Correa's Tightrope

Ecuadorian President Rafael Correa announced on 19 July radio show that Iran and China may invest in the planned refinery to be constructed in Ecuadorís Manabi province on the Pacific coast.

It was an announcement loaded with political innuendo yet takes a step in the direction toward Correa's pragmatic plan to make Ecuador a regional hub of international trade between Asia and South America.

The refinery, named ìEloy Alfaro Delgado is the result of a joint venture between Petroecuador and PDVSA, with 51 and 49 percent shares respectively. Presidents Correa and Chavez were present for the ground breaking ceremony on 15 July, the same day the accords forming the joint venture were signed.

Construction on the US$6 billion refinery is expected to end in 2013, with the refinery supplying 300,000 barrels of oil a day to foreign markets and quite possibly to China alone.

China's involvement is more pragmatic than political. Ever eager for South American natural resources, China's involvement in the refinery is a clear-cut business decision, one that will lock up more refined petrol products for China and increase the likelihood that the refinery will actually be built.

Money from both Iran and Venezuela, however, remains in question.

Just three days prior to his radio announcement, Correa had met with a high-level member of Iran's Trade office, Majid Salehi. The two discussed trade cooperation and bilateral relations, according to a presidential office announcement. This meeting came on the heels of a May agreement for both countries to open trade offices in Quito and Tehran. Political ties between the two countries seem to have tightened, but itís not clear if this will translate for an real economic upshot for Correa.

Iran's ability to lend strong financial support to Ecuador's blossoming trade position is limited, according to World Markets Research, but the country's name on the project allows Correa plenty of rhetorical space, allowing him an opportunity to stoke nationalistic fires.

When announcing Iran's involvement Correa stated that "Iran has a lot of experience in the oil field, it has been a producer for a long time, almost a century.

Somebody may say: Iran, Axis of Evil, but what do I care what other countries think? We have to be masters of our own destiny. We have nothing against Iran. Iran has done nothing to us," Correa said.

Venezuela's participation in this project is under an equal amount of financial uncertainty, generating a level of instability in both this project and Ecuadorís overall trade relationship with its South American ally.

According to testimony heard on 17 July before the US' Congressional Committee on House Foreign Affairs Subcommittee on the Western Hemisphere, PDVSA had to borrow some US$16 billion in 2007 to maintain operations. The company is under a number of international lawsuits for its inability to keep up with the deliverables as stipulated by supply contracts. And the company has in some cases sold off international assets to assuage its cash flow problem.

Meanwhile, Ecuador's Central Bank published in early February trade figures revealing that Venezuela has surpassed the United States as Ecuador's leading supplier of fuel. The small country does export crude oil, but has no refining capability, forcing it to import diesel, petrol, and other refined products.

In 2007, Ecuador imported some US$262 million diesel from the US, down from US$628 in 2006. Venezuela filled this gap with some US$423 in diesel exports in 2007. This growing dependence on Venezuela is yet another reason why Ecuador has pushed ahead with plans for a refinery.

Despite Venezuela's possible financial shortfall, Ecuador may find all the project financing it needs from China. The small South American country is an increasingly interesting position vis-a-vis its geographic advantages. And the Manabi refinery is but one development.

When the US military's lease on Manta terminates in 2009, Ecuador will likely use the Manta port and heavy-duty runway to construct a regional import/export center. If plans for a cargo rail line that will link Manta with Manaus in Brazil's Amazonas state come to fruition, Manta would indeed become a regional hub of trade activity, and with the refinery, make Ecuador that much more attractive in Asia's eyes.

Mexico Infiltrated

I'm back from field research for my book on immigration and organized crime in the United States. During the past two months, I have received a number of comments and questions about Mexico lately. Rest assured, many are closely watching the situation. For now, I'd like to share a piece I recently prepared for ISN.

More to follow soon...

Published by the International Relations and Security Network on 17/07/08

Mexico infiltrated

As organized crime gains increasing control over the country, the possible formation of a megacartel could precipitate the slow, steady failure of the government.

The number of murders related to organized crime in Mexico passed the 2,000 mark on 4 July. Since Mexican president Felipe Calderon entered office, at least 4,867 such murders have been registered, at an average of eight narco-related deaths a day according to Mexican daily El Universal.

At this pace, Mexico will close out the year with over 4,000 narco-related murders, fomenting public uncertainty and raising doubts about the president's hard-nosed, confrontational approach.

With some 20,000 soldiers in at least 11 Mexican states, Calderon has tried to take the bull by the horns, but he's met heavy resistance. Alarming spikes in violence have seen 10 people killed in under six hours in Tijuana, Baja California and 12 people killed in broad daylight in Culiacan, Sinaloa.
Controlling Mexico's cities

Edgardo Buscaglia, a UN adviser and economics and law professor in Mexico City, recently reported to the Mexican attorney general's office that up to 60 percent of Mexico's cities were controlled by organized crime.

