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Miriam Jordan

Money Sent From Workers to Latin America Is Expected to Drop


by Miriam Jordan

16 March 2009

Remittances sent from overseas workers back to Latin America and the Caribbean are expected to drop in 2009, according to a new study, shrinking what is often a crucial source of cash for many families in the region.

After a decade of growth, remittances to Latin America and the Caribbean began to slow in 2008, according to the Inter-American Development Bank, as countries that attract large numbers of migrant workers, including the U.S., Spain and Japan, slid into recession. And this year, remittances to the region are likely to drop for the first time since the bank began tracking annual flows in 2000.

Migrant workers — the lifeline for millions of families in Latin America and the Caribbean — sent home a record $69.2 billion last year, nearly 1% more than in 2007. However, the outlook is grim for 2009, according to the IDB. For countries that have reported data for January, totals were down by as much as 13%, according to remittance analysts at the Washington-based institution.

"While it is too early to project by how much remittances may decline in 2009, this is bad news for millions of people in our region who depend on these flows to make ends meet," said IDB President Luis Alberto Moreno.

U.S.-based migrant workers who send money home — many of them undocumented immigrants who sneaked into the country illegally — have been under pressure for some time. The gradual economic slowdown, negative immigration environment and mortgage meltdown preceded the current crisis. Despite these challenges, remittance flows kept growing, even if at steadily declining rates.

Remittances grew by 6% in 2007 over the previous year and remained steady throughout the first half of 2008. Migrants began to feel the impact of the recession on their earnings in late 2008. Following a flat third quarter, in the fourth quarter the money they sent home declined by 2% relative to the same quarter in 2007.

A significant proportion of money that relatives send home is used for daily necessities, including food, shelter and clothing. A decline in remittances is likely to result in greater pressure on social safety networks. Moreover, it is likely to result in less spending on healthcare, education and other investments in human capital that put individuals on a path to prosperity in the long term, according to the IDB.

The appreciation of the U.S. dollar in late 2008 provided some respite for families dependent on remittances, particularly in Mexico, Brazil and Colombia. Thus, remittances from the U.S. to those countries increased the purchasing power for recipients, offsetting at least in part the decline in volume.

Countries in the Andean region, such as Peru, that receive a significant amount of money from Spain, benefited from the strong euro during the first half of 2008 but since then have been affected by declines in the European currency.

The current economic crisis has especially hurt industries that employ low-skilled foreign workers, particularly those in construction, manufacturing, hotels and restaurants. Despite the grim economic picture, the IDB said it saw "scant evidence" that migrants are prepared to return en masse to their countries of origin. In Spain, where there are some five million foreign workers, a government plan to pay welfare benefits in a lump sum to people who return to their homelands has attracted few takers.

"Migrants have proven that they adapt to tough conditions," said Mr. Moreno. "They change jobs, work longer hours, cut back on spending, move to another city and even dip into savings in order to continue sending money to their families," Mr. Moreno said. "Going home is usually a last resort."

Published by Wall Street Journal


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