By Robin Emmott
Soldiers patrol a street where two men were gunned down by hit men in Monterrey, June 16, 2010.
Mexico's richest city, once a poster child for development with its high-rise office blocks and flourishing industries, is being gripped by drug war terror with rising violence forcing dozens of its factories to freeze investment.
The battle between the powerful Gulf cartel and its brutal former armed wing, the Zetas, has killed some 290 people in Monterrey and surrounding areas since the start of the year.
While dangerous border cities like Ciudad Juarez suffer worse violence, the surge in killings in Monterrey, where income per head is double Mexico's average, is a major worry for President Felipe Calderon as foreign companies question the safety of doing business there.
Zeta hitmen have dumped bodies in Z-shaped formations in the Texan-style city and pulled people out of smart hotels to execute them, while both gangs sporadically block off dozens of major roads with trucks and cars to derail security forces' anti-drug operations.
Even as Hurricane Alex drenched Monterrey this month, armed hitmen chased rivals down busy avenues. In one gunfight, an injured police officer fled into a McDonald's restaurant and people threw themselves to the ground in panic.
The bodies of two dead men are seen on a street after gunmen shot at them in Monterrey, June 16, 2010.
Authorities in the city once lauded as having the best police in Mexico seem unable to stop the violence despite sending soldiers to storm quiet suburbs and raid cartel safe houses as military helicopters fly overhead.
Policemen frisk a man on suspicion of drugs and weapons during a police operation in Monterrey, June 10, 2010.
The local government is preparing teachers and children for the now frequent gunfights that stray into schools.
"People are starting to think that this kind of thing is normal because it is happening so often. It isn't normal," said a Monterrey businessman who last month was held at gunpoint by Gulf cartel hitmen in his office. They stole his SUV, phone and his ID documents, possibly to extort money from him later on.
Monterrey, 140 miles from the border with Texas, long considered itself as apart from the rest of Mexico, where corruption and crime is part of daily life.
A policeman cordons off a crime scene where gunmen tried to kidnapp a government official outside the Topo Chico prison in Monterrey, June 11, 2010.
With its private universities, good water supply and sleek U.S.-style highways, the city was chosen to host a United Nations conference on development in 2002 and was lauded by U.S. President George W. Bush as a model for poor countries.
But as bloodshed soared across Mexico since Calderon came to power in 2006 and launched his drug war, the violence has spread to the city that is home to global cement maker Cemex and General Electric plants.
More than 26,000 people, mainly traffickers and police, have been killed in Mexico's drug war since December 2006, worrying U.S. officials about the political stability of their oil-producing neighbor.
A quarter of the more than 100 assembly-for-export factories, or maquiladoras, in and around Monterrey have frozen investment this year as killings, extortions and abductions have surged, according to the city's maquiladora association.
"That is obviously is having a big impact on job creation," said Emilio Cadena, the association's president.
An investigative police agent inspects a patrol car where a policeman was injured during a drive-by shooting in Monterrey, July 4, 2010.
U.S. business visa applications allowing Mexicans to set up a company in the United States have jumped 63 percent in Monterrey in the 2006-10 period compared to the 2001-05 period, as wealthy residents flee to cities such as Houston.
Monterrey's stability is vital to Mexico's success as an emerging market as the city's economy generates 8 percent of Mexico's gross domestic product.
The city lost around 70,000 factory jobs last year as Mexico's economy went into its deepest recession since the 1932. Output is now rising again but businesses say the number of jobs created across Monterrey could be double if it were not for the insecurity.
"We would undoubtedly be seeing a bigger recovery in economic activity, but people are not going out to restaurants, cinemas and other places out of security fears. Many businesses prefer to close," Marcelo Canales Clariond, head of the city's main business group, told reporters recently.
In a sign of the drop in visits by executives from abroad and elsewhere in Mexico, hotel occupancy rates were down almost 10 percent in the first quarter to below 50 percent.
In daily speeches on TV and radio, local officials vow to battle the cartels in Monterrey, flush out corrupt cops and possibly merge city police into a more powerful state force. "Organized crime has great firepower and we have to strengthen ours," Nuevo Leon Governor Rodrigo Medina said last month.
But some residents feel local authorities are not taking the situation seriously, especially after Mayor Fernando Larrazabal took a vacation to go to the World Cup in South Africa days after hitmen kidnapped two of his city government ministers.
The $700 million clean-up from Alex, which destroyed city highways and bridges, could distract overstretched officials in the coming weeks.
Monterrey-based businesses are also being hit by violence in the neighboring state of Tamaulipas, where drug hitmen last week killed an election candidate for governor, the highest level political killing in Mexico in 16 years.
"My sales in Tamaulipas are down 70 percent this year because it's just too dangerous to visit clients," said a major plastics distributor who declined to be named.