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Mexico: corruption, cartels, vigilantes and reform


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In 2013, Mexico signed into law an important and controversial set of structural reforms, one of which opens the way for foreign companies to profit from Mexico’s oil holdings. An article in The Economist lauded Mexico’s reforms, and Forbes writer Jim O’Neill tipped Mexico as one of the countries set to follow hard on the heels of the BRICS.

But Mexico has also been in the headlines for another reason. Fed up of years of corruption and deadly violence, Mexicans have taken to the streets to fight the powerful drug cartels that run and often ruin their lives. To do this, they have formed “autodefensas” – vigilante self-defence groups.

'Autodefensa'. Phot: Esther Vargas, Creative CommonsThe autodefensas justify their actions by saying that government is doing nothing to protect them. To appease them, the government has had to move quickly, arresting the world’s biggest mafia boss El Chapo Guzmán in February and killing the messianic leader of the Knights Templar cartel.

The government failed to disarm the autodefensas and has tried to work with them instead, although the arrest of an autodefensa leader on murder charges last week suggests the state is moving against them again.

The situation harks back to 20 years ago, when President Salinas signed NAFTA, heralded as Mexico’s entrance into the First World, on the same day that the Zapatistas rose up in arms. Many analysts see the cartels’ battles with government and now with the autodefensas as the main obstacle in Mexico’s path to prosperity. They fear that prospective oil and gas investors will be put off by the security risks, however generous the energy reform is to them.

Keeping the wolves at bay

Whether the vigilantes are a threat to the energy reform or not, the energy reform may well end up giving the vigilantes still more to worry about. The cartels are only one of the many kinds of business that prey on Mexicans, and the wrong kind of energy reform could open the doors for still more predators. The right one, though, might offer a bridgehead into the predatory business environment where cartels have thrived. It might help to persuade ordinary Mexicans the government will protect them.

To begin with, countless “licit” businesses in Mexico, the US, and beyond are doing business with the cartels. Cartel henchmen patronise bars, clubs, restaurants, hotels, casinos, racetracks and malls, and many such businesses (along with agro-industry and real estate) are laundering cartel profits with government protection. Yet only a fraction have been prosecuted.

Agua Caliente racetrack & casino. Photo: WikimediaJorge Hank Rhon, former Tijuana mayor and one of Mexico’s richest men, long accused of hosting cartel members in his Grupo Caliente racetracks and laundering their money, was arrested in 2011 for illegal possession of 88 weapons, two of them linked to murders. He was released the following day. The Sinaloa weekly newspaper Ríodoce, one of the few provincial media that do more than report the body count, admits it is unable to report on the businesses that cartels partner with: that’s a line it dares not cross.

Sadly, the businesses that sponsor the autodefensas may be little better. Stung by accusations that they are funded by rival cartels, autodefensa leaders have replied that they are funded by ranchers and business owners whom they have “liberated” from paying cartels for protection. There are signs that the autodefensas’ backers include companies that offer “easy” credit to low-income households – arguably only marginally less rapacious than the cartels themselves.

Could the energy reform be a chance to set the standard for decent business? The Mexican Left has opposed the reform in the name of economic nationalism, but state-owned oil company PEMEX is massively corrupt and it is hard to see the status quo’s benefit for ordinary Mexicans.

The cartels are directly involved in the 1127% spike in illegal pipeline siphons since 2006 – but again, they are far from the only predators. In 2004 the son of a former first lady went on record to boast how he had obtained contracts for a service company, Oceanografía, which is now mired in a fraud suit involving Citigroup and accused of money laundering.

To some it will seem hopelessly naive, but the right regulatory framework might not only protect Mexicans from being cheated out of yet more oil; it could serve as a benchmark to which civil society could hold government in other sectors.

The alternatives are painful to contemplate. We know that some foreign investors are less than picky about partners; Chinese companies have been doing business with the Knights Templar, buying massive shipments of iron ore from mines controlled by the cartel and selling them the precursor chemicals for cocaine and crystal meth in return. In Africa, not only Chinese but also many European and US companies have been allowed to profit while nationals remain mired in poverty. And some warned that the energy reforms could set Mexico on the calamitous course taken by Yeltsin’s Russia, where it was Russia’s own oligarchs who reaped the rewards.

If Mexicans see their oil going the same way, how might they respond? The autodefensas movement, together with armed protests against mining and logging, are worrying signs that people are losing their patience in a country awash with guns.

One lesson Mexico must learn from other countries is that rushing reforms often leaves them botched or tainted. The president will want to push ahead before he loses momentum, but there may be a window of opportunity for further debate on the energy reform. The conservative National Action Party’s (PAN) vote backed the constitutional reform in December 2013, but the PAN has walked out of talks about the secondary legislation, insisting that the president first absolves them in the Oceanografía case – they were in power when Oceanografía prospered.

Unless Mexico’s civil society organisations seize the moment and can find a way to make the political parties listen, the prospect of real reform will remain in jeopardy.

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