What makes a life fall apart at its seams? What can be done to fix what has broken? Such questions are at the heart of this compelling, beautifully translated novel set in Colombia in the turbulent era of the notorious drug lord Pablo Escobar. Law graduate Antonio chronicles how, in his 20s, his life crumbled after he was caught in a vicious attack.

Repressed memories surface when Antonio, now fast approaching 40, reads about the hunting down of a hippo that has escaped from Escobar's zoo in the Magdalena valley. He remembers the enigmatic ex-pilot Ricardo Laverde lamenting how badly the animals in the zoo were treated. His memory of Ricardo, whom he met in a Bogotá billiard hall, becomes an "ever-present ghost". In a brutal incident, Ricardo was shot dead on a street corner; Antonio was lucky to survive. His obsession with understanding what happened takes him on a journey into Colombia's war-torn past.

The novel elucidates with great acuity the complex relationship between memory and trauma, the "benefits or possible penalties" of revisiting the past, a theme powerfully explored in Vásquez's previous work, The Secret History of Costaguana and The Informers. Antonio begins what he calls "the damaging exercise of remembering", which he believes serves to "hinder our normal functioning" yet can paradoxically also be healing.

Antonio's "auditory memory" is filled with falling: a rain of bullets; planes blown up in mid-air; assassinated human bodies; tears. Antonio begins crying while delivering a lecture (he confesses a "terrible awareness of my vulnerability"). The sound of running water hides his pregnant lover's tears. In this hugely affecting novel, it is the silent suffering that haunts the most.

The engrossing plot shows how one person's downfall can trigger a domino effect of destruction. Tracing the "subterranean currents" that shape our lives, Vásquez details the damage caused by the drug trade spreading to those with no direct involvement, hurt seeping into the future. Antonio learns that experience is "not the inventory of our pains, but rather the learned sympathy towards the pain of others". Vásquez holds his tightly crafted narrative together with admirable stylistic control as he shows a world falling apart and the redemptive powers of love and language to rebuild it.

Colombians have a term for a genre of fiction that is not picaresque, as in Don Quixote, but "sicaresque", after the ubiquitous literary figure of the sicario, or hired killer for drug cartels. Among novels in this tradition  whose protagonists tend to die young  are Fernando Vallejo's Our Lady of the Assassins (1994) and Jorge Franco's Rosario Tijeras (1999).

Juan Gabriel Vásquez has chosen a more oblique path to take stock of the effects of 40 years of drug trafficking on his country. When I interviewed him two years ago, he was planning a novel that would "show how the drug trade affects somebody not involved in it; somebody who  like me  has never seen a gramme of coke in his life". The Sound of Things Falling, which won Spain's Alfaguara prize last year, focuses on the bewilderment and fear of a society corrupted and taken over by stealth. It confirms Vásquez's mastery of a sophisticated form of Latin American literary noir that leads the reader through Borgesian labyrinths. In navigating them, with guiding lights ranging from Conrad to Le Carré, his fiction also reveals the role of outsiders in a violent history.

The novel begins with news in 2009 of the fatal shooting of a hippo the "colour of black pearls". The exotic animal had escaped from the private zoo owned by Pablo Escobar, the cartel kingpin shot dead on a Medellín rooftop 16 years earlier. For the narrator, Antonio Yammara, a Bogotá law lecturer pushing 40, the dead hippo is like an absurdist madeleine, triggering memories of the mid-1990s, when the country was emerging from an open war between cartels and the state.

Yammara's glancing encounter with the underworld comes through Ricardo Laverde, a shadowy acquaintance from billiard halls in La Candelaria, the capital's cobbled quarter. A laconic self-professed "pilot of things that need piloting", Laverde has emerged from almost 20 years in jail only to be killed in a drive-by motorbike shooting, in which the lawyer was also injured. In a return to the thriller form of Vásquez's superb The Informers (2004), the novel loops back to the 1930s, when Laverde's grandfather was a flying-ace veteran of the war with Peru, and the 1960s, when Laverde's "gringa" wife-to-be Elaine arrived with the US Peace Corps.

Through the sinister Mike Barbiero, a Chicago dropout and Peace Corps volunteer "affable to the point of impertinence", the novel traces the tutelary role of a generation of American adventurers  some fleeing the Vietnam war  in a marijuana business built after Richard Nixon closed the Mexican border in 1969 to an "invasion of weed". Ironically sent to "leave their mark", Peace Corps Americans were a source of instruction on how to grow the best leaves or convert coca paste into bricks of powder. A family story entailing ivory-coloured Jeeps and tennis-bags full of dollars is deftly linked to such milestones as Nixon's first use of the term "war on drugs" in 1971.

As Yammara struggles with post-traumatic stress after his "accident" (a medic tells him that "the libido is the first to go"), his marriage to a former student wobbles. His growing connection with Laverde's daughter Maya, a seductive bee-keeping recluse, suggests the bond shared by peers who grew up in fear in the 1980s and early 90s, a time of assassinations and terrorist bombings. Only one incident, involving a pet armadillo, stretches credulity in what is a heartfelt account of the trauma suffered by a generation.

The novel's epigraph is from the lost airman Antoine de Saint-Exupéry, and images of flight and fall resonate in a supple translation by Anne McLean, twice winner of the Independent Foreign Fiction prize. Through one memorable scene, a daredevil pilot's fatal miscalculation becomes a metaphor for the high stakes of the drug trade. For Laverde's grandfather, "planes were like Greek gods, always putting people in their place and never tolerating men's arrogance". Yet if those tempted by unimaginable wealth share Icarus's hubris, theirs is also a tragic fall. For Laverde, "a person's happy until they fuck it up somehow, and there's no way to get back to what you used to be."

Although characters make flawed choices, the novel also hints at how little control they have, their lives "moulded by distant events, by other people's wills". Vásquez offers no polemic. Yet as debates on the legalisation of drugs remain weighted towards suffering in consumer countries, this novel affords a rare understanding of the inhuman costs on the other side.

 Maya Jaggi is chair of the 2012 Man Asian Literary prize.