Criminal elements infiltrate local governments by financing political campaigns and with bribes. Mexico ranks 6th in the world for the highest presence of organized crime, Buscaglia's research reveals, after Afghanistan, Iraq, Pakistan, Nigeria and Equatorial Guinea.

The Dallas Morning News reported recently of the formation of a Mexican megacartel, and as such, the prospect of a failed state on the US' southern border appears to be an unfortunate possibility.

Others would argue, however, that the nature of organized crime in Mexico is based on the simple tenant of convenient arrangements that are short-lived and end in violence.

It is an argument against the failure of Calderon's strategy and the Mexican government that has been well supported by this year's dramatic shifts in power from what used to be three major cartels into something significantly new.

Yet the de facto erosion of government control in many pockets of the country continues unabated, and as many in Mexico look north, they see the Merida Initiative (the recently passed US aid package) as the only way out of an unending cycle of violence.

Shifts in the sand

When Calderon entered office in December 2006 there were three well-established drug smuggling organizations in Mexico.

The Arrellano-Felix Organization (AFO) controlled the Tijuana border crossing market, or plaza.

The Sinaloa Federation, a conglomeration of the Carrillo-Fuentes organization in Juarez, the Sinaloa Cartel, run by Joaquin "El Chapo" Guzman, the Beltran-Leyva brothers and others, controlled plazas east of Tijuana stretching to Nuevo Laredo.

The territory from Nuevo Laredo to the Gulf of Mexico was under the control of the so-called Gulf Cartel, run by Osiel Cardenas Guillen and his partners and enforcers Los Zetas - a band of former Mexican Special Forces troops who defected to the drug trade.

Calderon made his presence felt when he immediately targeted the Gulf Cartel by extraditing its leader, Cardenas, who had been running his business from behind bars.

When Cardenas, along with a number of mid-level lieutenants in his organization, were extradited to the US, the structure of Mexican organized crime dramatically shifted.

Without a command and control structure in place, the Gulf Cartel, which had long battled the Sinaloa Federation for control of the Nuevo Laredo plaza and other areas in southern and central Mexico, was on its heels.

Further destabilized by what appeared to be Calderon's singular focus, the leadership within the Zetas structure took command of the Gulf Cartel's functions, and rather than push to extend its territory deeper into the Sinaloa Federation's traditional lands along the western coast, the group stood its ground in Tamaulipas, in the northeast.

To date, Calderon's efforts have netted some 81 of the cartel's 157 high-level operators, according to El Universal.

Arguably, the Sinaloa Federation was able to gain some ground in 2007 as the Gulf Cartel fought to defend its turf from Calderon's offensive, but the military's presence in the Federation's territory in Sonora, Sinaloa, Chihuahua and Michoacan (among other states) prevented a rapid expansion into the void and kept its leader, El Chapo, on the run.

As such, there was a relative impasse until the end of 2007, when a clean break between El Chapo and the Carrillo-Fuentes organization in Juarez precipitated further splintering within the Sinaloa Federation.

A spike in violence in Juarez marked the first few months of 2008 as El Chapo fought for control of the lucrative Juarez plaza.

On the heels of the Carrillo-Fuentes departure, the Beltran-Leyva brothers abandoned El Chapo in mid-May after, it is believed, the brothers learned that El Chapo provided the intelligence that lead to the January arrest of Alfredo Beltran in Culiacan, then a top operator within the Sinaloa Federation.

The retaliation saw El Chapo's son gunned down outside a shopping mall in Culiacan in May, an assassination ordered by the Beltran-Leyvas and reportedly carried out by members of Los Zetas.

"You must always consider the nature of Mexican organized crime since as far back as the 1980s," a security analyst in Mexico City, who asked not to be identified, told ISN Security Watch.

"These relationships are built on mutual benefit, but when the conditions change, the fallout is often violent, resulting in a relationship limited in scope and short-lived," he added.

Los Zetas and the Beltran-Leyva organization had been working together since mid-2007, but until the assassination of El Chapo's son in May 2008, many analysts did not consider this possibility, with most assuming that the Beltran-Leyvas were still loyal to El Chapo.

Now it is believed that Los Zetas and the Beltran-Leyva brothers have formed a new organization that controls access to the US and stretches across nearly the entire US-Mexico border area. Only Tijuana remains, and the considerably weakened Arrellano-Felix organization is not in a strong position to defend its turf.

