Remittances to Latin America and the Caribbean decline this year

May 31, 2009 News

By Odeen Ishmael

Migrants from Latin America and the Caribbean (LAC) living in the more developed countries will send back to their home countries US$64 billion in 2009, US$4 billion less than in 2008.
Nevertheless, this total represents more than the sum of foreign direct investment and official development aid combined. As the global economic crisis continues, the flow of remittances is expected to be reduced by about seven percent, according to reports emanating from the Inter-American Development Bank (IDB) and other international financial bodies.

Already, this reduction is vividly noticed in recipient countries. Earlier this month, the Planning Institute of Jamaica noted that inflows to that country for the first quarter of this year dropped by 15 percent to US$414.6 million compared to the same period last year.
The IDB has also reported that remittances to LAC in the fourth quarter of last year declined to $17 billion, 2 percent less than in the same period in 2007. The Bank also declared that this trend would continue throughout 2009. The scale of the decline will depend immensely on the length and severity of the economic crisis in major remittance “source countries”, particularly the United States, Spain Germany, Italy and Japan.

Two years ago, the IDB had optimistically predicted that, given the then existing economic and demographic trends in LAC and in the industrialised countries, remittances to LAC would continue to grow and surpass $100 billion a year by 2010. Definitely, this amount will not be achieved as a result of the sharp economic downslides in the industrialised countries during the past year, and the IDB and other international financial bodies are now busily revising their figures downward.

A reduction in remittances became noticeable early in 2008, and by the end of the year the $69.6 billion migrants sent home to the region barely increased by less than one percent over 2007. This slowdown is obviously the result of the economic recession, which has brought about job losses in construction, manufacturing and tourism, the sectors attracting the greater proportion of the immigrant labour force.
A study on migration and remittances released this month by the Latin American and Caribbean Economic System (SELA) reveals that on an average, 65 percent of migrants remit to their families, amounting to over 20 million people. IDB statistics show that for 2008, of the US$69.6 billion sent home to the region, the largest beneficiary was Mexico with US$25.1 billion.

Other large recipients were Brazil (US$7.2 billion), Colombia ($4.8 billion), Dominican Republic ($3.1 billion), El Salvador ($3.8 billion), Guatemala ($4.3 billion), Peru ($2.9 billion), Jamaica ($2 billion), Honduras ($2.7 billion), Haiti ($1.8 billion), Nicaragua ($1 billion). Guyana received $414 million, down from $423 the year before. The remittances, in most cases, are directly related to numbers of each country’s migrants living in foreign lands. Significantly for some countries, remittances, according to the MIF, amounted to a high proportion of their GDP, and much more so for those with poorer economies. For Guyana it was 36.7 percent, Haiti 30 percent, Honduras 21.6 percent, Guatemala 12.7 percent, El Salvador 18.3 percent, Nicaragua 18 percent and Jamaica 17.9 percent.

Actually, remittances prove to be even more practically significant to recipient families in each country. A 2007 World Bank report, “Remittances and Development: Lessons from Latin America”, indicates that some of the positive effects of remittances include higher savings, better access to health and education, improved housing, increased macroeconomic stability and entrepreneurship, and reductions in poverty and social inequality. The report also shows that the money migrant workers send back to their home countries is linked to lower poverty levels and improvements in education, health and housing.

The report adds: “The role of remittances in the region cannot be overlooked . . . They help poor families increase their savings and keep children in school.” Interestingly, that report also explains that in countries like Mexico and El Salvador, remittances primarily help the poorest segments of society, while in other countries such as Peru, Haiti and other Caribbean countries, they tend to benefit the middle class much more. This is because most migrants from Mexico and Central America come from the segments of the population with the lowest education levels, while those from the Caribbean and South America tend to possess a higher education level than the rest of the population in their home countries.

Clearly, remittances being sent particularly to the Caribbean and Central America prove to be a very significant source of income for some families, and a reduction of earnings by migrants in developed countries would reduce the amount sent back home. This could have a detrimental effect in the standard of living for many citizens in those sub-regions.
What must also be borne in mind is that more people than it is possible to count through official indicators, (i.e., data from money transfer agencies and banks), may well depend heavily on remittances. Actually, a large amount of the money sent home by migrants from the developed countries goes unchecked as it is sent through family friends and other informal means rather than through the money transfer agencies. In addition, migrants who return home for short visits also take monetary gifts for their relatives. Because of these factors, some analysts feel that the amount of remittances to the region may be much higher than the revealed official figures.

On the wider perspective of LAC, through growing unemployment in immigrant communities and the reduction in earnings, roughly one million people will not send money back to the region this year. The SELA study, mentioned earlier, reports that only 40 percent of those unemployed will continue to remit, and 25 percent of these employed will send 10 percent less of what they typically send to their families. The SELA document goes on to say that about one million households that previously received remittances will not receive any in 2009, while another four million will receive 10 percent less. The countries to be more affected by this situation are Haiti, Honduras, Guyana, Nicaragua and Guatemala.

The crisis in the USA has impacted heavily on migrants from LAC since their unemployment rates in that country are higher than average. Roughly 65 percent of the migrants live there and it is from there 75 percent of the remittances originate. Over in Spain which has attracted migrants from Latin America, the unemployment rate for those migrants stands at 17 percent with about 350,000 migrant losing their jobs in the past year. The decline of remittances from Europe, and more particularly Spain, is also due to the fact that migration of Latin Americans to that part of the world has declined in the past five years.
But the devaluation of the US dollar and also the declining value of the Euro to the US dollar since the last quarter of last year have also resulted in the lowering of remittances. For instance, Latin Americans living in Spain and other European countries send home funds in Euros, which do not fetch a high rate of exchange in their home countries as before.

Further, the SELA study explains that immigrants have been affected by increased anti-immigration sentiments and deportations. The US Department of Homeland Security, more than 320,000 people were deported in 2007, with 96 percent coming from LAC. Deportations increased to 359,000 in 2008, with most being of the “non-criminal” type. Obviously, this heavy flow of deportations has acted to reduce the flow of remittances since they are no longer in the work force in the “source country.” The European Union has also clamped down on Latin American immigration and has also begun to deport ‘illegals’ to their home countries.

Of interest to note, too, is that with the current economic crisis in the USA and other developed countries, the remittance flow is taking a reverse trend in some countries. This is because a growing number of families in LAC are now sending money to their unemployed relatives living in those developed countries to help with the payment of their rent and with other expenses such as school fees.
Currently, a large proportion of the remittance is sent through money transfer operators, with commercial banks having a relatively small share of the market. Since fees for this service amount to up to 20 percent of the amount sent, governments should work with financial institutions to lower these costs. Considering that last year more than US$300 billion was sent home by migrants worldwide, the “middle-men” indeed received a sizeable chunk of migrants’ earnings.

The World Bank has stated that the collaboration between governments and financial institutions can increase the possibility for at least the “legal” migrants to send money through bank accounts, which could result in a significant reduction in the transfer fees. In the home countries, especially in LAC, credit unions and microfinance companies could easily be the main disbursing agents since these, rather than the commercial banks, tend to be closer to the majority of those who receive remittances from their families. All of this, in turn, can positively influence local financial development.
[The writer is Guyana’s Ambassador to Venezuela and the views expressed are solely his.]