WHY THIS MAY BE THE END OF ACAPULCO

On Wednesday, Oct. 25, Hurricane Otis landed near Acapulco, on Mexico’s southern Pacific coast, at 1:25 a.m. CDT as a Category 5 hurricane with sustained winds of 165 mph. The storm had rapidly intensified off the beach, and very quickly, Otis transformed into the strongest hurricane in the Eastern Pacific to make landfall in the satellite era. 

Because the storm intensified so quickly, with wind speeds increasing by 115 mph within 24 hours, the more than one million people living in and around the city had very little time to prepare for the monster storm ahead of landfall. Only one other storm on record, Hurricane Patricia in 2015, exceeded Otis’ rapid intensification in the Eastern Pacific, with a 120-mph increase in 24 hours. Authorities were caught off-base at the three levels of government. Neither federal, state, nor municipal authorities did anything to mitigate the storm’s impact.

Reports and images from Acapulco showed catastrophic damage to structures, including many hotels and high-rise buildings, downed trees, severe flooding, and mudslides. Damage was observed at 120 hospitals and clinics. Additionally, more than 10,000 utility poles were destroyed, knocking out power and internet/communications across the region, while numerous transmission lines, electrical substations, and a power plant were also heavily damaged. Acapulco became a war zone in less than five hours.

The problem with this catastrophe is that Acapulco was already struggling with a difficult situation even before the hurricane. In the past five to ten years, crime has harmed tourism in Acapulco as drug cartels attack each other over the Guerrero coastal route, where drugs from South America are shipped into distribution channels that eventually end up in the United States. Today, many countries warn their citizens not to travel to Acapulco because of high crime levels. While organized crime used to be limited to other areas of Guerrero, in recent years, it has spread into the world-famous resort town as well. The murder rate was 110.5 homicides per 100,000 people in 2022. That means Acapulco is the second most dangerous city in the world, after another Mexican town (Tijuana).

Acapulco is found in the Mexican state of Guerrero, and Guerrero is the second most marginalized state in Mexico: 64% of its population lives in poverty and 23% in extreme poverty. The poorest municipality in Mexico is Cochoapa el Grande, an indigenous region in Guerrero. According to the United Nations, Cochoapa has the lowest Human Development Index in Mexico, similar to such African countries as Liberia and Guinea-Bissau. 

Acapulco has a long and storied history that dates back to ancient times. It was initially inhabited by indigenous groups, including the Nahuas and the Tlapanecos, who settled in the region. The name “Acapulco” is of Nahuatl origin and is believed to mean “place of thick reeds” or “place where the reeds were destroyed.”

During pre-Columbian times, Acapulco was primarily a fishing village and a trading center for goods such as salt and dyes. The indigenous people of the area had contact with other Mesoamerican civilizations, including the Aztecs. A significant turning point in the history of Acapulco occurred in the early 16th century when Spanish explorers, including Hernán Cortés, arrived on the Mexican coast. The Spanish saw the strategic importance of Acapulco’s natural harbor as a safe anchorage for their ships traveling between the Philippines and the Americas. In 1531, the Spanish established a trading post and a shipyard in Acapulco.

Acapulco quickly became an important port in the trade network between the Philippines and Mexico, known as the Manila-Acapulco Galleon Trade. This trade route allowed for exchanging goods such as spices, silks, porcelain, and precious metals between Asia and the Americas. The annual arrival of the Manila Galleon in Acapulco brought significant wealth to the region. In the centuries that followed, Acapulco’s importance as a trading hub and port city grew. It became a popular stopover for Spanish ships, and its growth led to the construction of forts, some of which still stand today, to protect the emerging town from pirate attacks.

In the 20th century, Acapulco became an engaging tourist destination known for amazing beaches, luxurious resorts, and non-stop nightlife. Hollywood celebrities and international tourists flocked to Acapulco, making it a glamorous getaway spot.

However, the coastal city was already a shadow of its former self when the category-5 storm hit a week ago. Most of Acapulco’s most prominent hotels now look like skeletons — without walls, windows, or balconies — full of debris. 80% of all Acapulco hotels sustained some damage. The bulk of them are Mexican-owned, with a surge in narco-trafficking violence forcing international chains to pull out of the area in recent years. The economic toll from Hurricane Otis in the Mexican resort of Acapulco could top USD 20 billion, far beyond what the government has set aside to rebuild it.

