CHAPTER FOUR
Reagan cast himself as a law and order man, ready to reverse the wimpy policies of Jimmy Carter, who indeed had pulled back from Nixonian fanaticism. In this Carter was responding to the growing disinclination of middle-class parents to have their children locked up for marijuana use, which few still believed to be a menace, unlike Reagan who, channeling Anslinger, declared it “probably the most dangerous drug in America.” Unluckily for Carter, cocaine use had exploded on his watch, allowing Reagan to run successfully as a reincarnation of Nixon. Once in office he relaunched the war on drugs. In January 1982 he created the South Florida Task Force to go nose-to-nose with the cocaine barons. Headed by Vice President George H. W. Bush, the task force brought in the army and navy, and put Miami vice in its crosshairs.
It worked. Surveillance planes and helicopter gunships throttled the hitherto wide-open Colombia-Florida connection. Seizures cost Medillín drug lords hundreds of millions of dollars. But there was a fix ready to hand: the Colombians simply abandoned their direct shuttle service and increased the flow through their Mexican pipeline. At first the benefits were chiefly channeled back to South America; Forbes magazine would estimate the personal fortune of Pablo Escobar, the number one Medellín smuggler, at $9 billion, making him the richest criminal in history. But increasingly the Mexicans shifted from being simply a well-paid smuggling service to demanding and getting full partnership status. Soon Félix Gallardo, Fonseca Carrillo, and Caro Quintero were providing 90 percent of the cocaine pouring into the ever-expanding U.S. market, and laundering back an estimated $5 billion a year. Twenty million dollars flowed through a branch of the Bank of America in San Diego in just one month.
It was in 1984 that the DEA began referring to the triumvirate as the Guadalajara Cartel, echoing the by then common reference to the Medellín and Cali Cartels. Though the term evoked the tremendous wealth and power of these entities, it was somewhat misleading. The conventional meaning is a consortium of established corporations or states aimed at eliminating competition and its unwelcome handmaidens, price wars and shrinking profits. OPEC (Organization of the Petroleum Exporting Countries) was the era’s premier example of such a price-fixing federation. It is true that the Guadalajarans had effected a coalition—indeed, they had established a monopoly—but it had conjoined individual gangsters, or cliques of gangsters, not giant political or economic institutions. Still, the name stuck, though the participants themselves never embraced it.
“Cartel” was misleading in another sense, in that it left out the centrality of the Mexican state. The Guadalajara Cartel prospered largely because it enjoyed the protection of the DFS, under its chief Miguel Nazar Haro (1978–1982), and his successor José Antonio Zorrilla Pérez (1982–1985). The DFS provided bodyguards for the capos; ensured drug-laden trucks safe passage over the border by using the Mexican police radio system to intercept U.S. police surveillance messages; and handed out DFS badges with abandon. (DEA agents could not help but notice that every time they arrested a high-level trafficker he was carrying DFS credentials.) Nazar Haro did yeoman’s service for the Guadalajarans until he was tripped up by his own greed. In 1981 the FBI arrested him in San Diego, having caught him smuggling autos into the U.S., a collateral business his drug profits rendered unnecessary. True, the CIA got him sprung—insisting he was an “essential, repeat, essential contact for the CIA station in Mexico City”—but Nazar Haro was now blatantly tarnished goods and axed accordingly. His replacement proved a more than adequate successor, though Zorrilla Pérez would later prove an embarrassment and be sentenced to the slammer for thirty-five years, having been found guilty of ordering the murder of a prominent journalist.
As it turns out, the Guadalajarans received further crucial support from yet another state—the government of Ronald Reagan—this time not inadvertently (as with the unanticipated consequence of shutting down the Miami corridor) but done on deadly purpose.
From 1982 on, CIA and White House apparatchiks (like Oliver North and Elliott Abrams) were looking for ways to circumvent a U.S. Congressional ban on further assistance to the Contras, the U.S.-supported paramilitary movement seeking to topple Nicaragua’s Sandinista government. One idea they hit upon was to covertly ferry arms to the Contras via Mexican drug dealers. Félix Gallardo, at that point running four tons of cocaine into the United States every month, provided “humanitarian aid” to the Contras in the form of high-powered weaponry, hard cash, planes, and pilots. Indeed a Caro Quintero ranch became a training facility, run by the DFS—the CIA’s faithful Mexican affiliate. In return, Washington looked the other way as enormous amounts of Mexican-processed crack cocaine flooded the streets of U.S. cities, the super-addictive, mass-marketed drug wreaking havoc in poor communities, and triggering an Uzi-driven competition for market share that sent crime rates spiking..
