Mexico: The Return Of The Rurales

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December 28, 2013: Drug cartel violence and tighter border crossing requirements by both Mexico and the U.S. continue to harm the economy of Mexican cities on the border.  To make matters worse the border towns are off-limits to U.S. military personnel stationed at nearby bases. In fact, travel to Mexico by active duty U.S. military personnel is severely restricted. The hotel, restaurant and bar businesses have suffered. A recent visitor to Ciudad Acuna (across the border from Del Rio, Texas) reported that security on both sides of the border crossing plaza is extremely tight. On the Mexican side, military personnel not only provide security, but they are in charge of the customs inspection station. Soldiers conduct some of the vehicle inspections. Mexican business owners continue to complain about extortion threats by cartel gunmen. What is the economic cost of organized crime in Mexico, in terms of reduction in GDP?  No one knows the exact figure, but recently, Health Minister Juan Lopez Mercedes made an estimate that crime reduces Mexico’s GDP by at least eight percent. It could be as high as much as 15 percent. Extortion, property damage and theft are direct costs, but there are other associated economic costs, such as maintaining private security services. In some rural areas, farmers have told media that they formed a community defense militias (local defense force or comuntarios) because they could not afford to continue to make extortion payments to cartel gunmen. A farmers group in Michoacan state claimed that cartels demand an extortion payment of one peso per kilogram of produce. It adds up.

December 26, 2013: The new federal energy industry legislation continues to be the biggest topic in Mexico. The legislation affects the oil (hydrocarbon) and electricity industries. Private companies (including foreign companies and investors) may now obtain licenses from the Office of the Secretary of Energy to engage in oil-related and oil services businesses, including pipeline operations, refining and petrochemicals. Private companies (including U.S. oil companies-more on that later) can now explore for oil and produce oil in Mexico, but only if they have production-sharing (joint venture) agreements with the national oil company, Petroleos Mexicanos (PEMEX). The new legislation is certainly a historical turnabout for the Institutional Revolutionary Party (PRI). In 1938 a PRI government led by President Lazara Cardenas expropriated foreign oil company holdings and nationalized the oil industry. In 2013 a PRI government led by President Enrique Pena Nieto authored the legislation that permits private investment and development in the energy sector. The legislation effectively ends PEMEX’s 75-year monopoly. Though PEMEX will still be state-owned, the legislation requires PEMEX to become a for-profit company. Rather than having its budgets approved and overseen by the government, it will have to generate its own operational revenue from its own hydrocarbon production and from joint venture contracts. PRI old-timers, however, point out that the government still owns the energy reserves in the ground (sub-soil ownership is the phrase). Mexico’s 1917 constitution stipulated that the subsoil and its contents belonged to the Mexican government.

The PRI always used and abused Mexican nationalist enthusiasms and grievances. Kicking out the Yankee oil companies and expropriating (stealing) their assets was extremely popular in 1938. The oil industry still incites nationalist emotions. Just before the December 12 vote in the legislature’s lower chamber, scuffles broke out as members of the far-left Party of the Democratic Revolution (PRD) tried to disrupt the vote. PRD members called PRI and National Action Party (PAN, center-right party) legislators traitors for voting to denationalize the oil industry. A PRD deputy reportedly called President Pena a 21st century Santa Anna. In 1836, General Antonio Lopez de Santa Anna showed no quarter at the Alamo and shortly thereafter lost Texas to the Texan revolutionaries when he was defeated at the Battle of San Jacinto. But losing Texas isn’t all the PRD member was complaining about. Santa Anna later sold the U.S. a large slice of what is now Arizona and New Mexico, The Gadsden Purchase. To the PRD, Pena has sold out Mexico to the U.S. Pena and energy reform advocates say they are partnering with investors who have capital to increase Mexican production. The reformers contend they have to do something. Since 2005, Mexican oil production has declined by over 25 percent. In 2005, Mexico produced a little over 3.4 million barrels a day. In 2012 production had dropped to 2.5 million barrels a day. PEMEX officials believe they can reverse the trend if they can develop offshore deep water fields and begin developing new natural gas fields using enhanced recovery techniques. The U.S. has had great success in developing shale gas fields (by fracking). Several PEMEX officials have told the government that if the country can tap its shale gas fields, Mexican industry would benefit from cheaper natural gas. However, PEMEX lacks the technical expertise these advanced extraction technologies require. It also lacks the capital to create the expertise or buy the capabilities.  PEMEX estimated that it would need at least $60 billion a year to acquire technology, rebuild decayed infrastructure and build new infrastructure.  The company has around $25 billion a year. The new legislation means the company can offer investors profit-sharing agreements. The legislation’s supporters also point out that now PEMEX can let private investors share the costs of exploration and exploratory drilling. With technological modernization, PEMEX officials believes Mexico can increase oil production by 1.5 million barrels a day by 2025.  The energy legislation also establishes a new national trust fund, “The Mexican Petroleum Fund For Stabilization And Development.” Hydrocarbon licensing fees and other contract revenue will fund the trust. The government used Norway’s national Oljefondet as a model. (Austin Bay)

December 24, 2013: Since 2006, more than 60,000 people have been killed in organized crime-related violence (most of it drug cartel-related), and more than 26,000 have gone missing.

