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LATIN AMERICA: Remittance Drop Will Hurt Poor

Patricia Grogg *

HAVANA, May 29 2009 (IPS) - The fall in migrant remittances to Latin America caused by the global financial crisis is posing a threat to middle and lower-income households, especially in countries where cash transfers represent a large proportion of GDP.

For some families, shrinking remittances could actually mean going without food for several days, Gabriel Polanco, a researcher on migration issues at the National Autonomous University of Mexico, told IPS.

The Economic Commission for Latin America and the Caribbean (ECLAC) predicts a moderate drop in cash transfers to the region. But the impact will be especially heavy in countries like Mexico – the top recipient of remittances in Latin America, and one of the top in the world – or El Salvador and the Dominican Republic, where cash transfers represented 17 and 10 percent of GDP in 2008, respectively.

According to Polanco, there is so far no data or evidence that the fall in remittances has begun to cause major social problems. “But if the trend continues, it’s possible that we will soon begin to feel it,” he said.

There are already some statistics on the phenomenon, however. Preliminary figures from the Inter-American Development Bank (IDB) show that cash transfers in several countries of the region dropped by up to 13 percent in January. The lending institution said 2009 would be the first year of declining remittances after a decade of steady growth.

In Mexico, cash transfers, mainly from the United States, were down 4.9 percent in the first quarter of 2009 compared to the same period in 2008. Last year, remittances to Mexico totaled just over 25 billion dollars, representing 2.5 percent of GDP.

In terms of sheer volume, Mexico heads the pack in the region, followed by Brazil (7.2 billion dollars), Colombia (4.8 billion), Guatemala (4.3 billion), El Salvador (3.8 billion), the Dominican Republic (3.1 billion), Peru (2.9 billion), Ecuador (2.8 billion), and Honduras (2.7 billion), according to the IDB.

Researchers say the U.S. recession, the growing difficulties faced by migrants in finding or keeping jobs there, the toughening of immigration enforcement in the workplace, and stepped-up controls along the border are all factors leading to a drop in remittances this year and in following years, if the crisis continues.

In El Salvador, this will have a “dramatic” effect on poor households, because it will force them to “further limit their spending to basic items,” especially food, sociologist Juan José García, who specialises in migration issues and remittances, told IPS.

María Hernández, in El Salvador, began to feel the effects of the crisis months ago. With two sons living in the United States, she used to receive 400 to 500 dollars a month. But the transfers stopped coming in October 2008. “I don’t receive remittances any more, but luckily I’m used to working,” she remarked to IPS.

In that impoverished Central American nation, remittances received by 381,700 families – representing 27 percent of the population – go almost entirely towards food, clothes, utility bills, education and health care. Women head 52 percent of the recipient households.

In the Dominican Republic as well, a majority of the families that receive cash transfers from abroad are headed by women. “Every month, my daughter sends me 150 dollars. I use that money to pay for the schooling of four of my other kids, to buy food and to improve the house,” 55-year-old Elida Jiménez told IPS.

But the decline in remittances will affect an estimated 73,500 households in the Dominican Republic who will stop receiving cash transfers this year, which will spell out a drop in living standards, especially for female-headed families.

Women play a prominent role on both sides of the phenomenon. Bolivian women immigrants in Spain send home the equivalent of nearly six percent of GDP every year, according to Remesas.org, a Madrid-based research institute focusing on remittances.

In Cuba, meanwhile, the impact of the global crisis has been eased by recent measures taken by the U.S. administration of Barack Obama, researchers say.

In 2004, President George W. Bush (2001-2009) limited trips by Cuban-Americans to Cuba to once every three years and remittances sent to Cuba to 100 dollars a month. These limits on travel and cash transfers were lifted by Obama.

“Perhaps because of the crisis there will be no increase (in remittances) in the short-term, but no decline is expected,” said a Cuban economist who spoke on condition of anonymity. “I don’t think there will be any more impact than there has been since 2004,” he told IPS.

At any rate, he said, regardless of the volume of remittances, they are a source of net revenues.

Because of the strong ideological component of the decades-long conflict with the United States, authorities in Cuba do not give out statistical information on annual remittances, most of which come from that country, which is home to more than one million Cuban immigrants.

But based on sales in the government chain of stores that only accept hard currency, and which sell everything from food products and household furnishings to clothing, footwear and home appliances, economists estimate that more than one billion dollars in cash flows into Cuba annually.

The Inter-American Dialogue (IAD), a Washington-based hemispheric think tank, puts the estimate at between 830 and 985 million dollars a year, 53 percent of which comes from the United States, 23 percent from Spain and 24 percent from other countries.

The IAD reports that around 40 percent of remittances from the U.S. arrive through “informal means,” rather than through wire transfer services – a phenomenon fomented by the Bush administration’s restrictions on cash transfers and by the Cuban government’s 20 percent tax on dollars.

“Western Union takes a big chunk out of what I receive,” one Cuban woman complains after picking up a cash transfer from that company, a world leader in global money transfer services.

Another woman, María, says “my daughter hands over 125 dollars in Miami and they give me 100 CUCs (convertible pesos) here. I don’t know, it’s like a private agency or business,” she says, trying to explain how the informal services work. The 75-year-old uses that money to buy things in the “shopins” (the government hard currency stores) and to cover “household expenses.”

The informal networks apparently operate similarly to wire transfer services like Western Union: someone receives the money in the United States and instructs their “agent” in Cuba to give the recipient the equivalent amount in CUCs.

In the Dominican Republic, just 10 percent of remittances arrive through international bank wire transfer services, and the rest is brought in by travelers or received through Dominican-based remittance agencies known as “remesadores,” which have offices in a broad range of places, including grocery stores, beauty salons or travel agencies, a Central Bank source told IPS. Bank wire transfers cost around 50 dollars each.

By contrast, the World Bank estimates that a 200 dollar wire transfer from the United States to Mexico costs 11.60 dollars on average. Western Union is the main channel through which remittances reach Mexico.

In El Salvador, Central Bank figures indicate that around 75 percent of remittances arrive through the banking system, and the rest through private mail or couriers.

According to academic studies on social policy in Cuba, remittances mainly go to white, middle-class sectors, and are part of a survival strategy that has become key to many families since the severe economic crisis of the 1990s.

Cuban economist Pedro Monreal reached the conclusion that remittances are “a decisive factor in curbing the impoverishment” of various sectors of the Cuban population and a major source of income for the state coffers, through indirect taxes.

But because of the characteristics of that cash flow, it has contributed to the social “stratification of consumption, the segmentation of markets, and social exclusion,” writes Monreal in an article on migration and family remittances in Cuba, published by the IPS bureau in Havana.

* With additional reporting by Diego Cevallos (Mexico), Raúl Gutiérrez (San Salvador) and Valeria Vilardo (Santo Domingo)