The DEA was becoming increasingly frustrated by DFS and CIA closeness to the drug cartel, which was growing daily in strength and power. DEA agent Enrique “Kiki” Camarena, who had been working out of Guadalajara since 1980, had been barraging Washington with complaints about the gangsters’ protective cocoon. In November 1984 he was able to prevail upon a DFS rival, the Federal Judicial Police (PJF), to raid Rancho Búfalo. When 450 men backed by helicopters destroyed the fields and burned ten thousand tons of marijuana, the cartel leaders—enraged—kidnapped, tortured, and killed Camarena. His body was eventually found in a shallow grave on a Michoacán pig farm.
The DEA went ballistic. First they tracked the killers. Caro Quintero had escaped arrest at the Guadalajara airport by waving his DFS badge—Zorrilla Pérez was cashiered for giving it to him—but was eventually captured in Costa Rica, tried, sentenced, and jailed. So was Fonseca Carrillo, but for the moment Félix Gallardo remained in hiding. Then the DEA went to the media with the truth about the DFS and its symbiotic relation with the crooks it was supposed to be suppressing. The American agency had known this all along, of course, but had sat on the story because, in Reagan’s administration, the CIA’s anti-communist card trumped the DEA’s anti-drug hand. More, they made public the corrupt involvement of senior PRI politicians, a blow to the party’s image and credibility. In response the Miguel de la Madrid government (1982–1988) dissolved the entire DFS. Some agents and police commanders were sent to jail, but many simply changed uniforms and joined other federal agencies, either the old established PJF or the new CIA clone, CISEN (Centro de Investigación y Seguridad Nacional or Center for Research and National Security).
The scandal of Camarena’s murder boosted the DEA’s political clout in the States. Not only did it win an expansion of the agency’s bureaucratic empire, it propelled passage of the 1986 Anti-Drug Abuse Act, which required the executive branch to annually certify that any country receiving U.S. assistance was cooperating fully with U.S. anti-narcotics efforts, or taking steps deemed sufficient on its own. (Thus did the U.S., the world’s largest consumer of illegal drugs, set itself up as judge of other countries’ progress on solving a problem the U.S. could not.) If the country in question failed to measure up—and Mexico was an obvious target—it would be struck off from all foreign aid programs. Worse (particularly for Mexico), the U.S. would oppose any loan requests that country might make to multilateral development banks (like the International Monetary Fund [IMF]), such opposition of course being a guaranteed kiss of death.
Also in 1986, with the crack epidemic at full throttle, with the Iran-Contra scandal about to splash into public view, and with the midterm elections approaching, Reagan turned up the volume of his drug war rhetoric. “My generation will remember how Americans swung into action when we were attacked in World War II,” he cried. “Now we’re in another war for our freedom.” He signed a National Security Decision Directive declaring drug trafficking a threat to national security. This permitted the U.S. Department of Defense to get involved in a wide variety of anti-drug activities, especially on the Mexico-U.S.A. border.
President de la Madrid dutifully followed suit, declaring drug trafficking a threat to Mexico’s national security, and authorizing an expanded military presence in anti-narcotics efforts. He had little choice. Mexico had tumbled into a full-blown economic crisis. Certification, hence access to credit, had now become essential. In the course of wrestling with it, de la Madrid would begin to engineer a profound transformation in the country’s economy and polity, a transformation that would have major consequences for the organization of the drug business.
Since the Cárdenas administration of the 1930s the PRI had been following an interventionist development policy, seeking to boost industrialization and achieve greater national self-sufficiency by imposing tariffs, limiting foreign ownership, investing in energy and transportation infrastructure, subsidizing farmers, and providing substantial social programs. On the whole they had not done badly: from 1940 to 1970 Gross Domestic Product had increased sixfold. In his 1970–1976 sexenio, President Echeverría had dramatically expanded state-driven development by nationalizing more than six hundred enterprises—movie studios, bus manufacturers, hotels, publishing houses—and underwriting major public works (highways, sewer systems), particularly in Mexico City. Much of this nationalization was financed by borrowing from the IMF or World Bank, and it tripled the national debt. Echeverría was encouraged in this spending bender by the 1972 discovery of huge reservoirs of oil under the savannahs of Tabasco—soon dubbed “Little Kuwait”—and then even larger ones offshore in the Bay of Campeche. These holdings were dramatically increased in potential value after 1973 when OPEC succeeded in jacking up global oil prices.
