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Last Updated: Wednesday, 12 March 2008, 15:56 GMT
US woes slow migrant remittances
By James Painter
BBC Latin America analyst

Mexican workers in California
Mexicans working abroad send back billions of dollars
The amount of money sent back home last year by millions of Latin Americans working abroad grew at the slowest rate in nearly a decade, partly due to the economic turndown in the US.

For the first time since the Inter-American Development Bank (IDB) started to study remittances in 2000, the increase is less than 10%.

The slowdown was particularly marked in Brazil and Mexico, which receive the largest amounts of money.

In Brazil it fell by 4%, and in Mexico it grew by only 1%, a move that has started to concern some analysts.

Despite the decline, the total amount of money sent home by Latin Americans is still huge - $66.5bn (33bn) in 2007.

And the figure is larger than the amount of money Latin America received in direct foreign investment and official development assistance together.

Hugely important

Only Asia receives more money than Latin America from workers sending home their earnings ($114bn in 2006).

Still, on a per capita basis, remittances are more important to Latin America than any other region of the world.

At least 20 million Latin American families are estimated to receive regular funds from their relatives abroad.

Mexicans sent back nearly $24bn last year, almost entirely from the US - roughly the same as foreign investment and the second source of foreign exchange after oil.

Of all migrant workers around the world, only Indians send home more money.

Guyana: $424m; 43% of GDP
Haiti: $1.8bn; 35% of GDP
Honduras: $2.5bn; 25% of GDP
El Salvador: $3.6bn; 18% of GDP
Jamaica: $1.9bn; 18% of GDP
Mexico: $23.9bn; 2-3% of GDP
Yet IDB officials described the situation in Mexico as worrying.

Initial figures for the month of January this year suggest that remittances fell by nearly 6%, the worst drop since the mid-1990s.

The bank estimates that about 600,000 Mexicans did not receive remittances as a result of the turndown last year.

Normally, a worker sends between $100 and $300 back home every month.

Even though the slowdown will probably not dramatically affect the overall Mexican economic picture, analysts say that if the trend continues, it will have a profound impact on millions of Mexican families.

"The biggest part of the income the families receive from remittances goes on survival, not on investments or savings," Jonathan Heath, chief economist for Latin America at HSBC told the BBC.

Mr Heath says the downturn in the US construction sector, where many Mexicans work, is one of the main causes.

In February, the US Labor department said that of 63,000 jobs that were lost that month, nearly 40,000 were in construction.

Returning home

Other analysts say the political uncertainty surrounding new migration laws has had an effect.

Several local and state authorities are approving or putting into practice new legislation clamping down on undocumented workers.

In Arizona for example, since January employers have to verify the migratory status of their workers, and can face fines or suspension of their business licences.

Mexican workers queue to apply for a US visa
Getting permission to work in the US is getting harder

Remittances from the estimated 350,000 Brazilians living in the US fell to about $7bn in 2007.

Natasha Bayuk, from the IDB's Multilateral Investment Fund, told the BBC that recent growth in the Brazilian economy had diminished the pressure to migrate when compared with previous years.

She also said the strengthening of the Brazilian currency against the dollar, also made it less attractive for Brazilians to send money home.

Newspaper reports suggest that many Brazilians, particularly in the Boston area, are returning home.

Central Americans continued to send back large sums of money - $12.4bn compared to $11bn in 2006. The growth rate was still strong at 11%.

Guatemala, El Salvador, Honduras and Nicaragua are particularly dependent on remittances, whereas Costa Rica and Panama are less so. They are the equivalent to between 50% and 100% of the four countries' exports.

The IDB is unsure whether the downturn in Mexico will spread to Central America.

"We still don't know for certain whether this is a short-term change or the beginning of a new direction," says Don Terry, head of the Fund.

"But if it were to become a trend, it will push millions into poverty."

Headed east

Mr Terry said that like Bolivians and Ecuadoreans, people from Central America are becoming more interested in moving to Western Europe in search of work, mainly Spain.

This is due to the less hostile anti-immigrant climate, and the strength of the euro, analysts say.

Spain is growing as an important source of remittances to Latin America.

About $11bn was sent back to Andean countries in 2007, an increase of 5% over 2006, and much of it is coming from Spain.

Guatemalan women
Guatemala is particularly dependent on remittances

The IDB and other organisations see remittances as a crucial funding source for financing poverty relief and small-scale business investment.

But other observers warn against putting too much faith in remittances as a national development model.

Nicola Phillips, professor of political economy at the University of Manchester, told a conference at Canning House in London this week that the jury was still out on whether remittances can reduce poverty levels and inequality.

"There is evidence they can help individual families and communities," she said.

"But at the national level the evidence for their impact on poverty reduction is still mixed. We do have studies that show they don't help the very poorest, and don't reduce inequalities."

Ms Phillips expressed doubts about the sustainability of remittances partly due to recession in source countries and political uncertainties.

And she described it as "dangerous" for economies to have remittances representing more than 25% of GDP.

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18 Mar 04 |  Business

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