be tantamount to paying protection money.

More than 31,000 right-wing paramilitaries have surrendered over the last three years in exchange for benefits including monthly stipends, job training and reduced prison terms.

"When an armed group abandons its illegal activities, the state and the international community need to immediately begin a process of helping the members of that group financially," Restrepo said

"This is the way it worked with the paramilitary demobilization and other peace processes around the world," he added. "But only on the condition that the group quits violence."

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