MercoPress. South Atlantic News Agency

IDB forecasts decline of remittances to Latam

After almost a decade of growth, remittances to Latinamerica and the Caribbean are likely to decline in 2009 for the first time since the Inter-American Development Bank, IDB, started tracking these flows in the year 2000. Remittances have been decreasing since late 2008.

The money sent home by migrant workers is a key source of income for millions of families across the region. Last year Latinamerican and Caribbean expatriates transferred some 69.2 billion US dollars to their homelands, 0.9% more than in 2007, according to the IDB Multilateral Investment Fund (MIF).

The break in the sustained trend took place following the first half of 2008. After a flat third quarter, fourth quarter remittances dropped to 17 billion, 2% less than in the same period of 2007. For the few countries that have reported January data, some totals were down by as much as 13%.

“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.

“The issue has become more complex, as more factors have come into play. The world is facing its worst economic crisis in recent memory. Unemployment is rising in industrialized nations. The climate against immigration is becoming harsher. Even exchange rate fluctuations are playing a larger role than before” Moreno noted.

A decline in remittances is likely to translate into greater demand on social safety networks by families who rely on money flows from abroad to cover basic expenses. IDB has been advising borrowing member countries since before the crisis exploded on strengthening their social programs.

After many years of persistent growth, remittances to Latin America and the Caribbean came under pressure in 2008 as major source countries, including the United States, Spain and Japan, fell into recession. The crisis has especially hit industries that employ foreign workers, such as construction, manufacturing, hotels and restaurants.

Remittance senders and their beneficiaries back home were also hurt by last year’s spike in oil and food prices, which further eroded their incomes. In addition, exchange rates swings started to have greater influence than in the past, especially in countries that experienced sharp devaluations or have large expatriate communities in Europe.

The Mexican peso and the Brazilian real have lost ground against the US dollar in recent months. As a consequence, remittances from the United States to those countries have increased their purchasing power, offsetting at least in part the decline in volume.

Countries in the Andean region that receive significant amounts of money from Spain benefited from the strong Euro during the first half of 2008 but since then have been hit by declines in the European currency.

Despite the bleak outlook, the MIF sees scant evidence that migrants are ready 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 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,” Moreno said. “Going home is usually a last resort.”