MEXICO: FLOODS DEVASTATE AN ALREADY BANKRUPT AND BLOOD-SOAKED ACAPULCO

Floods devastate an already bankrupt and blood-soaked Acapulco

Floods plunge bankrupt, bloodsoaked Acapulco to new depths (01:27)

By Gabriel Stargardter

ACAPULCO, Mexico | Thu Oct 17, 2013 5:41am EDT

(Reuters) - Gangland violence and looming bankruptcy had already all but obliterated the glitter of Acapulco before catastrophic flooding last month drove crocodiles onto the streets of the Mexican beach resort and turned much of it into a mud bath.

Once a playground for the rich and famous, by 2012 Acapulco had become the murder capital of Mexico, mired in a cycle of brutal slayings, kidnappings and extortion as drug gangs fought for control of the former pirate cove.

Acapulco was still battling to contain the violence when in September it was hit hard by the worst storm damage ever in Mexico. The rains swamped the city's airport, stranding thousands of tourists who are crucial to the health of the local economy.

Roads to Acapulco closed, and the average hotel occupancy rate fell to under 20 percent in the weeks after the disaster. The road is open again and much of the mess has been cleaned up, but that rates has yet to recover. Last week it hovered at less than half the 2012 average of 49 percent - a record low.

Weeks later, Acapulco's hotels have bought up ads in national newspapers offering two-for-one deals. The message is simple: Even more than sending food parcels, the best way to help is to come spend money.

Tourism makes up more than two-thirds of the surrounding state of Guerrero's income, and with many hotel rooms empty, the city's finances in tatters and drug violence widespread, the resort faces a hard slog to recover its reputation.

During the rains, hotels served as emergency shelters. Two weeks later, when Reuters paid a midweek visit, water was still off or rationed at many landmark establishments. At the 180-room Hotel El Cano, only about 20 rooms were occupied.

"Let's hope this is as bad as it gets," said El Cano's manager, Pedro Haces. "We've never had occupation rates like these." It relies now on national tourism and still gets visitors because it's the closest beach resort to the capital, a four-hour drive instead of an expensive flight to others spots like Cancun.

The rains brought by tropical storms Manuel and Ingrid have pole-axed Guerrero's economy, with Governor Angel Aguirre saying total damages would exceed 18 billion pesos ($1.4 billion) - equivalent to 9 percent of the state's annual economic output.

That huge bill has dug a bigger hole for the city, which Mayor Luis Walton declared bankrupt last year.

"The city of Acapulco doesn't have the economic means to sort this out," Walton said of the devastation. "We can't."

Acapulco's misfortune has now become so commonplace that signs dotting the highway out of town read "No hables mal de Aca," or "don't speak badly of here," a play on the Spanish word "aca" (here) and the first three letters of the city's name.

FAST-BUCK DEVELOPERS?

When the rains began on the night of September 15, many in Miramar II, an estate of small second homes near some of the most expensive hotels in the city, were settling down to watch Mexican boxing hero Saul Alvarez take on world champion Floyd Mayweather.

By dawn, Alvarez's hopes had been crushed and Miramar II was underwater, with dozens of residents including 43-year-old biologist Arturo Sanchez forced to escape the flooding by perching on neighbors' roofs as the waters below swept away their cars.

Lying next to a diverted river, Miramar II sprouted in an area many had warned was at risk of flooding.

Residents like Sanchez lost everything, and angry locals have accused developers of having colluded with public officials to make a fast buck by putting up dream getaways without proper planning.

President Enrique Pena Nieto has promised to investigate allegations of building permits issued illegally in areas like Miramar II, which have become a symbol of Acapulco's graft.

When Mayor Walton took over the resort in late 2012, he announced Acapulco was bust, unable to pay debts of $170 million owing to a crippling legacy of mismanagement and cronyism.

Walton, a leftist, claims the situation is improving - but says the city of around 800,000 still has 3,000 more unionized employees on its payroll than it requires.

Catapulted to fame by guests such as President John F. Kennedy and Marilyn Monroe, Acapulco urbanized rapidly from the 1960s with ramshackle settlements known as colonias cropping up in the steep hills behind the beach front.

Demand from tourists and the port's handy location for smugglers moving cocaine from South America into Mexico and on to the United States helped turn the city into a lucrative hub for drug cartels.

When the local gangs began to fragment during the military offensive launched by former President Felipe Calderon, chaos descended as rival groups fought for control.

The demise of the Beltran Leyva cartel in 2009 was a turning point. Within three years a wave of violence had given the city the highest murder rate in Mexico.

In 2012, there were some 1,063 murders. That gave it a homicide rate of 135 per 100,000 people - over 50 percent higher than Honduras, the world's most murderous country.

"Acapulco looked like Chicago in a 1930s gangster film," said Javier Morlet, the head of a national group called Dialogue for Peace, whose daughter was kidnapped and murdered in 2010. "The city was almost abandoned. There was terror."

EXTORTION UP, CRUISE SHIPS DOWN

The government sent hundreds of marines and federal police into the city to try to curb the violence. It appears to have yielded some results, in line with moderate improvements across Mexico.

Since Pena Nieto took office in December, the number of murders has fallen. But with roughly 1,000 drug-related killings taking place across Mexico a month, gangland violence still remains a fact of life. Acapulco is no exception.

In the first nine months of 2013, there were 536 murders in Acapulco, official data show. That is a third lower than the same period last year but still very high, and other crimes are on the rise.

With 150 reported cases, there have already been more kidnappings in Guerrero in the first eight months of this year than in any year since current records began in 1997. Extortion in the state is also on track to reach a record level in 2013.

Morlet estimated 80 percent of Acapulco's small businesses now pay protection payments ranging from about 5,000 pesos ($380) to 80,000 pesos ($6,000) a month.

Acapulco's newly installed police chief, Jesus Cortes, who used to run the antidrug assault team for the federal police, said he inherited a bloated force, aging and poorly trained.

"When I was a federal police officer, I didn't trust local police. Now I'm head of the local police and I'm working on it, but I still don't have 100 percent faith in them," he said.

The violence also spoiled a once-lucrative cruise industry.

An average of 140, 1,800-passenger cruise ships used to arrive in Acapulco annually in the years preceding 2011, port director Octavio Gonzalez told Reuters. By the end of this year, he expects just 13, 600-passenger boats to have stopped off.

"Acapulco was where the jet-set was, but that's no more," said Mayor Walton. "Of course I'm worried there are no cruise ships. Of course I'm worried there are no tourists."

With international tourism dwindling, the city has become ever more reliant on visitors from Mexico City. Many of the newcomers used a government mortgage credit to snap up second homes, such as those in Miramar II.

Wading through the ankle-high waters that sloshed through their sludge-coated home, 44-year-old Mexico City carpenter Victor Garcia and his wife, Maria Luisa, came to see what had become of their 360,000 peso dream getaway.

"It was really lovely here," the 45-year-old Maria Luisa said with tears in her eyes. "It was great."

Nearby, soldiers carved thick slabs of clay from caked cars.

Despite the flooding, the crime and the setbacks to tourism, hoteliers insist business will pick up again. A stoic resilience in the sun-soaked Pacific haven is widespread.

"They say they're going to relocate us 30 km away," said biologist Sanchez. "No. This is my only home."

($1 = 12.9820 Mexican pesos)

(Reporting by Gabriel Stargardter; Editing by Dave Graham, Kieran Murray and Prudence Crowther)