Remittances to Latin America stabilizing after 15% drop last year – MIF

Money transfers from Latin American and Caribbean migrants to their families back home are likely to stabilize in 2010 after suffering a 15 percent drop in 2009, according to a new report issued today by the Inter-American Development Bank’s Multilateral Investment Fund (MIF). Remittances to this region fell to $58.8 billion last year, below the level reached in 2006.

Last year marked the first time in which the volume of remittances was lower than the amount sent the year before since the MIF started tracking these flows in the year 2000. Until 2009 the average annual growth had been 17 percent, although it started to slow in 2006 and diminished considerably in 2008, as the global economic crisis hit migrant employment and income levels in countries such as the United States, Spain and Japan.

Notwithstanding last year’s decrease, remittances continue to be an indispensable lifeline for millions of families in Latin America and the Caribbean, helping them cover basic expenses such as food, shelter, clothing and healthcare. In countries like Haiti, Guatemala, Honduras, Nicaragua and El Salvador these flows still represent more than 10 percent of their gross domestic product.

The MIF’s report noted that remittance flows to Latin America and the Caribbean, taken as a whole, started to stabilize in the last quarter of 2009. Coupled with data on employment in traditional sending countries, this suggests a bottoming-out of the decline.

“In the short term, significant recovery in the volume of remittance flows is unlikely, largely due to the uncertain outlook for economic growth in traditional remittances sending countries,” the report said. “But the signs of stability of the last months could provide a basis for an estimate of stabilized remittance levels, or event the beginning of a new period of single-digit growth in the near future.”

Mexico, the largest recipient of remittances in this region, saw a sharp drop last year, 16 percent, down to $21.1 billion. Unlike South American and Caribbean countries that receive money transfers from their expatriates in different regions of the world, almost all of Mexico’s remittances come from the United States, which was the first country hit by the global economic crisis.

Although it also has millions of migrants in the United States, Central America registered a 9 percent decrease in remittances, as it also has sizeable flows within its borders, such as Nicaraguans sending money home from Costa Rica or Hondurans sending money home from El Salvador.

The biggest decline took place in Brazil, a 34 percent drop, extending a trend that had started well before the global crisis. Brazilian migrants have tended to return home, encouraged by their country’s improving economic performance and their dwindling prospects in host countries such as Japan.

Remittance flows are also affected by other factors, some of which are seasonal and occur every year. For example, many Latin American migrants tend to send larger amounts of money home for Christmas and for Mother’s Day. In 2009 migrants sent less money for such special occasions than in 2008. Mexico also saw a decrease in the number of year-end visits from migrants living in the United States, who usually hand-carry funds to their families.

Other factors affecting remittances are irregular, such as fluctuations in exchange rates in sending and recipient countries, which played a particularly influential role last year. South American countries that have large numbers of migrants in Europe, such as Ecuador and Peru, saw the dollar value of recorded remittance receipts buffered by changes in the euro/dollar exchange rate, which offset some of the volume drop.

Migrants also appear to take into account the value of the dollar with respect to their local currencies when making money transfers. For instance, although remittances to Mexico fell in dollar terms, when expressed in pesos and adjusted by inflation, the value of the flows increased and remained positive from the fourth quarter of 2008 through the end of 2009.

Future estimates for remittances to Latin America and the Caribbean will have to take into consideration such factors, as well as the fact that over the past year many migrants resorted to tactics such as dipping into savings or cutting back on expenses to continue sending money home. Even if their employment and income levels improve in the coming months, migrants may have to meet their own needs before boosting their regular transfers.

The MIF, an autonomous fund managed by the Washington, DC-based IDB, promotes private sector development in Latin America and the Caribbean, with an emphasis on microenterprises and small businesses. In the year 2000 it began to study remittances to gauge their economic impact in this region.