24 February 2009

Remittances Bring Hope to Many Latin American Families

U.S. remittances to Latin America are down, but so are sending costs

A father and his three sons wire funds home to Mexico City from the Hispanoamerica Travel agency in Richmond, Virginia.

By Sharon Carper
Staff Writer

Washington — Remittance. For many Latin American families, it is a word full of hope and uncertainty.  It refers to money sent home, often for food, clothing, books, school uniforms and medicines — money that many fear will disappear as the global economy slows.

All over Latin America, families wait for money that relatives send from other countries, principally from the United States, to supplement their income. Statistics from the World Bank and the Mexico Central Bank report that, in Mexico alone, foreign remittances are second only to the oil industry for share of the national income. Despite a global economy in recession, families in Mexico, El Salvador, Guatemala and other countries with large communities in the United States continue to hold on to the promise that foreign remittances will supplement their incomes.

The United States recognizes the importance of remittances and has worked successfully to lower the costs of the transactions. At the conclusion of the Summit of Americas held in Mexico in 2004, the U.S. government pledged to continue efforts to reduce the cost of sending remittances so that more money would be received by families rather than be absorbed in dispatching the funds. In 2000, according to World Bank figures, 15 percent, or $49, of a $300–$350 remittance was absorbed by transaction costs. Between 2000 and 2004, that percentage was halved for remittances sent from the United States. And in 2008, the cost of remittances from the United States dropped further, from 7.5 percent to 4.5 percent, according to the World Bank.

Manuel Orozco, a senior associate in the Remittances and Development Program at the Inter-American Dialogue, a Washington public policy group, said there will be a decline in overall remittances in 2009, but that the drop off is “relative.” Unemployment in certain industries, such as construction and service businesses, and migrant movement may harm one-third of people receiving remittances, according to Orozco.

Orozco acknowledges U.S. government assistance in facilitating the flow of remittances through programs by the U.S. Treasury, the U.S. Agency for International Development (USAID) and cooperative measures with the Mexico Central Bank. Programs in Mexico with USAID assistance encourage financial literacy so recipient families learn how to manage the money received.

The Inter-American Foundation, an independent U.S. government agency, works with grass-roots programs to plan economic development projects paid for by the money received from remittances.

The process of transferring money has evolved. Families in Latin America typically can access Internet transfers, draw money directly from automated teller machines and receive money wired from traditional services, such as Western Union. Particularly in countries including Mexico, Paraguay and El Salvador, there has been an increase in the variety of channels through which remittances flow.

The U.S. Treasury has worked in Guatemala City with the World Bank to improve efficiency and competitiveness in the Guatemalan remittance market. USAID partners with the World Council of Credit Unions to strengthen credit unions and remittance services. And USAID has established a successful alliance with Mexico’s 4 por 1 program, which unites federal, state and local governments with Western Union to fund projects that benefit communities where many workers have left for better jobs in the United States.

Senior parents in Atlixco, Mexico, receive money sent to them from three grown children working in the United States.

A WOMEN’S ISSUE

Orozco stressed that two-thirds of all recipients of foreign remittances are women. Remittance money received is normally spent on food and clothing, education or medicine. Despite their own financial stress, women recipients worry about their loved ones in the United States — particularly about their vulnerability to unemployment or homelessness.

Sara Miller Llana, a journalist for the Christian Science Monitor in Mexico, said the drop in remittances from a record high in 2008 is having a detrimental affect on Latin American families. In the state of Michoacán, Mexico, families that typically received $700 a month from their relatives in the United States in October 2008 today receive only $100 a month.  

Family remittances will continue to dwindle in coming months, according to the Mexico Central Bank. Llana said the downturn will hit hard in Mexico, where homes that had been under construction are standing unfinished.

Llana told America.gov that some Mexicans are trying to compensate by growing their own food in small plots. “The Mexican people are remarkably resilient — they can withstand anything. They are not panicking … but they are very worried,” Llana said.

There also is the prospect of migrant workers returning home permanently from the United States, according to Llana. She said local municipal leaders in Michoacán, for instance, registered many returnees at the end of 2008 as returning residents. While Christmas holidays often bring workers home to their families, this year, 20,000 in Michoacán chose to remain after the holidays.

Social migration specialists argue that, even though some migrant workers in the United States are unemployed (migrant construction workers, for instance, have an unemployment level of 20 percent), some will move to new regions of the United States and find work that will allow them to continue sending money home.

When the 2009 Summit of the Americas convenes in Trinidad and Tobago in April, there likely will be new efforts for further cooperation in remittance policies and economic development in all of the Western Hemisphere.

More information on the 4 por 1 program is available on the USAID Web site.

Llana’s news story on remittances is available on the Christian Science Monitor Web site.