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Key Political Risks to Watch in Mexico
email this pageprint this pageemail usRobin Emmott & Jason Lange - Reuters
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December 01, 2010

Mexico City - Mexico is struggling to pull out of a punishing recession as drugs war killings surge four years into a government crackdown on traffickers, worrying investors in Latin America's No. 2 economy.


President Felipe Calderon's war on drug cartels is failing to contain violence across Mexico four years after the conservative leader launched his fight against organized crime, first sending troops to his home state of Michoacan.

Despite some major successes, including the Nov. 5 killing of Gulf cartel leader Ezequiel "Tony Tormenta" Cardenas, a recent poll showed that 49 percent of Mexicans believe the drugs war is a failure and only 33 percent say it is a success.

Calderon's government has jailed hundreds of cartel henchmen, seized some 90,000 weapons, and captured major drug lords including Edgar "La Barbie" Valdez.

But investors and Mexican businesses are concerned that attacks - beheaded corpses strung up from bridges, women and children gunned down at parties - are smearing Mexico's reputation as a top emerging market for foreign investment and a leading destination for U.S. and European tourists.

Violence has spread from notoriously violent cities along the U.S. border to Monterrey, Mexico's business capital city, and across the country. Hitmen have stepped up attacks on public officials.

President Barack Obama reaffirmed U.S. support for Mexico's drug war last month but Secretary of State Hillary Clinton has compared Mexico to Colombia at the height of its fight against drug-smuggling rebels in the early 1990s.

Calderon, whose National Action Party, or PAN, may pay a price for the violence at the next presidential election in 2012, has so far been unable to end corruption in Mexico's police, courts and prisons.

The drugs war has not yet become a major drag on Mexico's peso or bond yields, but violence is becoming a real business concern. Some U.S. firms are rethinking investment plans in northern Mexico. Credit Suisse said in a September report that organized crime had become a threat to Mexico's economic recovery.

Finance Minister Ernesto Cordero has said that drug violence was affecting economic decision in some areas. Generally, he says, countries with crime problems can see 1.2 percentage points sliced off their annual growth.

What to watch:

Political assassinations or more attacks on civilians.

Foreign or local companies freezing investment plans.

Signs that violence is seriously damaging Calderon.

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