Mexican Violence Has Contradictory Impact on Economy

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In March 2011, Mexico’s Finance Minister, Ernesto Cordero, said that Mexico’s economy was unharmed by the drug and gang violence often reported in the news. He stated that tourism, accounting for an estimated 13.2 percent of Mexico’s GDP, has been unaffected by reports of violence. Cordero also said that the Mexican economy grew 5.5 percent in 2010. Finally, he said there was no reason to think that the violence was deterring investment in the region. However, recent reports tell a different story.

Although Cordero insists that the tourism business has been unharmed, owners of hotels in Acapulco, a major Mexican tourist destination, say their experience is not consistent with Cordero’s report. While tourist destinations previously have been unaffected by Mexico’s heavy drug and gang violence, there have been more reports recently of murders in cities like Acapulco. Violent incidents between the drug cartels and local police are becoming more frequent. Since 2006, there have been about 700 murders in Acapulco.

Although foreigners have not been targeted, and the violence is not concentrated in the hotel district, hoteliers say the city’s reputation has been tarnished by news reports of the violence in the city. One hotel owner says that last year 2,600 students checked-in during the spring break season. This year there have only been 60. Acapulco authorities report that tourism has dropped 93 percent this year. This decrease affects more than just hotels. Bars, restaurants, and shops are all suffering from the lack of customers.

The Mexican government refutes these reports and points out that tourism increased in 2010 by 4.4 percent. However, this increase is most likely due to Mexican tourism suffering a large drop in 2009 when Mexico was the first country to report incidents of swine flu (or H1N1). Nonetheless, the government maintains that the increase in tourism in 2010 is a positive sign of growth for the Mexican economy.

Violence does not only affect how tourists view the country. A recent survey estimates that 67 percent of Mexican business owners feel less safe doing business compared to last year. Another survey estimates that, in the regions most affected by drug violence, 10,000 small businesses shut down in 2010. Many of these businesses experienced extortion and threats from the criminals and gangs who demanded a fee to ensure the business’ security. One shop owner says that she and her husband are required to pay $4,000 each month to a gang. The gang has threatened to kill the couple and their family if they do not pay.

Although the government insists that violence does not affect the Mexican economy, there are clearly conflicting reports from Mexican residents and their businesses. The government should acknowledge these reports and respond to the rising violence before things worsen and there is further damage to the economy.