DRUG CARTELS TIGHTEN GRIP; MEXICO BECOMING 'NARCO-STATE'

Rising Lawlessness Echoes State Of '90s-Era Colombia

MEXICO CITY - For months, the leaders of Tancitaro had held firm
against the drug lords battling for control of this central Mexican
town.

Then one morning, after months of threats and violence from the
traffickers, they finally surrendered.

Before dawn, gunmen kidnapped the elderly fathers of the town
administrator and the secretary of the City Council. Within hours,
both officials resigned along with the mayor, the entire seven-member
City Council, two department heads, the police chief and all 60 police
officers. Tancitaro had fallen to the enemy.

Across Mexico, the continuing ability of traffickers to topple
governments like Tancitaro's, intimidate police and keep drug
shipments flowing is raising doubts about the Mexican government's
3-year-old, U.S.-backed war on the drug cartels.

Far from eliminating the gangs, the battle has exposed criminal
networks more ingrained than most Americans could imagine: Hidden
economies that employ up to one-fifth of the people in some Mexican
states. Business empires that include holdings as everyday as gyms and
a day-care center.

And the death toll continues to mount: Mexico saw 6,587 drug-related
murders in 2009, up from 5,207 in 2008 and 2,275 in 2007, according to
an unofficial tally by the respected newspaper Reforma.

Cartels have multiplied, improved their armament and are perfecting
simultaneous, terrorist-style attacks.

Some analysts are warning that Mexico is on the verge of becoming a
"narco-state" like 1990s-era Colombia.

"We are approaching that red zone," said Edgardo Buscaglia, an expert
on organized crime at the Autonomous Technological University of
Mexico. "There are pockets of ungovernability in the country, and they
will expand."

For the past decade, he said, parts of Mexico have been sliding toward
the lawlessness that Colombia experienced, in which traffickers in
league with left-wing rebels controlled small towns and large parts of
the interior through drug-funded bribery and gun-barrel
intimidation.

In the latest sign of the cartels' grip, on Wednesday the National
Action Party of President Felipe Calderon announced it was calling off
primary elections in the northern state of Tamaulipas because drug
traffickers had infiltrated politics.

And in Chihuahua, the government is redeploying troops from the
embattled city of Juarez to the countryside because of fears that the
cartels are cementing their control in smaller border towns.

Even Calderon, who a year ago angrily rebutted suggestions that Mexico
was becoming a "failed state," is now describing his crackdown as a
fight for territory and "the very authority of the state."

"The crime has stopped being a low-profile activity and has become
defiant . . . . plainly visible and based on co-opting or intimidating
the authorities," he told a group of Mexican ambassadors last month.
"It's the law of the 'bribe or the bullet.' "

Towns on the ropes

In places like Tancitaro, population 26,000, the battle already may be
lost.

In the past year, gunmen killed seven police officers, murdered a top
town administrator and kidnapped others, said Martin Urbina, a city
official. The reasons were unclear - most of the town leaders are in
hiding and could not be reached for comment - but the drug traffickers
were apparently demanding the removal of certain police officers,
Urbina said.

When the traffickers kidnapped the two officials' fathers on Nov. 30,
it was the last straw.

"If someone comes and puts a pistol to your head, what are you going
to do?" said Gustavo Sanchez, who was appointed by the Michoacan state
governor as interim mayor after the mass resignation. "It's happening
in all of the states, not just here."

In Vicente Guerrero, in Durango state, 34 of 38 police resigned after
the police chief and four officers were kidnapped. The victims have
not been found.

In the border town of Puerto Palomas, the police chief fled to the
United States and asked for asylum in March, saying Mexican officials
could not protect him. In October, traffickers killed the town
administrator in Puerto Palomas.

In the northern town of Namiquipa, traffickers killed the mayor and
two top town officials last year. Police there are woefully outgunned,
police Chief Jesus Hinojosa said. There are only 15 weapons for 39
police officers.

Often the cartels target city officials they believe are cooperating
with federal authorities, said Juan Manuel Bautista, the City Council
secretary in the western town of Novolato, where traffickers have
killed 25 police, two city councilmen and a town administrator in the
past two years.

