Yearly Mexican Remittances Drop For First Time

Yearly Mexican remittances drop for First time

Julie Watson,
Associated Press Writer
JAN. 27, 2009
MEXICO CITY

– The money sent home by Mexican migrants fell in 2008 for the first time on record, Mexico's central bank said Tuesday — part of a global trend that could worsen as emigrants from developing countries lose jobs in the global financial crisis.

Remittances, Mexico's second-largest source of foreign income after oil, plunged 3.6 percent to $25 billion in 2008 compared to $26 billion for the previous year, the central bank said.

The percentage drop is nearly twice what the government had expected for the year, and central bank official Jesus Cervantes said the decline will likely continue this year.

Experts blame a crackdown on illegal immigration that has stemmed the flow of those heading north to seek work as well as the U.S. recession, in which many Mexicans, especially construction workers, have been laid off.

It was the first time remittances have fallen year-to-year since the bank starting tracking the money 13 years ago.

Mexico is not alone: After several years of strong growth, remittance flows to developing countries around the world slowed in the third quarter of 2008. They are expected to drop even further this year in response to the global crisis, World Bank economist Dilip Ratha said Tuesday.

Global remittances that likely hit $283 billion in 2008 are expected to drop 0.9 percent in 2009, Ratha said.

"Remittances are the single strongest poverty-reduction tool that many countries have," said Robert Meins of the Inter-American Development Bank. "This could translate into a great deal of hardship for a lot of people, which I think is underappreciated."

In Mexico, reduced remittances are combining with a slide in exports to slow the economy, which the central bank Tuesday predicted will contract between 0.8 percent and 1.8 percent in 2009. Mexico sends 80 percent of its exports to the United States. The government has forecast zero growth.

"It's definitely another sign that Mexico is receiving a shock from the U.S. recession through its trade ties to it, and we expect the economy to be in recession this year," said Jimena Zuniga, an economist at Barclay's Capital in New York.

Mexico receives the largest amount of remittances in Latin America and the third largest in the world, after India and China — where remittances have only slowed, but not dropped because they have many skilled professionals working abroad who haven't been hit as hard, Ratha said.

While remittances represent less than 4 percent of GDP, their decline is being felt in towns across Mexico, where lines at Western Union counters have all but disappeared. New businesses funded by migrant money are no longer opening and construction has stopped on homes that have been built in stages as cash arrived from those working abroad.

In the first part of the decade, Mexico's recorded payments grew rapidly — from $9 billion in 2001 to $26 billion in 2007 — because of swelling migration and better reporting methods.

This year, the central bank revised remittance figures going back three years, including amounts that weren't originally counted. That raised past annual remittance calculations for 2006 and 2007.

Remittances have been falling across Latin America as the U.S. sheds jobs, slowing growth in many nations, according to the Inter-American Development Bank.

The situation is equally bleak in the former Soviet countries that depend on remittances from people working in Russia. Many of those workers are now returning home due to a lack of jobs.

Almost a quarter of Moscow's 2 million-strong army of "guest workers" has left. Anelik, one of Russia's largest money-transfer agents, reported a 30 percent decrease in remittances from Russia last fall compared to the same period in 2007.

In Moldova, Europe's poorest country, remittances from the 2 million migrants working in Russia represent nearly 40 percent of its GDP. Deputy Prime Minister Igor Dodon told the Interfax news agency that half a million labor migrants from Moldova will return before year's end.

In many countries, about 20 percent of the money migrants send back is invested in long-term projects like small businesses or other local development. Meins, the remittance specialist, worries that may stop now as the poor use the little money that arrives for daily needs.

Even so, in most countries, remittances aren't falling as fast as foreign investment. Because of that, some countries are even considering trying to issue bonds directly to migrants, Ratha said, encouraging them to continue to invest back home and believing that they are less likely to pull out during a crisis.