Slowing the Money Trail

For decades, millions of Latin American and Caribbean men have moved to the United States and other rich countries, found jobs and sent billions of dollars back home. These remittances, totaling more than $312 billion since the beginning of the century, helped support the economies of Brazil and Mexico, and have proved to be a key economic foundation of smaller nations like Ecuador, Guatemala and Haiti.

But the warning lights of a downturn are starting to flash. Latin American and Caribbean migrants sent a record $66.5 billion to their native countries last year, according to the Inter-American Development Bank (IDB). But for the first time since the bank began monitoring these transactions in 2000, growth

in remittance flows failed to reach the double-digit percentage gains they had made in previous years, dropping from 14 percent in 2006 to just 7 percent last year. In January, the central bank in Mexico—the region's largest recipient of remittances—reported a net drop in remit-tances of nearly 6 percent, to $1.7 billion, the first time that has happened since the Banco de México started tracking remittance flows in 1995. In Brazil, the second largest recipient of remittances in the Western Hemisphere, the amount of money coming from its citizens abroad fell by 4 percent in 2007, to $7.1 billion. "We still don't know for certain whether this is a short-term change or the beginning of a new direction," says Donald Terry of the IDB's Multilateral Investment Fund. "But if it were to become a trend, it would push millions into poverty."

Indeed for some countries, it could spell economic collapse. In Honduras, the $2.36 billion in funds it received from migrants abroad in 2006 represented 26 percent of its economy. The $3.7 billion that El Salvador receives represents 18 percent of its GDP. Billions of dollars go as well to tiny countries like Jamaica and the Dominican Republic. But the effects of the slowing growth rates—and outright declines—are also starting to surface in large and diversified economies like Mexico, where remittances represent the second largest source of foreign exchange after oil exports. Between 5 million and 6 million Mexican families receive remittances on a regular basis, mainly from relatives living in the United States, and the IDB's Terry believes that 1 million of those families may soon see that source of income dry up—if they have not already.

Remittance flows are shrinking in part because many Mexicans living in the United States are finding fewer reasons to send money back home. Toughened security measures on the border have made it more difficult for undocumented Mexican workers to go home periodically, and many have brought their wives and children up to El Norte to settle down with them. The interruption of what immigration analysts call circularity—in which migrants work for short periods in the United States and then return home—has unintentionally promoted family reunification on the U.S. side of the border. As the number of loved ones back home thins, so too does the stream of remittances.

A similar phenomenon has occurred in Western Europe, where the German government encouraged Turkish Gastarbeiter in the 1980s to bring their spouses and children. As a result, recorded remittances to Turkey dropped from a 1998 peak of $5.3 billion to $951 million in 2005. In Mexico, the numbers are only now starting to catch up. "A substantial amount of recent Mexican immigration has involved the family members of single males," notes Roberto Suro, a Latin affairs expert at the University of Southern California. "More and more of the people to whom those pioneer immigrants have been sending money are now with them in the United States."