America's southern neighbor is facing trouble on several
Drug-related crime and rampant violence have battered Mexico's
sense of public security and confidence in the government's
capacity to protect the lives of its citizens. Violence against
Mexican law enforcement and military officials, as well as the
corruption perpetrated by the drug cartels, is undermining public
confidence in government institutions. Furthermore, the physical
and psychological costs of the fight against the cartels are
impacting trade, the investment climate, and the security of the
Corruption in Mexico's public and private sectors is endemic.
Mexico's score in the 2009 Index of Economic Freedom,
published by The Heritage Foundation and The Wall Street
Journal, declined from its 2008 score-a decrease aggravated by
the country's low "Freedom from Corruption" rating. Although Mexican
President Calderon has been leading a courageous fight against it,
according to Transparency International's Corruption Perceptions
Index for 2007, "Mexico ranks 72nd out of 179 countries
… [and] corruption has been pervasive for many years."
General Barry R. McCaffrey, former commander of the U.S.
Southern Command and President Clinton's drug czar, recently
reported that Mexico's powerful drug gangs have "subverted state
and municipal authorities and present a mortal threat to the rule
of law across Mexico." General McCaffrey warns that the spillover
effect from the drug violence reaches far into both countries: "The
malignancy of drug criminality now contaminates not only the 2,000
miles of cross-border U.S. communities but stretches throughout the
United States in more than 295 U.S. cities."
In addition to the drug violence and corruption, Mexico is also
suffering from economic turbulence. For instance, remittances sent
home by Mexican emigrants in the U.S., which are "Mexico's
second-largest source of foreign income after oil, [sank] 3.6
percent to $25 billion in 2008 compared to $26 billion for the
previous year … and central bank official Jesus Cervantes
said the decline will likely continue this year."
Furthermore, Mexico's large and important automotive sector has
been slammed by the same economic woes facing Detroit.
Mexico's economy is now forecast to shrink by as much as 1.8
percent in 2009. And the peso has weakened 32 percent
against the dollar over the past six months-the second-worst
performance among the world's major currencies after Brazil's
real-on concern the economy will sink into recession as demand in
the U.S. falters for Mexican exports.
Consequently, the Central Bank has been forced to intervene in
an "extraordinary" way to prop up the peso.
Adding to the economic gloom, Mexican government revenues (more
than one-third of which come from PEMEX, the state-owned monopoly
oil company) are declining steadily. This revenue
drop is the result of lower oil prices and declining output due to
longstanding PEMEX mismanagement and inefficiency. Major political
and economic reforms are needed now, yet recent economic
turmoil has made the political price of such reforms considerably
All of these developments are severely impacting the price
Mexican businesses and governments must pay to borrow money.
Unfortunately, current ratings of Mexican debt and the attendant
risk premiums probably do not fully reflect Mexico's dire straits.
Potential foreign investors should beware.
A Vital American interest
Mexico's ongoing political stability and economic health are
critical to the prosperity and national security of the United
States. The Obama Administration must make confronting the many
challenges facing our southern neighbor both a foreign and a
domestic policy priority. In order to realize this vital American
interest, the current Administration should do the following:
- Not delay in sending an early and loud signal that it is
prepared to work closely with Mexico and the Calderon government to
defeat the drug cartels and strengthen-to the extent
possible-Mexico's critical legal, law enforcement, and judicial
institutions through an expanded and better funded "Merida
Initiative" cooperation program. General McCaffrey warns that
"Mexico is on the edge of the abyss-it could become a narco-state
in the coming decade." Inaction and indifference are not
- Pledge a renewed commitment to reducing the flow of illegally
trafficked guns, bulk cash, and precursor chemicals from the U.S.
into Mexico. Together, the U.S. and Mexico should reach out to
Colombia and Central America to strengthen international
cooperation critical to bursting the narcotics balloon.
- Recognize that Mexico's economic health is critical to the U.S.
Consequently, both countries should reaffirm their commitment to
NAFTA, and President Obama should urge President Calderon to
continue efforts to reform Mexico's economy by breaking up
monopolies and other oligopolies and to look for ways to assist
with the agricultural and commercial development of rural and
- Encourage Mexico to open its oil and electrical energy sectors
to investment opportunities by U.S. companies. This should be
another high priority goal for the Obama Administration, one that
can have a stimulus effect on both sides of the border.
- Recognize that anyone-Mexican or otherwise-who enters, remains
in, and works in the United States illegally is in ongoing and
extensive violation of U.S. law. This has a corrosive effect on
civil society and undermines confidence in the immigration process
and the rule-of-law principles that govern the nation.
Consequently, Obama should commit to a balanced and
well-constructed temporary worker program that diminishes
incentives for illegal immigration.
- Demonstrate that a change in Administrations will not lessen
the United States' commitment to building better border security by
enlisting the Mexican government as a stakeholder and responsible
partner in a comprehensive strategy for controlling the border
against all forms of illicit activity, from illegal migration to
drugs and terrorism.
- Advance with the Mexican government a shared, vibrant, and
productive relationship of commerce, investment, and properly
regulated movements of people between sovereign nations. In
pursuing this relationship, however, the Obama Administration must
make clear that the U.S. seeks neither a North America union nor
James M. Roberts is
Research Fellow for Economic Freedom and Growth in the Center for
International Trade and Economics, and Ray Walser, Ph.D., is a Senior Policy Analyst for Latin America in the Douglas and Sarah
Allison Center for Foreign Policy Studies, a division of the
Kathryn and Shelby Cullom Davis Institute for International
Studies, at The Heritage Foundation.