CALDERON REPORTS GAINS IN DRUG FIGHT

A Written Copy of the State of the Nation Address Is Given to a New
Mexican Congress Likely to Show Its Clout.

The Mexican government on Tuesday proclaimed that it was making
progress in its war against drug traffickers, in a state of the
nation report delivered to a new Congress expected to challenge
President Felipe Calderon during his remaining three years in office.

The Institutional Revolutionary Party, or PRI, which ruled the
country for seven decades until 2000, is back in control of the
Chamber of Deputies, which plays a key role in budget decisions that
will be high on the agenda in coming months.

The PRI defeated Calderon's National Action Party, or PAN, during
July congressional elections amid broad public dissatisfaction over
the sagging economy and misgivings about the drug war. The PAN
retains the largest number of seats in the 128-member Senate.

After the afternoon opening ceremony, Interior Minister Fernando
Gomez Mont handed Congress a written version of the president's
annual report cataloging what the administration views as its
accomplishments during the previous 12 months.

The report, or informe, says the administration has made strides in
its 2 3/4 -year-old drug war, which has killed more than 11,000
people since Calderon became president. It says the government has
hit trafficking groups hard with major seizures of narcotics, weapons
and cash and more than 24,000 arrests through June.

The offensive "has weakened the structures of organized crime and
achieved record numbers in terms of seizures," the report says. "This
has strengthened the rule of law and advanced the recovery of public security."

But many Mexicans are disturbed by the rising death toll. Spectacular
slayings, including beheadings and bodies left in piles, have created
a sense among many residents that crime and violence in Mexico have
spun out of control.

But Calderon may be making headway in persuading people that the
campaign is working.

A poll published Tuesday in the daily Reforma newspaper found growing
confidence in the drug war, with half of respondents saying they
approved of the job Calderon was doing against drug traffickers,
compared with 41% a year earlier.

But among those polled, people who believe organized crime groups are
winning the war outnumber those who think that the government is.

The Calderon administration said the government ably met the swine
flu crisis and responded quickly to the global economic meltdown by
boosting spending for public works and more public lending.

The economy is the issue most likely to dominate the legislative
agenda. Calderon and Congress face tough decisions, including how to
find new sources of revenue at a time of economic troubles and
declining domestic oil production.

The U.S. recession has hit Mexico hard by drying up a market for
automobiles and other manufactured goods. Economists project that the
Mexican economy will shrink by 7% or so this year, a major drop.

The U.S. downturn has also cut cash transfers sent home by migrants
north of the border, one of Mexico's biggest sources of foreign income.

Some Mexican business leaders have proposed closing the revenue gap
by extending a value-added tax to food and medicine. But the PRI,
which commands a majority of the lower chamber through its alliance
with the smaller Green Party, has ruled out such a move.

The PRI appears well positioned to recapture the presidency in 2012,
and analysts say it probably will wield its new clout in Congress
carefully. That could mean avoiding controversy on taxes and budget matters.

It was the second year in a row that the informe was delivered in
written form without the president going to Congress.

Legislators rewrote the law to allow the report to be delivered in
writing after dissident lawmakers prevented Calderon and his
predecessor, Vicente Fox, from delivering the traditional informe
speech in Congress.

Calderon is to make his speech today from the National Palace.