Mexico’s government plans to spend about $3.4 billion to rebuild Acapulco. President Andres Manuel Lopez Obrador unveiled relief measures: Residents affected by the storm will only pay taxes or electricity bills in February. Zero-interest loans will be offered to small businesses that suffered damage. The government will pay half of the interest payments owed by over 370 hotels.

Nevertheless, a leading private sector group (Coparmex, representing over 36,000 employers across Mexico) is seeking to secure funds from international organizations for the response to Hurricane Otis after determining that the federal government’s recovery plan falls short of what is required to rebuild Acapulco and other affected areas of Guerrero. Coparmex also announced that it will assist tourism sector workers to find temporary jobs in other beach destinations such as Cancún, Puerto Vallarta, and Los Cabos. The organization also stressed the importance of collaboration between government, the private sector, and civil society on the recovery and reconstruction efforts in Guerrero.

The truth is Acapulco would need its version of a Marshall Plan today to accelerate its recovery. A Marshall Plan funded by public and private investors, both domestic and foreign.

The Marshall Plan, at the time known as the European Recovery Program, was a ground-breaking American initiative aimed at providing economic aid to Europe subsequent to the horrors of World War II. After the war, Europe was in ruins. The continent had suffered immense destruction and financial devastation. Many countries faced severe food shortages, high unemployment, and a lack of essential resources. The primary objectives of the Marshall Plan were to rebuild the European economy, stabilize the region politically and economically, and prevent the spread of communism. It aimed to achieve these goals by providing financial aid, technical assistance, and expertise. The United States initially offered USD 13B (equivalent to around $150B today) in economic assistance to European countries. This aid was distributed over four years, from 1948 to 1952. European countries welcomed the Marshall Plan, and many of them, including the United Kingdom, France, West Germany, and others, participated in the program. Countries had to agree to cooperate and implement economic and political reforms to qualify for aid. The plan encouraged European integration and cooperation. The Marshall Plan played a pivotal role in the economic recovery of Western Europe. It provided funds for infrastructure development, industrial revitalization, and agricultural production. It helped stimulate trade within Europe and with the United States, leading to economic growth and job creation.

Currently, it is difficult to see any optimistic outcome to the situation that Acapulco is facing. Government aid will be insufficient. It will take months or years to reconstruct the tourism infrastructure and to restore jobs for almost one million people. The reconstruction effort will require important public and private commitments. However, current conditions are not appropriate to incentivize private investment. Organized crime was already a problem for many years before this tragedy. Most domestic or foreign investors would instead go to other areas of Mexico, such as Los Cabos or the Mayan Riviera, without even considering other investment opportunities they could have outside of Mexico. And we will very soon see the negative consequences of a federal government that, for the past five years, has taken decisions that have significantly eroded confidence.

Acapulco will realize, in a very tragic manner, that confidence is crucial for private-sector investing. Confidence in the economic and business environment encourages investors to take calculated risks. With stability and confidence, private investors are more willing to inject capital into various projects and ventures. But who in the right mind would allocate capital to the reconstruction of Acapulco in the current conditions? After the cancellation of the Mexico City Airport, the irrational decisions to build a refinery and a jungle train, the militarization of public life, the unilateral changes to several regulations and laws, the evolving financial catastrophes at CFE and PEMEX, the elimination of the Natural Disaster Recovery Fund (Fonden), the daily attacks to democracy, freedom of speech, and the judiciary, and the uncontrollable growth of organized crime in many regions in Mexico, who would today feel bullish to invest in the reconstruction of Acapulco? That will prove to be a very hard sell for the private sector.

Sadly, Acapulco is in the process of becoming the Cuba of Mexico. We will see a humanitarian crisis of extraordinary proportions in which the Mexican State will have no bigger role than that of a quiet and useless spectator. And, because of the conditions described above, we will not see active participation of the private sector in tackling this crisis. Measures will be taken; many of them will create excellent photo opportunities for electoral purposes, but none will genuinely address the magnitude of the problem. Damages are estimated at USD 20B, and the government support program will only cover $4B. Who will invest the remaining $16B? Without a doubt, this problem will be inherited to the next Federal Administration and to the new President, who will take office in October 2024.