MEXICO CITY (Reuters) - Mexico is celebrating the 200th anniversary of the day rebel priest Miguel Hidalgo set it on a path to independence, but a brutal drugs war has cast a shadow over this week's lavish festivities.
Soldiers are reenacting early 19th century battles and staging colorful parades as officials erect a 65-ft (20-meter) warrior statue that will tower over hundreds of thousands of people expected in central Mexico City on Wednesday night.
Backed by a massive security operation, festivities featuring fireworks and costumes will culminate when President Felipe Calderon shouts out Hidalgo's 1810 "Viva Mexico!" appeal for revolt from the National Palace in the capital's vast central square, the Zocalo.
Rising violence in Calderon's campaign against drug cartels has prompted some officials elsewhere in the country to cancel independence celebrations for the first time.
Local media reports that more than 14 municipalities have called off the festivities to lower the risk of fresh attacks in a war that has killed over 28,000 people since Calderon took office in late 2006.
"This is not a time to celebrate, but to lament," said Victor Quintana, a leftist lawmaker in Chihuahua state, where violence grips factory communities along the U.S. border.
The celebration of Hidalgo's 1810 cry for independence against the colonial power of Spain has prompted many Mexicans to take stock as the nation struggles to rein in the drugs trade and energize a calcified economy.
Mexico boasts a number of Latin American superlatives -- the region's first nation to host the Olympics, its tallest skyscraper -- but the drugs violence now threatens to dampen investment and stain Mexico's image abroad.
Even as officials boast a string of recent high-level arrests, the bloodshed is spreading and has this year battered the wealthy northern business city of Monterrey. In Tamaulipas state, journalists self-censor for fear of reprisal and few honest police dare venture into areas where hitmen hold sway.
While most Mexicans support Calderon's campaign, experts say it will be difficult to end violence without going after corruption and more reforms to judicial and prison systems.
"The biggest challenge facing Mexico is not its adolescent democracy, but organized crime," said Hector Aguilar Camin, editor of Nexos magazine.
Mounting insecurity is the biggest threat facing Mexico, which has one of Latin America's highest per capita incomes but risks falling behind Brazil, Chile and others.
Decades of steady growth in the 20th century made for the 'Mexican Miracle,' which helped the government electrify and send its children to school. But growth has fallen off since the 1970s and Mexico's economic contraction last year was the worst in Latin America.
With about 80 percent of Mexico's exports going to the United States, factory towns across the border from Texas have suffered heavy job losses during the U.S. downturn.
Mexico is also hobbled by a tiny tax take, on a par with Sierra Leone's, and a heavy reliance on revenues from declining oil production managed by state oil monopoly Pemex.
Analysts say Mexico's failure to pass labor, energy and tax reforms hinders competitiveness and fuels flight to the United States, home to millions of undocumented Mexicans.
Mexico boasts some favorable indicators like life expectancy, but one Achilles' heel it shares with other Latin American nations is wealth distribution, which experts blame in part on the legacy of a system set up by Spanish colonists.
The irony is not lost on Mexicans that in a country home to the world's richest man, telecom magnate Carlos Slim, many people juggle informal jobs to scrape a few pesos together.
"Slim has a lot to celebrate," said Lorenzo Meyer, a researcher at Colegio de Mexico, a think tank. "The outlook is different for other Mexicans. They don't have very much."
Mexican democracy has been transformed since more than 70 years of one-party rule by the populist PRI party ended with Vicente Fox's election in 2000.
But first Fox and then Calderon, both from the conservative National Action Party, failed to get significant tax and labor reforms through Congress and the PRI has a good chance of returning to power in 2012.
Calderon, like other Mexican leaders, has tried to rein in corruption, but has been unable to end a system of patronage with deep roots in Mexico's political culture.
Additonal reporting by Jason Lange and Anahi Rama in Mexico City and Julian Cardona in Ciudad Juarez; writing by Missy Ryan; Editing by Kieran Murray