Remittances to Latin America Decline as Global Economy Sours
Wednesday, October 1, 2008
The amount of money sent home to families in Latin American countries by relatives living abroad is projected to grow by its slowest rate on record this year, according to a report to be released today by the Washington bank that tracks such transfers.
A slowdown would not only potentially exacerbate poverty in home countries but is also an indication of the economic troubles facing Latin American immigrants in the United States and elsewhere, according to the Inter-American Development Bank.
The bank projects that migrants will send home about $67.5 billion in 2008, an increase of about 1.5 percent compared with the $66.5 billion sent home last year. The slowdown comes as inflation is rising in most Latin American countries and as the dollar is losing value against many local currencies. Adjusted for inflation and changes in the exchange rate, the bank projects that the money transfers will contribute 1.7 percent less to household incomes in Latin America than they did in 2007.
"The money sent home in dollars isn't going as far as it used to go," said Robert Meins, a bank specialist in such money transfers.
The bank has been tallying the amount of money transfers, known as familial remittances, since 2002. It gathers the data from central banks in Latin America.
Until recently, money sent home to Latin America had been soaring, helped by increased migration and lower money-transfer costs. Reporting methods by central banks in Latin American have also improved, boosting numbers.
Experts who study these money flows began noticing a slowdown early this year in Brazil and Mexico. That slowdown has begun affecting other countries in the region as well, with El Salvador and Guatemala posting declines in August compared with August 2007.
The slowdown is notable in those countries because El Salvador receives about 18 percent of its gross domestic product from money abroad and Guatemala about 12 percent, according to the development bank.
The decrease could also signal that the rough economic times have come to affect the largest immigrant group in the Washington area. About 145,000 Salvadoran immigrants live in the metro area.
Meins said many immigrants are loathe to cut back on such transfers.
"This is a fundamental family obligation," Meins said.
Indeed, Reina Gutierrez, 33, an immigrant who lives in Langley Park, said that until recently she was able to send her mother living in Piedra Blanca, El Salvador, about $100 a month. In recent months, as construction work for her husband has slowed and sales from her door-to-door perfume-selling business have declined, she has had to halve that payment.
"I feel very bad because I want to send more," Gutierrez said.
Experts attribute the slowdown to the economic slumps in the United States and Europe as well as people curtailing their spending in the midst of the ongoing immigration crackdown in the United States. Inflation costs are hitting senders and receivers, Meins said.
The majority of such money transfers are not sent through bank accounts but rather money-transferring services such as MoneyGram International or Western Union. Development organizations and experts in microfinance have launched programs in recent years aimed at drawing these money transfers into the formal financial system, so immigrants and their families can establish credit histories and qualify here and abroad for mortgages and small-business loans.
Manuel Orozco, director of remittances and development at the Inter-American Dialogue, a Washington think tank, said development agencies should double down on efforts to encourage saving and investments in small businesses, as there will be less of a cushion if the economy further deteriorates and money transfers slow even more.
"If you don't begin to build assets at the time when things are slowing down, then you won't have anything when the flow of money is even less," he said.