Mexico Hit by Unrest and Scandal

Mexico’s Spreading Unrest and Sense of Lawlessness Are Shaping Up as Major Political and Economic Challenges to President Enrique Peña Nieto.

By :David Luhnow

CHILPANCINGO, Mexico—Thousands of demonstrators descended on this state capital on Friday to protest the recent alleged massacre of 43 freshmen from a local teachers college, adding to days of unrest that has left roads blocked and government buildings torched.

The protesters have seized dozens of town halls across two states and briefly shut airports in two nearby cities. On Friday, they hijacked food-delivery trucks belonging to Sabritas, a unit of PepsiCo, and handed out the goods inside to passersby.

Mexico’s spreading unrest and sense of lawlessness are shaping up as major political and economic challenges to President Enrique Peña Nieto , with central bank policy makers saying the events could crimp the country’s sluggish economic growth, according to the minutes released Friday of its Oct. 31 meeting.

Mr. Peña Nieto also is under scrutiny after reports surfaced that the title to a presidential family mansion belongs to a company whose owner won big government contracts. The presidential office has rejected any suggestions of wrongdoing and said the house was bought by the first lady, a successful actress.

But the two seemingly disparate developments—an alleged student massacre purportedly involving police and the mansion—have thrown the president off stride, dented his reformist image and raised new questions over how deeply he will be able to transform the U.S. neighbor and third-largest trading partner.

“This is a political and personal crisis for the president,” said former foreign minister Jorge Castañeda, author of a book on the Mexican presidency.

It has been a startlingly fast turnaround in fortunes for Mr. Peña Nieto, whose first 22 months in power were marked by a string of successes, including passage of a series of economic overhauls that landed him on the cover of Time magazine as the man “saving Mexico.”

The controversies complicate the president’s agenda, potentially slowing implementation of key changes like opening the oil industry to private investment and overhauling public education, overhauls that were already deeply unpopular in impoverished states like Guerrero, where the students went missing.

Worries about corruption and favoritism in public contracts could also set back the country’s ambitious plans to attract tens of billions of dollars for oil and infrastructure projects, including several high-speed rail lines and a new Mexico City airport.

“Implementation [of their plans] is going to be diverted now, as they will have to dedicate significant time to deal with these accusations,” said Jack Deino, a senior portfolio manager for Atlanta-based Invesco Fixed Income who manages some $2 billion in emerging market assets.

Mexico is still one of the few bright spots in global emerging markets, with countries including Brazil and Russia that are more dependent on commodity prices struggling from their downturn. Cristine Lagarde, head of the IMF, recently held up Mexico and Mr. Peña Nieto as an example to other emerging nations of the kinds of revamps needed to kick-start growth in a sluggish world economy.

“The enthusiasm for Mexico hasn’t disappeared, but it’s tempered by reality,” said Michael Shifter, president of the Inter-American Dialogue, a Washington, D.C. think tank. “A lot of the positive rhetoric has collided with the stubborn realities of Mexico that won’t disappear from one day to the next.”

Added Enrique Krauze, Mexico’s most prominent historian: “Mexico had a date with its past.”

Mr. Peña Nieto and his team, who campaigned on bringing efficiency back to Mexico’s government, appear to have been caught off guard by the national outcry over the fate of the 43 students, whom officials said were apprehended by local police in late September and handed over to a drug gang to be killed. Prosecutors said late last week they believe they found the students’ incinerated remains.

A judge on Friday ordered the imprisonment of the mayor who allegedly ordered the students to be killed. The mayor hasn’t made any public statement.

Mr. Peña Nieto has been criticized over how his administration has handled the crisis. It took him 11 days to make a public comment after the students’ initial disappearance. His attorney general was ridiculed after telling reporters during a news conference that he was “tired” or “fed up” with questions about the students’ death. And the president, who has yet to visit Guerrero state since the massacre, has spent the week in Asia while the country simmers.

Eduardo Medina Mora, Mexico’s ambassador to the U.S., said the alleged massacre will force the Mexican government to focus on developing strong policing institutions.

“This was a wake-up call for all of us,” said Mr. Medina Mora, in an interview with CNN on Friday. “This must not happen again.”

The revelations about the home—a video of which was seen nearly three million times on YouTube this week—also have touched a nerve in a country where corruption is so deeply ingrained that a legendary former boss of the ruling Institutional Revolutionary Party used to quip that “a politician who is poor is a poor politician.”

The presidency declined to offer details of how much the first lady paid for the house or why it wasn’t bought through a bank, rather than paid directly to the developer.

The latest issue of the country’s leading newsmagazine Proceso juxtaposed two pictures on its cover: one of the student’s grieving and angry parents—mostly farmers with dark skin and straw hats—and one of the sparkling white interior of the mansion. The message was clear: Mexico is still cleaved between haves and have-nots.

“You can see the difference between the misery that most Mexicans live and the luxury enjoyed by a few,” said Felipe de la Cruz, father of one of the missing students who has become a spokesman for the families. “It’s not just the president that’s a problem. It’s any politician, all of them, anyone in power.”

“They mock people,” said Maria Gaspar, 20, whose brother is among the missing. “They make themselves wealthy with our taxes, our labor.”

The mansion flap and the alleged student massacre have exposed an uncomfortable reality to both Mexicans and foreign investors alike. While Mr. Peña Nieto’s legislative successes were lauded, his attempts to change Mexico are incomplete without stronger rule of law in a country that solves fewer than 2% of serious crimes, and where corruption is rarely punished, government statistics reveal.

“The reforms the president delivered just affect a part of the country—the business end,” said Sergio Aguayo, the academic at Colegio de Mexico. “But they don’t touch things like human rights, corruption and security.”

Mexico’s central bank estimates the country’s insecurity costs 2 percentage points of annual economic growth—double the expected bump from opening the country’s oil industry to foreign investment. While rates of drug-related homicides have slowed under Mr. Peña Nieto’s watch, rates of extortion and kidnapping are rising.

Mexico’s lack of rule of law is on display daily in Guerrero, where protesters rampage while state and federal police sit idly by, apparently worried that confronting the protesters will inflame passions further.

The lawlessness can be seen in the capital as well. This past week, a group of masked youths set fire to the door of the presidential palace in Mexico City, which burned for an hour before police broke up the crowd.

“If we really want to have sustained growth of 6% or more, the only way to do that is creating a country that is safe for its citizens to risk taking a loan or mortgaging their house to open a business,” said Luis de la Calle, a former government trade negotiator. “It’s the big piece of the Mexico story that’s missing.”

In another blow to Mexico, the remains of a Ugandan priest kidnapped more than six months ago were found in a mass grave in Guerrero state, Roman Catholic authorities said Friday, according to the Associated Press.

The death of the Iguala students, who attended a teacher college famed for its leftist activism, has also given new life to a dissident teacher union that controls most public schools in the impoverished states of Oaxaca and Michoacan, and about a fifth of the schools in Guerrero. The union is opposed to the educational revamps, which call for teacher evaluations as well as ending practices such as allowing teachers’ sons and daughters to inherit their parents’ teaching positions.

“The reform here is dead,” said Samael Hernandez, an educational consultant in Oaxaca. “They might as well come and bury it.”

—José de Córdoba, Dudley Althaus and Santiago Pérez contributed to this article

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