With the supply routes from the days of the Gulf Cartels' peak of power still in place, the addition of the Beltran-Leyvas' control of the Sonoroa-Arizona smuggling route, likely strong ties with the Carrillo-Fuentes in Juarez; and the proven firepower of Los Zetas, this new organization may prove to be powerful indeed.

The paradox

"When states focus their counter-organized crime ops by only going after physical persons linked to large-scale organized crime without at the same time dismantling the criminal-asset networks supporting criminal enterprises, and without attacking high-level corruption that is linked to the economic networks, and that is - in exchange - providing protection to organized crime and benefiting from it, criminal groups will act rationally by re-assigning more financial and economic resources to protecting themselves through added corruption and by increasing the levels and scale of 'organized violence,'" UN adviser Edgardo Buscaglia told ISN Security Watch in a recent email interview.

This situation is one Buscaglia calls "The Paradox of Expected Punishment."

Supporting Buscaglia's argument is Guillermo Valdes, head of Mexico’s intelligence organization, known as CISEN. Valdes recently told the Financial Times in a frank admission that the cartels threatened democracy in Mexico.

"Drug traffickers have become the principal threat because they are trying to take over the power of the state," Valdes told the Financial Times in a 13 July report.

From the Mexican attorney general's office, reports have surfaced that organized crime controls no less than 80 municipalities throughout the country.

Both admissions point to one clear fact: Mexican organized crime works diligently to control politicians and other political leaders from the municipal level up to the national Congress. If Buscaglia's theory holds true, then as Calderon pushes forward his offensive, now focused on the Sinaloa Federation, criminal organizations will react with more violence and more bribes.

"Unless the Mexicans start dismantling the financial [and] economic networks supporting org[anized] crime operations, through money laundering, high-level corruption, arms trafficking, human traf[ficking], etc, the expressions of violence and instability will keep growing and the paradox will impede an effective performance of the State," Buscaglia said.

A way out?

Some consider the recent passage of the Merida Initiative, a multi-million dollar anti-drug trafficking aid package approved in June by US Congress, a way out of this paradox. (See Sam Logan, Mexico aid package passed, for ISN Security Watch.

Others disagree. Bruce Bagley, chairman of the Department of International Studies at the University of Miami, says the Merida Initiative is not a way out for a number of reasons, including the need for greater focus on police and judicial reform.

"Police reform and judicial reform need to make drug enforcement in Mexico more a civilian rather than a military function, and they're not very far down that line," Bagley told ISN Security Watch.

It is clear the Mexican government cannot outspend its opponents in head-on combat. As Buscaglia points out, the criminal's financial network must be targeted, but judicial reform and the professionalization of Mexico's police forces are also fundamental but have thus far received relatively little attention.

Files used to process criminal cases or in the investigation of these cases have been found to have an 87 percent error rate, according to Mexican daily La Reforma.

Would-be criminals run amuck. If they are arrested, chances are the arresting officer is on the cartel payroll. If not, the chances are he will make a mistake in the paperwork that will lead to the criminal's release. Within this atmosphere, it is extremely difficult to investigate, prosecute and imprison criminals inside Mexico.

"[The US has] a policy that is contradictory within itself on migration, guns, drugs and trade and investment, and Mexico just has to live with it because they are junior partners and they are trying to deal with [their security] problems, but militarizing them is not going to get rid of it," Bagley argued, adding, "drug trafficking will continue and Mexico has to address its institutional problems itself and those problems are not going to be solved from one day to the next."

The Merida Initiative does provide funding for judicial reform and the professionalization of police forces, but not nearly enough. If it is to be a way out, most argue, more focus should be placed on improving the police so they may perform a job currently conducted by the Mexican military.

Some 20,000 soldiers are on patrol in at least 11 Mexican states, but Calderon has plans for a drawdown in 2009, according to a Jane's Intelligence report. Local reports claim Calderon is focused on ramping up the number of police on the job, but doubts remain about the screening process. With a fast increase of police, will the government prevent the entrance of more cartel-paid moles?

Either way, violence in Mexico will likely continue at record levels through the end of the year. It is not clear if a megacartel is forming along the northern border, but if one does surface, its life may be short-lived, as history suggests.

Mexico depends on aid and assistance from the US. The situation is one of national security in Mexico. Such a security threat on the US' southern border is more than enough to shock US leaders into action. So far, however, they have focused on the status quo policy of heavy spending on military aid with less attention paid to the root causes of corruption, judicial reform and police professionalization.

As one Mexican security analyst recently put it, the relationship between Mexico and the US is one in which the US holds Mexico by the throat over the edge of a cliff. Mexico is certainly in a bad situation, but the US will never drop its southern neighbor. To do so could very well mean state failure, and this is not a reality the US or the region can accept.