The country could not, however, escape fallout from the global recession that struck in the mid-1970s, leading to a drop in demand for Mexico’s industrial exports. In 1976 Echeverría was forced to devalue the peso. It lost half its value, inflation soared, and capital flew away in search of safer climes. Salvation arrived during López Portillo´s sexenio in the form of the oil gushers that now came on line; by 1979 one Campeche field alone was filling 1.5 million barrels a day. PEMEX, the state-owned oil monopoly, was able to stop importing and start exporting. Revenues climbed from $500 million in 1976 to $13 billion in 1981, the latter figure boosted by yet another rise in oil prices when in 1979 the Iranian Revolution temporarily subtracted its output from the market.
This windfall produced another one when U.S. bankers began arriving in Mexico City, their suitcases stuffed with petrodollars they were eager to lend such an oil-rich country. By 1981 its proven reserves were estimated at two hundred billion barrels. (One Fortune article was entitled: “Why the Bankers Suddenly Love Mexico.”)10 López Portillo was delighted to leverage Mexico’s future prospects into cash on the barrelhead, and he doubled down on the PRI’s state-driven development strategy.
Some of the massive flow of public spending went into productive enterprise, notably PEMEX itself. Between 1977 and 1980, the oil company received $12.6 billion in international credits, representing 37 percent of Mexico’s total foreign debt, which it used to construct and operate offshore drilling platforms, build onshore processing facilities, enlarge its refineries, engage in further exploration, and purchase capital goods and technical expertise from abroad. These investments helped increase petroleum output from four hundred million barrels in 1977 to 1.9 billion barrels by 1980. Other investments in railroad, highways, and manufacturing helped grow the Mexican economy at an annual rate of 8 percent.
But much of the spending was squandered on ill-advised projects; on current rather than capital expenditures; and on a self-serving expansion of the bureaucracy (and its salaries). Some of the outlays were blatantly nepotistic or corrupt. This kind of rot, like that of the proverbial fish, began at the head, partly because the PRI system vested virtually limitless power in its Pharaonic president. López Portillo stuffed his relations (wife, sister, son) into high government positions, made a mistress the secretary of tourism, and boasted of it all: “My son is the pride of my nepotism,” he declared fondly.
An engineer and old López Portillo confidante, Jorge Díaz Serrano, got the top spot at PEMEX. While successfully expanding development of the new oil finds, Díaz Serrano also cupped his hands in the flow of profits, as did many other PEMEX executives in these years. He later served a five-year prison sentence for doing so. An old López Portillo school chum, Arturo “El Negro” Durazo, was appointed Mexico City’s chief of police. Durazo had served in the previous sexenio as police commander of the capital’s Benito Juárez International Airport, helping make it a key transshipment point for Colombian cocaine. Now he transformed the city’s twenty-eight-thousand-man police force into a drug distribution network, handing out coke packages to brigade commanders to sell to underlings for personal consumption and resale to the public. During Durazo’s 1978 to 1982 tenure, policemen had carte blanche to rape women, who soon learned never to ask the police for assistance, indeed to run in the opposite direction when they saw a cop approaching.
The foreign debt rose steadily—from $20 billion in 1976 to almost $59 billion by 1982—but it seemed Mexico could handle it. And then it could not, chiefly due to events beyond its control. In the mid-1970s the United States had added to its woes of recession those of inflation, due in considerable measure to OPEC’s success in raising oil prices. To “whip inflation now” as President Ford (1974–1977) urged, the Federal Reserve Bank helmed by Chairman Paul Volcker began (in 1979) to raise interest rates, eventually driving the prime rate from 12 percent to 21 percent. By 1980 this had precipitated a far deeper downturn, which did lower inflation, but only by driving up unemployment to levels not seen since the Great Depression of the 1930s.
