October 15, 2010 / 7:02 PM / 9 years ago

Mexico drug war hits Monterrey economy

MONTERREY, Mexico (Reuters) - Surging drug violence is undermining economic growth in Monterrey, Mexico’s most affluent city, and prompting some businesses to put factory investment on hold, the region’s top official said on Friday.

A jump in murders, extortions and shootouts in Monterrey, the city near the U.S. border that generates 8 percent of Mexico’s gross domestic product, is an alarming turn in a war on drugs that already has investors and Washington on edge.

Rodrigo Medina, the governor of Nuevo Leon state, which is home to Monterrey, said some foreign manufacturers had frozen plans to invest in factories that exported to the United States.

Medina, a member of the opposition Institutional Revolutionary Party, or PRI, said this year’s economic recovery would also have been stronger after last year’s punishing recession.

“If the country and Nuevo Leon did not have these conflicts right now, we would be growing much faster,” he said in an interview a day after armed men parked buses and trucks across Monterrey’s highways in an attempt to hamper the military following a gunfight that killed three hitmen and a marine.

Since early this year, the violence that has long gripped less prosperous areas of Mexico has soared in Monterrey, casting a shadow over the city with the country’s highest per-capita income.

There have been some 650 drug killings this year in and around Monterrey, more than in the past four years combined for the region, which is one of Mexico’s worst drug war flashpoints.

Monterrey, 140 miles from the U.S. border, is home to some of Mexico’s biggest companies, like cement maker Cemex (CX.N) CMXCPO.MX, and it boasts factories belonging to global power players such as General Electric (GE.N).

But it is no longer immune to the drug violence that has killed over 29,000 people since President Felipe Calderon launched his campaign to crush drug cartels in late 2006.

“We have to recognize (violence) could have affected the decision-making of the investor ... I’ve come across some cases (of investors freezing plans to set up in Monterrey),” said Medina, including foreign manufacturing firms.

He declined to give more details.

NO MORE KIDNAPPINGS

Medina, who took office last year, said Nuevo Leon’s economy was likely to grow 6 percent this year, above a national forecast of about 4.5 percent but far off the 7.5 percent the state notched in 2006, before violence took hold and a slowdown in U.S. consumption hit Mexican exports.

Business leaders worry northern hubs such as Monterrey could lose investment to Brazil, China or India.

Local restaurants and bars are suffering as fearful residents stay home and businesses are forced to pay protection money to the cartels. Tourists and pop music artists, including Bon Jovi and Lady Gaga, have canceled visits.

The spike in violence in Monterrey comes as the Gulf cartel battles its former armed wing, the Zetas. Medina urged Calderon to send more troops to Monterrey, but city residents blame Medina for not doing more to flush out corrupt police and protect citizens from a growing number of grenade attacks.

“I am conscious that at the local level we are not going to resolve the problem of organized crime ... not even the drug and arms smuggling,” Medina said. “What the governor wants is that (the gangs) don’t hurt the local population, that there aren’t kidnappings, extortions, road blocks,” he added.

Editing by Missy Ryan and Paul Simao

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