The amount of cash sent home by Mexican migrant workers in the US is falling – and financiers warn that if it keeps going down, poverty could worsen.
“Flows were slightly down in the first two months of this year. This is not a trend yet, but we are watching it”, Donald Terry, manager of the IDB’s Multilateral Investment Fund (MIF), told Emerging Markets.
“If flows were to decline by any appreciable amount, this would have serious consequences for poverty levels in Mexico.”
Remittance flows to Mexico last year rose by just 1% to $26 billion, according to MIF data – after double-digit growth in the eight years to 2006. In January this year, a 6% year-on-year fall was registered.
MIF research last year showed that significantly fewer Mexican workers are sending money home, especially from US states where migration is most recent, such as Georgia, North Carolina and Pennsylvania.
“Those that remit tend to increase the amounts over time. So when remittance growth stops, that typically means fewer families are receiving money,” Terry said. More than half a million Mexicans stopped sending money home last year.
The impact of the slowdown is hitting some Mexican states harder than others, research by the Migration Policy Institute shows.
In Chiapas, Chihuahua, Distrito Federal, the State of Mexico and Michoacan, flows in the first quarter of 2007 were down by more than 5% year-on-year, while in Baja California, Baja California del Sur, Guanajuato, Puebla and Yucatan they rose by more than 5%. Elsewhere there was moderate to low growth.
Institute spokeswoman Dovelyn Agunias said: “Inflation means that people have to send more money to maintain the same standard of living. These are private flows, but governments can, and should, help to reduce transaction costs.”
Recent research by the World Bank contrasts the flattening of remittance flows to Latin America, especially from the US, with increased flows to the Philippines, India and other big exporters of labour.
Dilip Ratha, senior economist at the World Bank, identified two causes of the falling-off of flows to Mexico: first, “anti-immigrant sentiment, which has led to stricter enforcement of immigration laws and caused unemployment among migrants”, and the economic slowdown, especially in construction.
Ratha added that remittances account for only 3% of Mexico’s national income, and that “in the places where it matters more – in central America – remittances are increasing”. He added that the decline in flows from the US to Mexico would in part be a consequence of the natural correction of a sharp rise in recent years.
MIF and World Bank research indicates that migrants from the Andean countries are switching away from the US and going to Canada and European countries, especially Spain. Migration to the US from central America continues, and remittance flows keep growing. Many Brazilian migrants to the US are returning home, on account of dollar depreciation and the strength of Brazil’s own economy.
The MIF, an autonomous fund set up by the IDB, supports projects to bring remittance flows into the financial system and to reduce the cost of sending remittances.