Other times, they are simply lashing back at the most convenient
targets, he said.

"In these small-town governments, everyone knows your business and who
you are," Bautista said. "If they want to take revenge on you, it's
easy."

Even when governments replace police chiefs, mayors and town councils,
it's often only a matter of time before the replacements are bribed,
intimidated at the barrel of a gun or killed, and the scenario repeats
itself, said Bernardo Gonzalez Arechiga, an expert on crime at the
Monterrey Institute of Technology and Advanced Studies.

In May, federal officials arrested 10 mayors in Michoacan state on
charges of protecting smugglers.

In June, Mauricio Fernandez, a mayoral candidate in the wealthy
Monterrey suburb of San Pedro Garza Garcia, was recorded telling a
meeting of supporters that he had negotiated a truce with the Beltran
Leyva gang as a way of guaranteeing security in the town. Fernandez
later denied any contact with the gang. He easily won the July 2 election.

Financial octopus

The attempt to dismantle the cartels has created a new appreciation
for how deep their financial networks go, said Joel Kurtzman, a senior
fellow at the Milken Institute, an economic think tank in Santa
Monica, Calif.

In many towns, smugglers pay for playgrounds and other things the
government cannot afford. Bank loans are expensive and hard to get in
Mexico, a lingering effect of the country's bank crises during the
1990s, so traffickers have stepped in to provide small-business loans.

"What people did not recognize in Mexico was how deeply ingrained in
both the economy and society the drug trade was," Kurtzman said. "So
it's not as if the drug traders are unpopular - they're looked at in
many cities like Robin Hoods."

Since 2006, the number of Mexican citizens and companies on the U.S.
Treasury's blacklist of suspected drug smugglers has nearly doubled,
from 188 to 362.

They are as varied as a day-care center in Culiacan, a gym in
Hermosillo and an electronics company in Tijuana. There are meat
packing plants, horse stables, dairies, hotels, a mining company and
gasoline stations.

Dozens of those companies are still operating because Mexican
prosecutors lack few legal tools to shut them down, Buscaglia said.

In March, the financial magazine Forbes included Joaquin "Chapo"
Guzman in its list of the world's billionaires for the first time.
Guzman, the head of the Sinaloa Cartel, was listed at No. 701 with a
net worth of about $1 billion.

In fact, Guzman's cartel and other gangs probably bring in $3.8
billion just to Sinaloa state alone, said Guillermo Ibarra, an
economist who used bank and government statistics to compile an
estimate this year.

That is 20 percent of the state's economy, twice as much as all of its
factories put together. The drug trade employs about a fifth of the
state's 2.6 million population, either directly or indirectly, he said.

"It trickles down to construction, to car sales, you name it," Ibarra
said. "Drug money ends up everywhere."

The cartels' criminal activities also are becoming more diverse,
Buscaglia said.

La Familia Michoacana, which produces methamphetamine at clandestine
laboratories in Michoacan state, has broadened into prostitution,
protection rackets and software piracy.

Street vendors in Mexico now sell music CDs and DVDs stamped with
"FM," the gang's logo.

Likewise, the Zetas, once the elite hit men of the Gulf Cartel, now
run kidnapping-for-ransom rings in Mexico City and steal gasoline from
government pipelines. Pemex, the state-run oil company, says it lost
$747 million in stolen fuel in 2008.

Gangs going strong

The cartels also have found ways to defend their core drug business by
moving marijuana farms to U.S. national parks, finding new smuggling
routes through Africa and into Europe, and strengthening their supply
lines in Central America.

Drug prices and purity in the United States, the main measure of
trafficking, shows the crackdown is having only mixed results.

Cocaine prices in the United States jumped from $132 a gram to $182 a
gram from September 2007 to September 2008, the latest date for which
the Drug Enforcement Administration has released numbers.

But during the same period, methamphetamine got stronger and cheaper,
dropping from $213 per gram to $184 per gram.

