Insecurity: The Achilles Heel of Mexican Reforms?

While the militarization of Michocan is grabbing the bulk of national media attention, the economic fall-out from insecurity is far from confined to the Pacific coastal state...

(LAS CRUCES , NM) - The security crisis in the Mexican state of Michoacan is smacking the economy, bringing higher costs, leaving shuttered businesses, encouraging capital flight, and causing employment reductions, according to different reports.

For instance, the Mexican Social Security Institute reported that the violence-ridden state, where crime syndicates, self-defense groups and government security forces are in a stand-off, lost 5,921 jobs in the formal economy from November 2012 to November 2013. The employment downturn was considered the largest of its kind since 1998.

Pedro Ivan Plancarte Molina, president of the Urupuan Chamber of Commerce in Michocan, said violent episodes like the armed confrontations and highway blockades of recent days typically result in 30 to 50 percent losses to businesses, which shut down temporarily and then take days to recover. Maria Piedad Ramos, director of Michocan's La Piedad Chamber of Commerce, said widespread truck and product robberies were having significant repercussions on the local economy.

"Everyone winds up paying protection fees," she added. "Here, they told me it would cost the Chamber 10,000 pesos (about $800), and that they were going to come and we had to give it to them."

While the militarization of Michocan is grabbing the bulk of national media attention, the economic fall-out from insecurity is far from confined to the Pacific coastal state, another Mexican business leader said this week.

Juan Pablo Castanon, president of the Employers Confederation of the Mexican Republic (Coparmex), estimated the direct cost of delinquency to the formal business sector at more than $6 billion annually, due to kidnappings, extortion and robberies.

"This is an important amount that leaves the formal economy and affects the creation of jobs, reinvestment and the desire for development," Castanon said. According to Coparmex's president, the payment of protection fees alone impacts as many as 260,000 businesses nationally, or about 37 percent of the formal economic units of the country.

From a business standpoint, the Mexican government's recent reforms will come up short if the security situation is not improved, Castanon added.

"Security is the principal issue for 2014, because of reforms that will give a platform for development," he contended. "But prosperity without peace will be weak."

Castanon's words echo comments made this week by other organizations representing the business class, including the Business Coordinating Council (CCE).

"All that has been achieved in terms of opening up the great process for Mexico's potential could be impacted by the effects of public insecurity, as well as shortcomings or gaps in governance and corruption," the CCE said.

Sources: Agencia Reforma, January 15 and 16, 2014. Articles by Adriana Leyva and editorial staff. Proceso/Apro, January 14 and 15, 2014. Articles by Juan Carlos Cruz Vargas.