Global Prospective: Remittances to Latin America Slows

Migrant Workers Sending Less Money to Latin America
Wall Street Journal, 17-Mar-09
By MIRIAM JORDAN

Funds sent by overseas workers back to Latin America and the Caribbean are expected to drop steeply in 2009, shrinking a crucial source of cash for many families in the region.

Remittances to the region began to slow in 2008 after a decade of growth, according to the Inter-American Development Bank, as countries such as the U.S., Spain and Japan, slid into recession.

This year, remittances to the region are likely to decline for the first time since the bank began tracking annual flows in 2000, according to a new study by the Washington-based multilateral institution.

Migrant workers -- the lifeline for millions of families in Latin American and the Caribbean -- sent home a record $69.2 billion last year, nearly 1% more than in 2007.

For countries that have reported data for January, totals were down significantly.

Mexico, which receives the lion's share of U.S. remittances, experienced a 12% drop compared to January 2008. In the same month, Colombia suffered a 16% drop, while Brazil saw a 14% decline. Guatemala and El Salvador each experienced an 8% decline.

"While it is too early to project by how much remittances may decline in 2009, this is bad news for millions of people in our region who depend on these flows to make ends meet," said IDB President Luis Alberto Moreno.

Economic pain in Europe and Japan is also likely to echo in Latin America. Brazil and Peru boast significant populations in Japan. Europe attracts many migrants from Andean countries.

U.S.-based migrant workers who send money home -- many of them undocumented immigrants who entered the country illegally -- have been under pressure for some time. The gradual economic slowdown, negative immigration environment and mortgage meltdown have all taken a toll on workers.

Despite the challenging economic climate, remittance flows recently kept growing, even if at steadily declining rates. All told, they rose by 6% in 2007 over the previous year and remained steady throughout the first half of 2008. Remittances began to show the impact of the recession on migrant workers' earnings in late 2008. Following a flat third quarter, in the fourth quarter the money they sent home declined by 2% relative to the same quarter in 2007.

A significant proportion of money that workers send home is used for daily necessities, prompting concerns that a decline will put more pressure on social safety networks and result in less investment on items that help lift people out of poverty.

When remittances shrivel, "families will spend less on health care and education, because providing food, clothing and shelter come first," says Robert Meins, a remittances specialist at the IDB.

Remittances are the top foreign-exchange earner for Guatemala, at $4.3 billion in 2008, ahead of coffee, sugar and other exports. Some 1.35 million Guatemalan citizens -- 10% of the country's population -- live in the U.S. Some 3.5 million people still living in Guatemala depend on these remittances , according to the Central American Institute of Social and Development Studies, an independent think tank in Guatemala.

The appreciation of the U.S. dollar in late 2008 provided some respite for families dependent on remittances, particularly in Mexico, Brazil and Colombia. Remittances from the U.S. to those countries increased the purchasing power for recipients, offsetting at least in part the decline in volume.

Countries in the Andean region that receive money from Spain benefited from the strong euro during the first half of 2008 but since then have been hurt by declines in the European currency.

Ecuador has been hit hardest, according to the IDB, because it boasts both a dollarized economy and a large population in Spain, which has been buffeted by unemployment and the depreciating euro. Remittances to Ecuador, which receives 45% of its flow from Spain, were down 22% in the fourth quarter of 2008.

The economic crisis has especially hurt industries that employ low-skilled foreign workers world-wide, particularly construction, manufacturing, hotels and restaurants.

Despite the discouraging economic picture, the IDB said it saw "scant evidence" that migrants are prepared to return en masse to their countries of origin. In Spain, where there are some five million foreign workers, a government plan to pay welfare benefits in a lump sum to those who return home has enticed few takers.

"Migrants have proven that they adapt to tough conditions," said Mr. Moreno. "They change jobs, work longer hours, cut back on spending, move to another city and even dip into savings in order to continue sending money to their families," Mr. Moreno said. "Going home is usually a last resort."