By Catherine Bremer
MEXICO CITY, April 6 (Reuters) - Wrestling murderous drug gangs with one hand and fending off a recession with the other, Mexico’s Felipe Calderon faces a defeat in mid-term elections that could hobble the rest of his presidency.
Since he took power in late 2006 and launched a war on drug cartels, drug killings have rocketed — sparking alarm in the United States that they could spill over the border — and the global financial crisis is now whipping the Mexican economy.
Although Calderon is admired for having the courage to take on the cartels, he doesn’t yet have much to show for it and his approval ratings, which for long held above 60 percent, dipped to the mid-50s in a recent poll.
His conservative National Action Party, or PAN, is ranked in second place for the July legislative elections behind the Institutional Revolutionary Party, or PRI, which ruled Mexico with a firm hand for 71 years until 2000.
If the PAN loses many seats in Congress, where it is the biggest party but lacks a majority, Calderon will have much less chance of pushing through more of the deft economic reforms that pleased investors early on in his six-year term.
"The combination of the drug war and the economic crisis have battered Calderon. People are very dispirited," said Dan Lund, head of research firm MUND Americas.
About 6,300 people were murdered in the drugs war last year and the economy will likely shrink by at least 3 percent this year. The peso currency has slumped and Mexico was forced to sign up for a $47 billion IMF credit line last week.
The drugs war and economic crisis are also starting to feed off each other. By rattling investors and tourists, the drug violence shaves about 1 percent annual growth off the already sputtering economy, and rising unemployment could nudge more youths to join the drug cartels, government officials say.
Lower growth could leave Mexico with less cash to spend on the drug war, which cost $6.4 billion over 2007 and 2008.
"Frankly, I never imagined we could reach this level of disintegration, that the breakdown would be so fast," said Alejandro Gutierrez, author of a 2007 book called "Drug Trafficking: Calderon’s Big Challenge".
"Year three tends to be the one you are judged by. We are nearly there and Calderon has a lot of fronts open in the drug war. I don’t think he can do much in a year or two."
Calderon, an adroit former lawyer, ran an unexciting election campaign but then pleased investors by steering tax, pension and oil reforms through a divided Congress in under two years. He has also impressed security analysts with moves to clean up Mexico’s rabidly corrupt police and justice systems.
His drug war offensive has put thousands of smugglers behind bars and exposed brazen corruption running to the top of federal security forces.
But the top traffickers have not been caught and even the deployment of tens of thousands of army troops has failed to stop the flow of cocaine, marijuana, methamphetamine and heroin north across the border into the United States.
The U.S. military recently riled Mexico by including it in a report on "weak and failing states".
"Calderon didn’t have a lot of choice, he had to confront this phenomenon, but the drug war is damaging for him and for the country," said private security consultant Alberto Islas.
"Last year saw bombs, grenades, an attack on a TV station, more than 6,000 dead people. Mexico is not a failed state but we’re on ‘orange alert’. People want more stability and they’re going to vote for other parties."
Despite international concern over the drug war, most Mexicans cite the economy as more of a concern than security.
Mexico has bounced back from its mid-1990s "Tequila Crisis" with steady growth, low inflation, and a restructuring of its debt but the global downturn has slashed U.S. demand for Mexican-built cars and factory goods, kept oil prices low and hit migrant remittances.
While the central bank has burned through chunks of dollar reserves to shore up the peso, Calderon has been busy coordinating a ground war between 45,000 troops and ruthless cartel hitmen armed with smuggled American guns.
Images of bloodied corpses, severed heads and bodies strung from bridges or dissolved in acid baths have shocked the world. U.S. President Barack Obama will meet Calderon in Mexico this month after visits by a string of concerned U.S. officials.
Mexico insists it has the situation under control. Attorney General Eduardo Medina Mora says the pace of killings is slowing and there is no need for the United States to send troops to protect its southern border.
But a likely loss of seats in Congress and bickering between the PAN and the centrist PRI, whose backing it needs to pass laws, means Calderon may struggle to pursue his reforms.
"Following mid-terms he could conceivably become a lame duck president," said Armand Peschard-Sverdrup of the Center for Strategic and International Studies in Washington.
"The drug wars don’t really have an end-date," he said. "Mexico is at a critical juncture in consolidating itself as a democracy. The transformation could take three or four presidencies, it’s not something a president can undertake and complete in one term." (Editing by Kieran Murray)