The recession Volcker engineered in the U.S. had an even more devastating impact on Mexico, as the interest rate on rolling over its short term loans nearly doubled. By 1982, simply meeting interest payments would have required more than $8 billion per year. Worse, just as expenses soared, income declined. Oil prices sagged because the global recession diminished demand and Iranian oil came back online, expanding the supply. Between 1981 and 1982 the price fetched by Mexican oil dropped from $78 to $32 a barrel. Meanwhile, Mexican capital was fleeing the overvalued peso for the U.S. dollar. Between January and June 1982, $12 billion left the country, forcing repeated devaluations, from 20-1, to 70-1, to 150-1.
Mexico made clear it could no longer make its interest payments. U.S. banks were terrified. Thirteen of the biggest stood to collectively lose $60 billion if Mexico went under—48 percent of their combined capital. And if Mexico fell, most of Latin America would come tumbling down behind it, likely triggering a collapse of the entire international financial system. The United States, accordingly, put together a multi-billion-dollar package of loans and credits, and worked out an unofficial debt moratorium. The World Bank and IMF were wheeled in to provide Mexico with emergency loans with which to resume paying the U.S. banks, rescuing them from their own recklessness. These institutions in turn—following the model first worked out in the so-called fiscal crisis of New York City in 1975—now imposed “structural adjustment” on Mexico. The creditors demanded privatization of public services, cuts in government social programs, a wider opening to foreign investment, and a ruthless concentration on paying back loans and interest. This arm-twisting was given an ideological gloss, reviving hoary shibboleths about the inherent superiority of market over state, repackaged as “neoliberalism.”
Executing these demands fell to President Miguel de la Madrid (1982–1988), who had been López Portillo’s secretary of planning and budget. A member in good standing of the PRI’s technocratic wing, de la Madrid had not emerged from the party’s mass political organizations, but had risen through the financial and oil bureaucracies. He did not need to be coerced into following the neoliberal path, having absorbed its tenets at Harvard’s Kennedy School of Government. He believed the state apparatus was a burden upon Mexican business that should be thrown off, along with much else in the PRI’s inherited project and ideology. But he had no interest in jettisoning the one-party state. Indeed he would use the PRI to engineer the volte-face. De la Madrid privatized many of the smaller state-run industries, cut investment in infrastructure, reduced tariffs, refrained from taxing the elite, and encouraged foreign investment. He also slashed government subsidies to the agrarian sector, which was instructed to adopt an export-oriented model and start growing crops, not to feed Mexicans, but to pay foreign creditors.
This first round of shock treatment exacted a terrible price. The economy, knocked flat, remained on the mat for a decade. Many industries collapsed, with the loss of at least eight hundred thousand jobs. Farmers deserted the ravaged countryside and piled into Mexico City, where unemployment soared. Real wages plummeted as inflation climbed to 100 percent. By 1987, the Mexican government estimated that over half the population was malnourished. Meanwhile, the debt doubled from 30 percent of GDP in 1982 to 60 percent by 1987. The 1980s became known asLa Década Perdida—the Lost Decade—and millions of lives were ruined.
The troubles came not singly but in battalions. In 1985 perhaps ten thousand lives were snuffed out in a magnitude 8.1 earthquake that devastated Mexico City. In an early sign of the state’s weakened condition, partly due to ideological paralysis, the government failed to respond to the catastrophe other than to foolishly spurn proffered help from the U.S. and elsewhere, and indeed did its best to undercount the fatalities. The civilian population—especially youths and women—took up the burden of rescue, providing food and rudimentary shelter to survivors. Then they began demanding urban reconstruction. Popular organizations sprang up along a broader front, forging social movements aimed at contesting the austerity project itself. Citizens resisted evictions, mounted land invasions, demanded provision of public goods. The long extant discontent with PRI authoritarianism was now exacerbated by fury at its inefficiency and ideological reversals. Soon these energies would be channeled into political movements aimed at removing the PRI from power.
10 Petrodollars were the swollen sums harvested by OPEC oil-producing members, which they turned over to U.S. and European bankers to invest on their behalf. In Mexico, First National City Bank’s Walter Wriston led the money-shoveling pack—reaping whopping profits on the spread and huge fees—arguing that the dangerously insecure loans were perfectly safe since countries couldn’t go bankrupt.