December 23, 2013: Nicaragua repatriated 18 Mexican citizens convicted drug smuggling to Mexico. Their arrest in August 2012 was sensational news throughout Central America. That was because the smugglers tried to pass themselves off as television journalists and accompanying crew. The smugglers traveled through Honduras in a convoy of six vehicles; the vehicles were marked with the logo of Mexico’s largest broadcast network. When the convoy attempted to enter Nicaragua the border police found over nine million dollars in cash hidden in the vehicles. The smugglers were tried in Nicaragua and in January 2013 were convicted and sentenced to 30 year prison sentences for money laundering and narcotics smuggling.

December 22, 2013: Leaders of the left-wing the Party of the Democratic Revolution (PRD) have vowed to continue to fight against the government’s decision to allow private investment in the nation’s energy industry. The PRD will fight the legislation in the courts. PRD legislators contend the law is unconstitutional.  PRD officials acknowledged that they failed to stop the legislation. Pena’s PRI allied with the center-right PAN to pass the modernizations bills and overwhelm PRD opposition. Tackling the law in the courts is a long shot, however, since a majority of the states have voted to change the constitution to permit private investment in the oil industry.  Still, one senior PRD official claimed that over 65 percent of the Mexican people are opposed to allowing the national oil company, PEMEX, to make production-sharing deals with private companies.

December 20, 2013: Security forces used two armed Blackhawk helicopters to attack a convoy of ten vehicles which was attempting to escape from a firefight between federal police and drug cartel gunmen. Police, supported by other security forces (which usually means military forces) raided the Bella Sirena beach compound and resort complex in the town of Puerto Penasco (Sonora state, western Mexico). Police believed a senior Sinaloa cartel commander was staying in a villa in the compound.  A firefight erupted between armed security personnel, the cartel commander’s bodyguard and other gunmen. When the vehicles tried to escape the helicopters attacked the convoy, knocking out the vehicles. Police reported gunmen abandoned the vehicles and dispersed into the countryside. At least five cartel gunmen were killed in the battle. Two policemen were wounded. Security officials said that based on analysis of blood stains, they are certain the commander was hit in the helicopter attack, so he was either wounded or slain. The cartels typically try to retrieve the dead bodies of senior leaders and gang members to prevent positive identification by police.

December 17, 2013: The continuing violence in Michoacan state has forced the government to stop condemning local defense groups as vigilantes. Many of the community defense militias (comunitarios) have demonstrated they have strong local support and they defend their communities against drug cartel violence. Michoacan’s state government is now touting a program called (depending on your translation) “Neighbor Watch” or –more problematic-“Vigilant Neighbor”. It is definitely an anti-crime program designed to improve security in neighborhoods. Most of the groups involved are in larger towns in the state. Many of the local defense groups have formed in rural areas. The state and federal government have been considering reviving the old Rurales security program. Conceivably, the community defense militias could become semi-official rural security units. The Rurales were a 19th century innovation, similar to the Texas Rangers and RCMP (Royal Canadian Mounted Police) and were disbanded in 1914 for being corrupt. In the 1920s a volunteer defense force for farmers, the CDR (Cuerpo de Defensa Rural or Rural Defense Corps) was formed but it never caught on or became very efficient. The comunitarios are effective because they are local and serving to defend themselves against a very real danger. The Rurales were mobile rural police professionals while the CDR were unpaid and government regulated volunteers. The fear is that the comunitarios could turn into criminals or troublesome vigilantes. But at the moment that fear is less terrifying than the rural violence created by the drug gangs.

December 16, 2013: Seventeen Mexican state legislatures have now approved the changes to the constitution required to permit foreign private investment in the national oil company, PEMEX.   The legislation also permits investment in other energy sectors, including electrical companies and the petroleum refining industry. Mexican constitutional amendments require a two-thirds majority vote in the both legislative chambers and the approval of a majority of the 31 state legislatures.

December 15, 2013:  Police in Oaxaca state (southern Mexico) found ten charred bodies inside a burned truck. The murder victims had been killed execution-style, with gunshots to the head.

December 12, 2013: The federal legislature’s lower chamber (Chamber of Deputies) has approved the government’s energy reform legislation. The vote was 353 for and 134 against. The upper-chamber (Senate) had already passed the bill. Now a majority of the states must ratify changes to the constitution to permit foreign private investment in the oil industry.

December 10, 2013: Police in Jalisco state arrested a man allegedly involved in over 200 murders. Felipe Viveros Garcia’s victims included rival gangsters, rival drug traffickers and kidnap victims.  He was also involved in weapons smuggling and extortion rackets. Viveros Garcia was chief of security for an organized crime gang which operated in Jalisco and Guerrero states. He is also accused of threatening Jalisco state officials and demanding extortion payments from the officials.

 

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