Is Mexico Becoming a Colombia?

The jailing of the country’s anti-narcotics czar on drug-corruption charges again reminds the world of Mexico’s curse, the unhappy consequence of geography and a political system with great potential to be bought off. Because Gen. Jose de Jesus Gutierrez Rebollo, the ousted chief of the National Institute to Combat Drugs, held such an important and sensitive post and enjoyed the trust of drug fighters in Mexico and the United States alike, his disgrace, coupled with the recent murders of prominent law-enforcement figures and continuing allegations of drug-connected politicians, might suggest that Colombianization is well underway in Mexico. When a dollar value is affixed to the illicit-drug trade--ranging from $10 billion to $30 billion--such an impression is hard to resist. Nonetheless, it is far from the truth.

Although some drugs are grown or produced in Mexico, notably marijuana, the country is largely a transit point between Colombia, Peru and Bolivia, on the one hand, and the U.S. market, on the other. This illicit trade produces billions of dollars annually. Although the money has to go somewhere, it is not obvious that it ends up in Mexico itself.

The question of money is far more important than it appears at first glance. The issue is not only where and how does the money flow, but how much of it actually stays in the country. Figures abound, ranging from $500 million a year to more than $30 billion. Typically, these figures refer to different things.

Any country located next to the world’s largest market is bound to become a natural supplier of some goods. Even more so if the goods are illegal. In terms of legitimate trade, Mexico is rapidly becoming the largest foreign supplier to the United States, especially with respect to car parts and garments. Some of these goods are produced in Mexico. Others are merely assembled here, their components made in the United States or elsewhere.

The same goes for drugs. As long as Americans demand and consume drugs, somebody will be there to supply them. If drugs were legal in the United States, there would not be any drug cartels in Mexico, but only a very efficient United Parcel Service.

Enter Mexico’s peculiarities. Its political system is in disarray, rapidly consuming the few virtues that it has. Corruption has long been the cement that holds the system together and makes the bureaucratic engines churn. When U.S. drug-interdiction efforts succeeded in Florida and the Caribbean, Mexico’s geography and politics offered an ideal alternative to drug traffickers. Geography made it easy for aircraft laden with narcotics to land in remote places and to transfer the cargo to vehicles, donkeys or other means of land transportation. The political system found its perfect match: drug lords willing to pay just for looking the other way. Gutierrez is accused, among other things, of looking the other way when Amado Carrillo Fuentes, reputedly Mexico’s most Mexico’s drug trade is not known for having significant installations, factories or other fixed assets. Indeed, Colombia is besieged by drug cartels that run a major industry, from cultivation of seeds in the mountains to the production of coke in ultramodern laboratories. For this industry to be possible, the cartels have formed private armies that terrorize the population, demand protection money and buy off--or kill--whoever stands in their way. Because Mexico is mostly a transit point, drug traders don’t need to buy off the entire political system, as Colombia’s is alleged to have been bought off, but only to bribe policemen, politicians and bureaucrats on a deal-by-deal basis. Drugs don’t necessarily flow through the same landing strips or even states, so relationships created by trafficking are typically limited to each deal.

The contrast between the two countries can be put another way. If drugs were oil, Colombia would be a major oil company, operating and protecting its installations, while Mexico would be a Rotterdam, a port specializing in buying, selling and transferring the oil.

Needless to say, there are many reasons to believe that prominent Mexican politicians are involved in protecting drug traffickers for money, but less because of their prominence than for having been governors of the states through which drugs pass, or because of having held positions of authority in Mexico’s major police organizations or military zones. They became filthy rich by looking the other way and by selling control of key transit points around the nation.

Then there is the issue of money laundering. According to the U.S. Treasury Department’s Financial Crimes Enforcement Network, as much as $10 billion--or 75% to 90%--of the Latin American drug traffickers’ estimated revenues from U.S. sales passes through Mexico. The question is how much of that money stays in Mexico and what affect it has in the Mexican economy.

Estimates from a study by the Autonomous National University of Mexico suggests that the drug lords now spend as much as $500 million a year bribing this or that official. Its findings assume a basic level of corruption in major drug-producing or -trafficking countries: $1,000 in payoffs for each kilo of cocaine smuggled through a country. If these figures are accurate, a lot of money is going into the hands of a relatively small number of individuals obviously ready and willing to pay hefty bribes to their bosses in the Federal Judicial Police, the attorney general’s office or the various state governors through whose territory drugs pass.

But as significant as these amounts may be for individuals, they are irrelevant for an economy whose gross domestic product totals nearly $350 billion. Obviously, some portion of drug proceeds ends up in Mexico, but its overall impact at the national level is probably quite small, even if the money could rapidly alter real-estate or other prices in any town or medium-sized city. Indeed, it would be difficult to hide such big numbers at the national level. Ten billion dollars, the U.S. Treasury Department’s figure, is an enormous amount of money that could not simply vanish.

In 1996, for example, there were about $7 billion in new foreign investments in Mexico. These investments were critical to the stability of the country’s balance of payments, given the approximately $12 billion in interest payments Mexico has to pay on its external debt. Can one imagine what an enormous impact $10 billion would make?

If one looks at the domestic economy, $10 billion is greater than the total capital of all banks in Mexico. It is almost double total spending on new automobiles last year. It is more than the total value of agricultural production in Mexico in 1996. And about the same as all revenues generated by last year’s oil exports. To put it bluntly, it is hard to believe that the proceeds from drug money, beyond bribes, end up circulating in the Mexican economy. Put another way, the drug trade’s contribution to the Mexican economy ranges from .5% to 1% of GDP.

The fact that there are many Mexican criminals running the drug trade or accepting bribes to facilitate it, does not mean that the benefits of that trade are felt in Mexico. Surely, a peasant who receives payment for his crop, a minor figure in the police department in Sinaloa or a truck driver who transports the goods gets paid for his or her services and spends the money like any other Mexican. But the drug lords themselves are probably more closely allied with offshore banks than with any in Mexico. Consider: Mario Ruiz Massieu, the former deputy attorney general accused in Mexico of illegal enrichment, allegedly stashed drug-tainted money, possibly amounting to $9 million, in a Houston bank; Raul Salinas, who is also accused, among other things, of illegal enrichment, allegedly preferred Switzerland banks to house a reported $100 million.

Fighting the drug business and the money laundering associated with it is like pushing a balloon: You simply displace the activity to wherever there is least resistance. Mexico is a natural for the drug trade because of its potential for corruption. Precisely for these reasons, the drug lords, as businessmen, would never keep their savings in such a place.