Via Foreign Policy, a report on Mexico’s economic rise:

Mexico begins the new year with unusual optimism. People here have new hope that the worst of the drug war has passed, and the economy has returned to growth after a brutal recession. But in Mexico, things often aren’t what they seem: Is this country really changing for the better, or is it just on a lucky roll?

The country’s promise — and its problems — have been on full display during President Enrique Peña Nieto’s first few weeks in office. Residents of the notoriously violent city of Juárez enjoyed the first weekend without a homicide in five years — but the majority of the police force of another town in central Mexico resigned amid a spate of attacks. Families flocked to downtown Mexico City over Christmas to skate around the ice rink that is set up every year — but just three weeks ago, the same area had been the scene of mayhem and violence as protesters demonstrated against what they saw as Peña Nieto’s fraudulent election victory.

Much of Mexico remains very violent, but the killings have ebbed somewhat from the worst days of the drug war. In recent years, its homicide rate has stood at more than three and a half times that of the United States. But there has been incremental improvement: In a (probably incomplete) tally, the daily Reforma counted about 9,800 gang-related murders in 2012 — down from 12,366 in 2011. Alejandro Hope, director of security policy at the Mexican Competitiveness Institute, says all murder — perhaps a better indicator than just cartel-related counts — was down about 8 percent in 2012.

So though there were still four times as many gang murders as in 2007, last year’s drop has brought a sense of relief. In Juarez, businesses are reopening and night life is returning. Vacationers flocked back to Acapulco after a massive military effort there. It reminds me of the more extreme situation I saw covering the Iraq war, as people became almost giddy in 2007 when bombings dropped from several times a week to just a few times a month. There, people used to say that a dying man is happy to find out he’s only sick. U.S. commanders called it a “tolerable” level of violence.

But preventing another deadly spiral of violence depends on how much the change is due to strengthened Mexican institutions. In a recent conversation, Hope listed encouraging signs: The government doubled and tripled security budgets over recent years, and the police and military improved their tactics. The security forces have been going after midlevel narcos, which cut cartel capabilities but don’t create the violent power vacuums that occur when kingpins are toppled. Others note that the feds have smartly disbanded entire local police forces, which are often too corrupt or intimidated to do any good, before starting anti-crime sweeps.

But the drop in violence could also be fueled by less encouraging factors. When it comes to Juarez, for instance, nobody can agree on the reasons behind the dramatic drop in violence. Mexico may be less deadly because cartels have sorted out their turf and consequently have less reason to fight. A drop in cocaine use in the United States, Hope said, has probably reduced shipments to the north, resulting in fewer drug-related killings. And one crime expert wrote that the cartel wars may have expended the supply of street-level killers — for now.

“It could always start up again,” Hope says. “We’re going to be battling organized crime for generations.”

Last year raised doubts that law enforcement is up for that battle. In June, three federal police were killed by their colleagues in a food court at Mexico City’s airport, apparently as one group tried to arrest the others for smuggling. Another 14 federales were charged with ambushing a car carrying CIA employees and a Mexican Navy captain in August. The federal police has been an independent force and was key to former President Felipe Calderón’s anti-drug strategy — but Peña Nieto is now folding it into another ministry and forming a “gendarmerie” to fight cartels. And though the Marines scored big when they killed the country’s most feared cartel leader, Zetas chief Heriberto Lazcano, in a gunfight, they actually didn’t know who he was at the time and his corpse was quickly stolen.

Similar questions surround Mexico’s economy. It has approached or surpassed 4 percent growth each of the past three years, but whether it can continue its progress remains anyone’s guess. Some think it can: A recent rosy-with-caveats report in the Economist stated that the country’s turnaround will probably make it one of the world’s top 10 economies in 2020, while the World Bank reported that, between 2000 and 2010, 17 percent of the population joined Mexico’s middle class.

Read between the lines, however, and Mexico’s economic success story becomes more complicated. The World Bank study about a booming middle class, for instance, defined middle-class incomes as starting at only $10 a day per person. A recent U.N. survey of 18 Latin American countries showed nearly all of them reducing poverty over the last decade — with all but two doing so faster than Mexico. And the new middle class often still relies on remittances, which total more than $21 billion annually, from relatives in the United States. Those funds still surpass the country’s foreign tourism revenue — it’s the age-old “exportation” of Mexico’s unemployment for cash.

Mexico’s economic progress is also still tied to forces beyond its control. The new economy has been aided by the end of the U.S. recession, which has improved exports and released pent-up demand. Chinese wages are rising, making Mexican factories more competitive. Decent oil prices have also been key, as energy revenues fund a third of the country’s budget.

But leaving itself at the whim of outside forces isn’t a recipe for continued success. Long-term free market prosperity requires better education, infrastructure, and equal opportunity enforced by law. The country has made progress, holding three messy but competitive elections since 2000 under a more powerful elections commission. The Supreme Court is more independent and has issued important rulings, such as reining in some military powers. There’s been a bloom of civil society groups using freedom-of-information laws to extract data from the government, evaluating schools, recording human rights abuses, and exposing corruption. And Peña Nieto is pushing a plan to improve the notoriously poor schools by vetting the country’s teachers, who are now nearly impossible to fire.

Peña Nieto described the problem at his inauguration, saying, “We are a nation that grows in two gears. There is a Mexico of progress and development, but there is another as well that exists in backwardness and poverty.”

There are still plenty of elites who probably value their privileges more than the patriotic feeling they’d get from seeing their country advance. Mexico has had long periods of macroeconomic growth, including from 1940 to 1982, but it was often built on harsh conditions and little mobility for most Mexicans. Today, monopolies or duopolies still exist in fields ranging from food production to broadcast television, and billionaire Carlos Slim’s conglomerate still controls the telephone and Internet markets. Well-connected criminals and informal syndicates extract protection money and determine who can mine coal, produce avocados, and even open street stands. Oil profits are reportedly sapped by corruption and smuggling within the state oil company, which Peña Nieto promises to reform. The self-styled “president for life” of the teachers union, political kingmaker Elba Esther Gordillo, has vowed to fight Peña Nieto’s school reforms. Meanwhile, the country fell four years straight from 2008 through 2011 on Transparency International’s Corruption Perceptions Index.

New regulations must simultaneously encourage growth while protecting workers from abusive corporate bosses. The business community hailed new labor laws issued in December that make it easier to hire and fire as a sign of a new Mexico. That sounds good for growth, but labor activists fear a blast from the past, saying the law preserves exploitative practices like coercing workers to sign repeated temporary contracts in order to avoid paying overtime and benefits. They say the reforms also still allow politically connected unions to enter factories without employee approval and get paid by bosses to silence workers. No wonder full-timers still live in poverty.

And when it comes to the business of government, political rules leave polls more beholden to parties than the public, with a one-term limit that makes mayors and governors rely on party machines for their next job. Additionally, the absence of a presidential runoff allowed Peña Nieto to win office with just 38 percent of the vote in a four-way race.

For now, Mexico and its new president have some momentum. But Mexicans know that good times can quickly turn bad. On New Year’s Eve, revelers in Mexico City lit fireworks and street bonfires to ring in 2013 — so many, in fact, that smog alerts had to be issued in the capital.