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It’s not so much “Headless body in topless bar”, as the New York Post once famously headlined; more severed heads all over the place.

At least 25 people have been decapitated so far this year in Mexico as turf wars among drug cartels take on a gruesome new turn. In the most recent incident, five severed heads wrapped in plastic bags, were hurled on to the dance-floor of a sleazy bar in the western state of Michoacán. Warnings that “the family” would wreak similar vengeance on its rivals were attached.

President-elect Felipe Calderón, who himself hails from Michoacán, admitted recently that violence has spun out of control of the authorities in several states and in Mexico City.

That is merely stating the glaringly obvious, said Lorenzo Meyer, a historian at the respected Colegio de México. The outgoing administration of President Vicente Fox “has singularly failed to fulfil the basic responsibility of any government: ensuring the security of its citizens and their possessions,” he said.

Like the Middle Eastern terrorists whose tactics they appear to have aped, the drug gangs use the beheadings as a publicity tool, Dr Meyer said. Some severed heads have been placed outside public buildings in what appears to be a direct challenge to the authorities.

The World Economic Forum joined the debate on lawlessness with the publication of its Global Competitiveness Report 2006-2007 in which Mexico ranked number 58. “Mexico has a serious crime problem that increases business costs and undermines competitivity,” said Augusto López-Claros, the forum’s chief economist.

Business leaders in Tijuana on the US border, one of the cities worst beset by the drug violence, have called on the government to bring in the army. The request was denied, but disquiet remains in the business community throughout Mexico.

“It’s a big problem. No doubt about it,” said German Ramírez, whose Santa Fe Industrial Park in the northern industrial city of Saltillo houses several autoparts companies.

Saltillo has escaped the recent violence, but Mr Ramirez pointed to one of its causes. Mexico used to be only an exporter of drugs; now there is a huge domestic market that inspires much of the conflict. “The government doesn’t seem capable of doing anything about it but maybe we citizens could,” said Mr Ramirez. “I favour anti-doping tests in all companies and at places like colleges and universities. It may seem extreme, but we have to begin somewhere.”

Major investors, however, appear to be shrugging off the violence, as they have the disputes that followed Mr Calderón’s election.

“It’s not a concern,” said Damian Fraser, chief Latin American strategist of UBS Warburg. “Investors look at the sound economic figures and that gives them confidence.”

As Mr Fraser spoke last week, the IPC index of the Mexico Stock Exchange was setting a new record high; cement-maker Cemex announced a $460mn extension to a plant in Puebla state; and Telemundo, the Spanish-language affiliate of the NBC television network in the United States, was holding a press conference on plans to acquire a channel in Mexico.

Mr Fox now faces a golden opportunity to contradict detractors, such as Dr. Meyer, who accuse his government of ineptitude in the face of severe public disorder.

For months, anarchy has ruled in the normally sleepy southern colonial city of Oaxaca. A teachers’ strike has led to an open revolt in which the redundantly named People’s Assembly of the People of Oaxaca (APPO) metes out “popular justice” to alleged criminals, provokes gun battles and builds barricades. Sources close to state security institutions say that armed rebel groups are heavily involved.

The APPO is seeking the head – metaphorically in this case – of Ulises Ruiz, the state governor, who has been forced to live out of a suitcase while his administration has gone underground. Amid calls for the government in Mexico City to send in militarized federal police, the local business community last week closed petrol stations, shops and other small firms for 48 hours.

With talks between the APPO and the federal government stalemated, Mr Fox’s reluctance to use force is becoming an increasingly unviable option. Moreover, he has promised that the problem will not be handed on to Mr Calderón on December 1.

The precedents, however, are far from encouraging. After he took power at the end of 2000, Mr Fox announced that the construction of a new Mexico City airport would be the main public works priority of his administration. But the government backed down when machete-wielding peasants refused to give up their lands for the project.

Earlier this year, a strike by workers at a major steel complex in Michoacán was declared illegal by the Labour Ministry. After weeks of delay, federal police launched a dawn raid to dislodge the strikers who were occupying the main plant. Not only did they fail in their mission, they killed two of the strikers, a severe blow to the democratic image of the publicity-conscious Mr Fox.

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