To offset tighter border security, Mexican traffickers are setting up
marijuana farms on public lands in California, Washington and Oregon,
a U.S. Department of Justice report said in July. The number of
marijuana plants seized in the United States soared from 3.2 million
in 2004 to 8 million in 2008.

Their product is also improving, the report said: Marijuana potency in
2008 was the highest it has ever been.

The cartels also are expanding into new territory.

Since 2008, Mexican drug smugglers have been arrested in Australia,
New Zealand and the African nations of Sierra Leone and Togo. U.S.
prosecutors say the Gulf Cartel has struck deals with the New York mob
and the Ndrangheta Mafia of Italy to smuggle cocaine into Europe.

In the United States, cartel operatives have been detected in 195
cities, as distant as Anchorage, Alaska, and as small as Ponca City,
Okla., a report by the U.S. Justice Department said.

In Arizona, the Sinaloa Cartel has operations in Phoenix, Tucson,
Douglas, Glendale, Naco, Nogales, Peoria, Sasabe, Sierra Vista and
Yuma. The Gulf Cartel also has some operatives in Nogales, and the
Juarez Cartel has outposts in Phoenix, Tucson and Douglas, the report
said.

Buscaglia said his research has turned up links to Mexican traffickers
in 47 countries worldwide.

"Mexico has become an exporter of instability," he
said.

At the same time, the cartels are acquiring weapons that are
"increasingly more powerful and lethal," the U.S. Government and
Accountability Office said in a June report.

Five rocket launchers, 271 grenades, 2,932 assault rifles, a submarine
loaded with cocaine, and an anti-aircraft gun complete with blast
shield were all seized by Mexican authorities between March 2008 and
August 2009.

In September, traffickers fired an anti-tank rocket at soldiers while
trying to free a comrade who had been detained.

The gangs also are getting better at carrying out coordinated,
military-style operations.

On July 11 and 12, La Familia launched 15 attacks in eight cities on
police stations and a police bus, killing 14 officers.

And on May 16, Gulf Cartel gunmen freed 53 prisoners in a
commando-style raid on a prison in Zacatecas state.

Prolonged war

Calderon and the Obama administration insist that the Mexican
government still has the upper hand against the cartels.

"We have a serious problem, but the good news is that we're
confronting it, and better yet, we're making progress," Calderon told
the ambassadors last month.

But in the past year, doubts have been growing.

A report by the U.S. Joint Forces Command warned in January 2009 that
Mexico was ripe for a "rapid and sudden collapse" because of the drug
cartels. And in a report to the West Point military academy, former
U.S. drug czar Barry McCaffrey said the cartels could "overwhelm the
institutions of the state and establish de facto control over broad
regions of northern Mexico" within eight years.

Former President Ernesto Zedillo, writer Carlos Fuentes, former
foreign minister Jorge Castaneda and the former chief of Calderon's
National Action Party have publicly questioned the president's strategy.

In Colombia, the government was able to re-establish control in rural
areas by eliminating a "demilitarized" zone that had been granted to
the leftist guerrillas, renewing attacks on them and spraying coca
fields with pesticides. The United States has helped with $5.8 billion
in aid since 2000.

But in Mexico, the government needs to focus on the prosecution of
crimes instead of flooding the streets with troops, Buscaglia said.

Only about half of detainees are ever convicted, and most are
low-level thugs, not the money launderers, accountants and managers
who keep the cartels running.

Of the more than 53,000 arrests since the crackdown began, only 941
are in Sinaloa, despite the fact that that state is the heart of one
of the biggest smuggling empires, Buscaglia said.

The government also needs laws allowing authorities to shut down
suspected money-laundering operations and seize their assets without
going through a criminal trial, he said.

Only three things could change the balance, said Ray Walser, an expert
on Latin America at the conservative Heritage Foundation: a massive
increase in U.S. drug aid, a large addiction-treatment program in the
United States or the legalization of drugs in the United States.

None of these measures seems to be on the horizon, Walser
said.

"The problem that Calderon has in winning this war will be that he
can't offer the citizens courts, mayors and policemen that are safe
and honest and not corrupt," Kurtzman said.

"As a result, this is likely to remain a stalemate with a lot of
killing on both sides for a long time."