If the TPS program ends in September 2019, as currently planned, there are concerns that a drop in these remittances could result in increased poverty in El Salvador. In 2017, Salvadorans sent back an estimated $5.02 billion, 18.3 percent of the country’s GDP, the third-highest share in Latin America behind Haiti and Honduras, which are also TPS countries.
Here’s what happened when remittances dropped during the Great Recession
The Great Recession of 2007-2009 resulted in high levels of unemployment in the United States, especially among immigrants. And El Salvador saw a sudden 8 percent decline in incoming remittances. Many households in El Salvador had less income because of the economic crash up north — and this changed the population’s views on the extent to which governments should provide public services to its citizens, so-called redistribution.
In a recent paper on remittances and redistribution, I examined how the decline in remittances affected political attitudes on redistribution among remittance recipients through the Great Recession in five Latin American countries that are dependent on migrant income. I looked at three TPS countries — El Salvador, Honduras and Nicaragua — along with Guatemala and the Dominican Republic. The diasporas from each of these countries are largely in the United States, which meant the remittances — and the drop in inflows — also came from the United States.
Using survey data from the Latin American Public Opinion Project, I found that remittance recipients diverged from non-recipients in favoring redistribution after the Great Recession. My statistical analysis controlled for other factors that can affect remittance reception and support for redistribution.
Before 2009, remittance recipients were 2 percent less likely to support redistribution than non-recipients. During the period of decline, remittance recipients began to show slightly greater support for redistribution than non-recipients.
By the time remittances recovered to pre-crisis levels in 2012, recipients became nearly 5 percent more likely to support redistribution. Even in 2014, five years after the recession, recipients continued to favor redistribution. The effect was strongest among remittance recipients without employment — those whose finances would be more sensitive to the drop in remittances from the United States.
Remittances mean families rely less on their government
Economists and political scientists tend to argue that remittance recipients in developing countries will reject redistribution and government services. Here’s one example of why: Remittances may allow households to access private medical services rather than rely on public clinics. The argument, then, is that greater flows of remittances to countries like El Salvador help keep politicians off the hook in terms of providing public services.
This argument relies on the underlying assumption that remittance inflows are stable and increasing. And it’s a reasonable assumption for TPS countries such as El Salvador — remittances increased annually, commensurate with increased migration.
But the Great Recession provides a snapshot of what happens when remittances suddenly decline. Recipients favored redistribution — they expect their governments to step up. So a conventional view on remittances might expect recipients to once again opt out of public services as remittances recovered. However, my findings show that recipients continued to favor redistribution even after families began to see more money from relatives in the United States.
How will the TPS program affect Salvadoran politics?
I argue that the Great Recession in the United States meant remittance recipients in Latin America no longer viewed their external income as a stable source of cash. Remittances provide economic security, and Great Recession undermined that promise. The loss of this income exposed recipients to additional economic risks and created uncertainty about future income. This, in turn, led recipients to favor redistribution as protection against external economic risk. The support for redistribution persisted even as remittances recovered, due to that experience of income loss and uncertainty.
The remittances sent by Salvadorans and other Central Americans with TPS provide a valuable economic resource to households in the home country. It’s likely that the loss of TPS status, and the loss of the ability of wage earners from these countries to work legally in the United States, will cause recipient households in countries like El Salvador to demand more government services to make up for losses in remittance income.
The larger question is how governments in El Salvador and other TPS nations will respond to changing demands due to circumstances outside their control — such as an economic recession or policy shift. A decade ago, President Mauricio Funes — the first president elected from the FMLN, the party formed from El Salvador’s former guerrillas — attempted to expand the country’s social safety net but was limited because of the country’s low tax rates and high deficits.
Legislative and municipal elections in El Salvador are set for March 4 and should provide a glimpse at how voters and political parties respond to the Trump decision on TPS. Members from the opposition ARENA and PCN parties have blamed the incumbent FMLN party’s inability to maintain strong relations with the United States. In a recent survey, Salvadorans said they disapprove of political parties’ use of the TPS issue in current election campaigns.
The stakes will be higher in El Salvador’s February 2019 presidential election. The increasing insecurity of migrants — and the remittances they send back — will probably put new pressures on political parties to craft a platform that lessens dependence on remittances. And there will most likely be increased demands on the government to provide greater services to its citizens.
If their elected officials can’t provide these services, Salvadorans may continue to migrate north to find economic security — despite perceived hostile policies against immigrants in the United States.