Remittances to Latin America grow, but Mexico bucks the trend faced with the US slowdown
October 8, 2013
- Remittances to Latin America will continue to grow in 2013.
- A large proportion of remittances are destined for Mexico alone.
- The slow economic recovery in the US has had a significant effect on the amount of money sent to the country.
Every month Pedro goes to his local bank branch in Oaxaca to withdraw the money his relatives send him from the US. And he’s far from alone. Millions of Latin Americans repeat this same scene across the region, from Mexico to Argentina.
A vital part of the Latin American economy, it’s estimated that remittances will reach US$61 billion in 2013. A large part - some US$ 22 billion - is destined for Mexico. This places it in fourth place behind India, China and the Philippines in a global ranking for remittances according to a new report by the World Bank.
Although Mexico continues being, by far, the country which receives the most remittances, the slow recovery of the US economy has had a significant effect on money being sent to the country, both in the amount of remittances sent as in their value.
According to the study, Mexico is the only major recipient country in the world which has seen such a drop in remittances received this year. The flow of money has also been affected by new American regulations which tighten controls to avoid the illegal transfer of money from the country.
Such restrictions are already causing the closure of remittance service providers’ bank accounts. This has resulted in some Mexican banks which are still active to levy new fees to withdraw money, which increases the cost to those receiving the sums.
“A rather unwelcome development in recent months is the imposition, by many banks, of receiving or “lifting” fees on incoming transfers. The lifting fee is yet another example of the lack of transparency in pricing that pervades the remittance industry,” the report explains.
Remittances exceed the foreign exchange reserves in at least 15 developing countries, and are equivalent to least half of the level of reserves in over 50 developing countries.
Remittances in Latin America
Today, it’s estimated that 26 million Latin Americans work abroad, the majority of whom have moved to the US. As a result, three quarters of the money sent to Latin America comes from the USA, which, due to its relative closeness, has turned it into one of the least costly remittance corridors.
But who receives these remittances and what are they used for?
In the Dominican Republic, Wendy is one of millions of Dominicans for whom remittances are a vital lifeline. With two sons and a retired mother to support, the monthly sum she recieves from her father in Miami helps her to pay her daily living costs: electricity, food and her sons’ schooling. The vast majority - some 70% - of Dominicans have at least one family member living abroad and 40% already receive remittances.
In recent years, remittances in El Salvador have helped poor families to access new financial services. Making up 17% of the country’s GDP, these regular sums have allowed those who were previously priced out of the financial market to open savings accounts and apply for loans. Studies reveal that remittances increase the likelihood of a Salvadorian home having such an account by 11-16%.
For Jamaicans, remittances have propped up the economy of this Caribbean island, saving it from near implosion. But as in many Latin American countries, remittances reduced substantially during the global crisis due to the new economic pressures facing the Diaspora.
For many Latin Americans, remittances are a vital lifeline and it’s expected that they will keep growing as the US economy recovers. However, new charges to withdraw money and a tightening of controls on the sending of money out of the US are significant challenges to overcome in the future for Pedro and the millions of Mexicans who depend on these monthly sums to live.
“Remittances are now nearly three times the size of official development assistance. They exceed the foreign exchange reserves in at least 15 developing countries, and are equivalent to least half of the level of reserves in over 50 developing countries,” the report concludes.