By Eurasia Group analysts Allyson Benton and Patrick Esteruelas

As the Mexican government continues to face serious public security problems caused by the nation's drug cartels, fears are mounting that investors may lose confidence. In Mexico's current economic climate, where GDP could contract by as much as 8 percent in 2009, according to the OECD, any potential downward pressure on the economy sets off alarm bells.

Since he took office in 2006, President Felipe Calderon has pursued a twofold strategy against organized crime. The government has deployed the military to key drug trafficking regions in the north and along the west coast to root out cartels. It has also pushed important institutional reforms through congress to help make the country's police forces and judicial system more efficient. Nonetheless, the level of narcotrafficking violence has grown nearly threefold during Calderon's time in office, from an average of 2,195 deaths in 2006 and 2007 to an estimated 6,000 total deaths expected in 2009. In addition, drug traffickers appear to be moving into other illicit activities like extortion rackets and kidnapping rings, as the number of such reported crimes has risen dramatically in the past two years. These rising public security problems could suggest that Mexico is heading along the same path as Colombia, but there are some important distinctions to consider.

A few factors, in particular, make Mexico's state of affairs quite different from the situation in Colombia. First, the government still maintains control over its territory and has not ceded ground to narcotraffickers at any time. Second, although the fight against the cartels has resulted in higher rates of violence, the hostility remains largely contained in a few states and among narcotraffickers vying for improved positions within the cartels or between them. Third, Mexico's drug trafficking violence on a per capital basis remains significantly lower than Colombia's. Even after years of President Alvaro Uribe's successful hard-line security policy against Colombia's narcotraffickers, violence in this country remains quite high: There were a total of 16,000 reported homicides in 2008 in a country of 45 million people. In Mexico, in contrast, narcotrafficking related violence is expected to cause about 6,000 casualties in 2009, in a country of more than 100 million. Fourth, Mexico's narcotraffickers have not targeted civilians in order to support a campaign of fear against the government, even if they do continue to target public officials specifically involved in the fight against them.

In Colombia, in contrast, the nation's narcotraffickers embarked on a public fear campaign that targeted civilians and political elites, even if they had little to do with narcotrafficking or the fight against it. Finally, and most important, Mexico's narcotraffickers have no unifying political agenda. In contrast, Colombia's narcotraffickers -- in particular, the Revolutionary Armed Forces of Colombia (FARC) -- originated out of a drive to see their left-leaning interests represented in the nation's political and party system, and they still claim to have such political aims. A unifying political agenda, however tenuous, helps reinforce the structural integrity and thus durability of groups when under pressure from the government.

In the end, the stark contrasts between Mexico and Colombia explain why investor confidence in Mexico does not appear to have waned as a result of the country's public security woes. As long as President Calderon stays firm in his stance against organized crime, investors will continue to base their judgments about Mexico on the government's capacity to push through badly needed fiscal and economic reforms rather than the level of narcotrafficking violence.

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