As the global economic slowdown begins to bite remittances to Latin America this year will fall for the first time since the Inter-American Development Bank, IDB, began measuring the money flows in 2000, reported the bank.
Remittances to the region reached 69.2 billion US dollars in 2008, an increase of less than 1% over 2007. But in the fourth quarter of 2008, remittances fell 2% compared with the same period in 2007 and “the trend accelerated in January 2009”.
IDB estimates that remittances can be expected to fall between 11 and 13% in 2009.
The expected decline comes after years of double-digit increase in remittances is particularly serious for some countries in the region: monies sent home from abroad amount to as much as 12% of GDP.
In its latest report on the flow of remittances IDB said that it is probable that foreign direct investment and income from exports and tourism will continue to come under pressure during 2009, thereby increasing the importance of remittances.
The study puts special emphasis on the fact that remittances are an important tool for reducing poverty since more than 60% of them are used to cover daily necessities such as food, clothing and housing of the beneficiaries.
IDB also points out that the financial crisis has redefined the importance of factors influencing remittance flows to Latin America and the Caribbean.
One of them is exchange rates which are playing a much more significant role in the determination of the effect of remittances on the receiving nations.