Pena Nieto Bets on Pablo Escobar Nemesis to Win Mexico Drug War
Comment of the Day

July 03 2012

Commentary by Eoin Treacy

Pena Nieto Bets on Pablo Escobar Nemesis to Win Mexico Drug War

This article by Eric Sabo for Bloomberg may be of interest to subscribers. Here is a section:
Incoming Mexican President Enrique Pena Nieto will inherit a drug war that has cost more than 47,000 lives since 2006. He's betting that the Colombian general who helped take down kingpin Pablo Escobar will help him win.

Pena Nieto, after winning election July 1, said Mexicans want immediate results after frustration over the six-year death toll undermined support for President Felipe Calderon. He tapped General Oscar Naranjo, the former head of Colombia's national police, as his security adviser last month and aides say the new president will seek greater intelligence sharing with the U.S. to help break the cartels.

The 45-year-old Pena Nieto must balance public demands for a less-bloody conflict with suspicions that his Institutional Revolutionary Party, or PRI, was more tolerant of drug cartels during a 71-year reign that ended in 2000. Pena Nieto, who pledged during the campaign to scale back the military's role in fighting organized crime in favor of the police, said yesterday that there would be no truce with the cartels.

“Already the government is taking flak for letting less violent and ostentatious criminal groups off the hook,” said Vanda Felbab-Brown, who studies drug war conflicts for the Brookings Institution in Washington. “It will be an even more sensitive issue for Pena Nieto because he has all the PRI baggage of negotiated deals.”

Drug-related violence shaves almost 1.2 percentage points annually off Mexico's gross domestic product and the country could double its foreign investment, which reached $19.4 billion in 2011, if the cartels were brought under control, said Manuel Suarez-Mier, an economist at American University who helped Mexico negotiate the North American Free Trade Agreement.

Eoin Treacy's view My view – The common perception of Mexico as ungovernable as a result of the drug trade has gained credence as news of new massacres surface just about every week. However, to limit one's opinion to emotive news items would be to ignore the country's many positive attributes. Mexico has a large young population and the middle class continues to expand. It also has enviable natural resources along with a land border with the USA which facilitates trade.

This article from the Wall Street Journal dated February 6 th carries some additional commentary on the relative competitiveness of Mexico compared to Asian countries from a manufacturing perspective. Here is a section:

But for many companies, a better step is to beef up production in Mexico. Despite security concerns, wages are substantially lower than in the U.S. A look at recent trade statistics suggests companies are already on the move. The number of loaded shipping containers entering the ports of Los Angeles and Long Beach, Calif.—the major entry points for Asian imports—edged down 0.2% last year. But trains and trucks carried 8.7% more freight, by weight, from Mexico to the U.S. in the first 11 months of last year than they did a year earlier.

The Mexican stock market Index was among the first to post a new high following the 2008 crash. It hit a medium-term peak below 40,000 in early 2011 and has paused mostly below it for more than a year. The Index has held a progression of higher reaction lows since August and hit a new all-time peak today. A sustained move below 37,000 would now be required to question medium-term scope for additional upside.

The US Dollar failed to sustain the breakout to new highs in early June and has since decline to test the region of the 200-day MA. A clear upward dynamic will be required to check the Peso's momentum.

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