Remittance Slowdown, Wake-Up Call for Latin America

By Marcela Sanchez
Special to
Friday, March 14, 2008; 12:00 AM

WASHINGTON -- Jesus Antonio Soriano had long wanted to give something back to his native Chalatenango, a province in northern El Salvador devastated by civil war in the 1980s. And so four years ago, the agronomist, with three partners, developed a plan to improve land values and create jobs by building a residential and recreational center. The Chalate Country Club now employs 60 people full-time and pays them at least twice what most jobs in the area would bring.

Initially, investment was slow in coming to Soriano's development. Then two years ago, he began offering the $16,500, 400-square-yard lots to Salvadorans living abroad. Almost at the same time, the Millennium Challenge Corporation, President Bush's "smart aid" program, launched its $461 million, five-year initiative in education and basic infrastructure for northern El Salvador.

Sales took off. Soriano credits the clout of the MCC and its plans to improve roads in Chalatenango with making his club a more attractive investment. But he is most grateful to Salvadorans in the United States. "Our project wouldn't have succeeded if it weren't for all our brothers and sisters living here," Soriano told me last month in Washington.

Gratitude aside, Soriano has grown particularly anxious in recent months about his project's dependence on riches outside of El Salvador. In particular, he is concerned that an economic downturn will choke off funds from Salvadorans in the United States, some of whom have already fallen behind on their payments to him.

While economists predict that a recession in the U.S. will have a major impact among its closest trading partners such as El Salvador, Latin Americans don't have to read macroeconomic indexes to feel the pinch. As manufacturing and construction slow in the U.S., and the amount of work dwindles, immigrant laborers are having a hard time making ends meet, let alone sending money back home.

Just last week, Mexico's central bank reported that remittances, the second-biggest source of dollars into Mexico after oil, fell in January to $1.65 billion, a 5.9 percent drop from January 2007 -- the largest since Banco de Mexico began keeping records in 1995. For El Salvador, remittances grew just 1.7 percent in January compared with January 2007, a significant plunge in a growth rate that had soared to 14 percent in 2007 and 25 percent in 2006. Overall, for the first time since 2000, remittances to Latin America experienced only single-digit growth last year, about 7 percent, the Inter-American Development Bank reported this week.

In the past, remittances have traditionally increased in times of greatest need, such as in response to economic slumps or natural disasters. Remittances rose significantly after Mexico's 1995 financial crisis and following hurricanes in Central America. This time around, if countries such as El Salvador also enter an economic downturn, the possibility of a remittance surge to help soften the blow is remote.

Remittances to Latin American countries -- which multiplied 25 times between 1980 and 2005 -- have been largely taken for granted. Humberto Lopez, lead economist for Central America at the World Bank, explained the mind-set: "Up until a couple years ago the consensus was that remittances were here to stay." Now however, there is "a very strong trend change."

While the change could be temporary, the remittance slowdown should serve as a wake-up call to regional leaders. That is particularly true for those countries such as the Dominican Republic, Haiti, Honduras, Jamaica, Nicaragua and El Salvador where remittances have come to represent 10 percent or more of gross domestic product.

Vincent Ruddy, the MCC's resident country director for El Salvador, said the corporation is in fact trying to support initiatives that reduce the reliance on money sent from workers abroad. One of the MCC's goals, he said in a recent interview, is to help small farmers switch from low-value crops such as beans, basic grains or corn, which carry very low profits, to high-value products such as avocados, strawberries and other fruits. Ruddy says such projects will enable local workers to "make more money or as much as the people who are emigrating."

Narrowing the income gap is no doubt a worthy goal, particularly as it has been a significant incentive behind emigration. But if such projects reduce remittance dependence -- and therefore encourage greater self-reliance -- they will be doubly beneficial. Until that time, however, remittance dependence has set Latin America up for some hard days ahead as the region's economies slow in tandem with that of the United States.

Marcela Sanchez's e-mail address is

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