Political Risks Worsening Drug Related Violence There is constant fighting among the Mexico’s various drug cartels to establish supremacy, which has led to an increase in the number of murders over the last few years. The cartels have attacked the government and each other, demonstrating vicious acts of violence such as hanging victims from bridges, dumping bodies in piles and displaying severed heads on stakes (Trotta & Hughes, 2012). These displays generally seek to establish pre-eminence in their area of operation and influence. Drug related violence has spread from cities along the U.S. border to Monterrey and various other regions around the country. Gunmen have increased attacks on public officials and armored car sales are spiraling. Many cartels are cross-border criminal organizations also involved in kidnapping, extortion, cargo robbery, smuggling, and piracy (Marketline, 2012). Moreover, drug trafficking and other criminal activities launder billions of dollars into the Mexican economy through a fine network of bankers and business figures. With many cartels branching into other crimes, the problem has compounded, expanding into US territory. For instance, North Carolina-based Wachovia Wells Fargo Bank recently had to pay USD160 million to settle federal investigations on allegations of laundering Mexican drug money (Marketline, 2012).
Table 1 Mexican Drug Cartels Main Areas of Influence, 2010-2011

Source: Nieto, 2012

Mexico’s Industrial Chambers Federation informed that the cost of insecurity in Mexico reached 7% of the country’s GDP, the equivalent of 9,640 pesos per person (El Universo, 2010). An

estimate of lost money due to the fight against drug traffic and crime in general represents 154 billion pesos (El Universo, 2010). This aspect presents Mexico’s most important political risk, as recently elected president Enrique Pena Nieto (PRI) took office in December 2012 and his transitional policy remains ambiguous. In this sense, it is possible to expect a continuation of geographical dispersion of organized crime and related violence. This may include large groups breaking into cells as well as minor independent groups developing in previously peaceful areas and embracing violence and perceived wealth. Former president Felipe Calderon launched an assault on drug cartels soon after taking office in late 2006, resulting in more than 55,000 people killed since (Trotta & Hughes, 2012). Government Institutions & Corruption Government institutions are considered moderately strong and there are reasonable issues of corruption. Surveys have revealed that the population identifies the police and justice systems as having worse corruption and inefficiency problems (World Saavy Monitor, 2009) than other public agencies. Nonetheless, an institution that ranks highly in public opinion polls for its effectiveness is the military, perhaps suggesting little faith in civilian government to protect the public. According to a 2007 poll, 33% of respondents stated that they had been or had a relative who had been party to a corrupt act. This shows some progress over the average score for 2002-2005, which was 54% (World Saavy Monitor, 2009). Transparency International placed Mexico 16th among the 26 Latin American and Caribbean countries on the 176-nation Index. In the overall index, Mexico is ranked 105th (Transparency International, 2012). Interventionism & Reforms As previously mentioned, Enrique Pena Nieto of the PRI (Institutional Revolution Party) won the presidential elections held in July 2012, with 40% of the vote, about 6.5% ahead of his nearest rival (Standard & Poor’s, 2012), leftist Andres Manuel Lopez Obrador. The result was enough to restore the party that governed Mexico from 1929 to 2000, but the PRI failed to obtain congressional majority.

According to analysts, Pena Nieto will have to forge a pact with the PAN (National Action Party), the PRD (Democratic Revolution Party) and other smaller parties to pass key reforms to help improve business competition, public education and fiscal responsibility. Nonetheless, there is a great deal of skepticism concerning the scope and viability of the proposed reforms. This is particularly true for reforms that would involve limiting large vested interests with ties to the PRI, such as labor unions and large monopolies. The PRI’s decision to eliminate measures demanding increased transparency and accountability from labor unions during the recently concluded congressional labor reform talks may be an indicator that it remains entangled with the country’s largest vested interests. If the PRI is unable to address these issues, the president’s proposed reforms would merely scratch the surface of the problems they are trying to fix (Schtulmann, 2012). In other words, weak reforms may very well further delay economic growth at a critical time for Mexico to improve its position in the global economy.