The rising cost of crime

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Sep 12th 2008
From the Economist Intelligence Unit ViewsWire

Worsening crime is weighing heavily on Mexico's government


Mexico’s security crisis is weighing heavily on the government of President Felipe Calderón, as the incidence of crime and violent deaths continues to rise, and Mexicans nationwide have begun to protest for more effective government action. The authorities are also acknowledging that beyond the social impact, insecurity and violence carry a heavy economic cost. Politically, too, the crime wave is damaging: it is translating into lower approval ratings for the president, and could cost the governing party dearly in 2009 mid-term elections.

Besides common street crime, the number of kidnappings in the country has grown rapidly, jumping by almost 40% between 2005 and 2007, according to official statistics. And this does not reflect the many abductions that are believed to go unreported. Particular attention recently was focused on the problem with the June kidnapping of Fernando Martí, the 14-year-old son of a prominent businessman, and the discovery of his body in the truck of a car on August 1st. This triggered an outpouring of outrage and a massive march on August 30th in Mexico City, the capital, and 54 cities around the country. Civil society is increasingly demanding an end to impunity and more effectiveness on the part of the authorities in confronting the security situation.

In total, there have been some 3,000 killings so far this year, most related to the drug trade. Recently these included the assassination of an entire extended family, including children, and the discovery of 12 decapitated bodies in Yucatán state.

In the aftermath of the nationwide demonstrations, federal police early in September made a series of high-profile arrests of drug bosses in Tabasco state, and also found and detained five people, including the leader, linked to the kidnapping gang that allegedly abducted and murdered the businessman’s son. However, because the ringleader is a former police investigator, the arrest served to highlight the extent to which Mexico’s own police and security forces are believed to be involved in criminal activities.

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Indeed, among those detained in the sweep in Tabasco were a regional inspector from the federal police, the head of the state police, and the police chief and five commanders in the town of Cárdenas, all accused of being on the payroll of the so-called Gulf cartel. The attorney-general’s office says that some 200 officials in Tabasco have been receiving bribes from drug bosses and from a related paramilitary group, the Zetas.

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Military and other efforts
Such arrests highlight how entrenched the drug trade and drug-related corruption are in Mexico, and how tough will be the challenge to change the status quo. After taking office in December 2006, Mr Calderón did what no president had done before: he launched an aggressive military campaign against organised crime, mobilising some 45,000 federal troops and police officers in a number of cities around the country. Though the initiative was widely applauded, the situation has not yet improved. This is the result of years of neglect and lack of government commitment to a law-and-order agenda, but also of the military campaign’s disruption of the drug cartels’ operations, which has triggered a turf war among rival groups, as well as retaliation against the security forces.

The lack of professional and honest law-enforcement agencies will prove particularly difficult to address. The administration has created elite police forces whose members are being more carefully vetted and trained. In addition, the secretary of public safety, Genaro García Luna, has told Congress that 44,000 federal, state and local policemen have been evaluated in an effort to root out corrupt officers. However, the effort to upgrade and modernise police forces, and rid them of corruption, will need to be a long-term one.

The involvement of civic organisations could help to some extent. After the August 30th street marches, the government and the protest organisers met and agreed to form a Citizen’s Institute for the Prevention of Crime, which will evaluate the effectiveness of government anti-crime measures.

Government spending on crime prevention and the justice system will also rise. In the budget for 2009 submitted to Congress in early September, the government is proposing a total increase of 30% in security-related expenditures. This includes 50% more for the Ministry of Public Security, 25% more for the Justice Ministry, 20% more for Defence and 13% more for the Navy.

In addition, political and security leaders have announced a 74-point emergency plan focused on sacking corrupt police, giving security forces more potent weapons, building new prisons and better addressing money-laundering and drug-trafficking. However, such measures, reflecting old promises, are not likely to have any great immediate impact, given the extent of the challenges and the institutional weaknesses not only in the security forces but also in the judiciary.

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Political fallout
In the meantime, the lack of tangible improvements on the security front is hurting Mr Calderón’s approval ratings. The president’s authority going forward will be partly dependent on his ability to achieve improvements in this area. Voters could well turn away from the governing Partido Acción Nacional (PAN) in July 2009 mid-term elections, causing it significant losses in the lower house of Congress.

Violence is also having an economic impact, damaging business and investment, and forcing the government to spend expanding amounts of money on security. The secretary of the treasury, Augustín Carstens, recently stated that crime and violence cost Mexico one percentage point of GDP growth each year, the result of loss sales, jobs and investment. Crime increases business costs by 5-10% a year, he said.

Crime also shifts some attention away from other government priorities. These include Mr Calderón’s proposed energy-sector reforms, which are being debated in the Senate at present. While the security and energy agendas are not strictly related, any weakening of the administration’s political standing because of the crime issue can embolden the opposition to resist its other initiatives. Indeed, opposition parties in Congress have been flexing their muscles by negotiating changes to Mr Calderón’s energy proposals.

Finally, the security crisis compounds other economic worries afflicting the Calderón administration. The government is contending with the same kind of challenges as others in the Latin American region, stemming from the US downturn and high global fuel and food prices. Mexico’s inflation rate hit a five-year high of 5.6% in August, exceeding the upper limit of the central bank's 2-4% target range for a sixth successive month. The high cost of food, beverages and tobacco (the largest component within the consumer price index) has been driving the increase; prices for this component rose by 8.9% year on year in August.

Economic growth is decelerating, largely because of reduced demand in the US market. Mexico’s finance secretary has issued a revised growth forecast for 2008 of 2.8%, down from an earlier forecast of 3.7%, after the economy grew by 2.8% in the second quarter. The Economist Intelligence Unit expects GDP growth to expand by 2.3% in 2008, but we now project a sharp slowdown to 1.6% in 2009, in line with downward revisions to our US forecast

Despite Mr Calderón's best intentions, if his support levels deteriorate because of the growing problem of security and a slowing economy, especially in 2009, the government's ability to advance its legislative programme, and hold on to its congressional seats in the mid-term elections, will both be significantly weakened.