Slowing the Money Trail

Another reason for the drop is the global credit crisis. It started in the collapsing U.S. housing market, which has led to a slump in the construction industry, which employs large numbers of Mexican migrants, and is now laying off many of them. The flip side of that story is a strong economy back home. While the U.S. economy sinks into recession, Latin American economies are faring relatively well. Brazil grew at an annualized rate of 6.2 percent in the last quarter of 2007. The weakening dollar is also undercutting the value of money sent home from the United States in some cases. Not surprisingly, travel agents in areas with large Brazilian communities report that thousands of Brazilian clients have purchased one-way plane tickets in recent months. One of every four Uruguayan immigrants has returned in recent years.

This return traffic is fueled by the U.S. crackdown on undocumented workers and a growing backlash against immigrants, says Rodolfo de la Garza, an immigration expert at Columbia University. Oscar Martínez, 47, emigrated from Mexico City in 1974, and saved enough money as a machinist over the 30-plus years he spent living in southern California to send approximately $50,000—more than one year's salary—to relatives back home. But he was in the United States illegally, and in January officials deported him. Tougher border controls mean he would have to pay a smuggler thousands of dollars to return, and he doesn't have the money. Now he fears for his country's stability as the remittance flow slows. "A lot of money goes to small towns in Oaxaca and northern Mexico to help build roads and schools, and if the remittances stop coming a lot of things aren't going to get done," says Martínez. "It's going to be a disaster for this country."

Some corners of Mexico will be particularly hard hit. Funds sent from the United States account for about 10 percent of GDP in the central Mexico state of Zacatecas, and a survey of households in three medium-size towns in early March found that money is being sent less frequently and the sums sent are dwindling from $300 every two to three months to as low as $200. "If remittances decline significantly over the medium term, the local economy will come to a standstill," warns Rodolfo García Zamora, a development-studies professor at the Autonomous University of Zacatecas. "And neither the state nor the federal governments are doing anything to anticipate that contingency."

There is an option. The United States is now losing ground to Spain as an immigrant magnet for at least two South American nations. This year, more euros than dollars are expected to flow into Ecuador and Bolivia. On a per capita basis Spain will surpass the United States as a sender of money to all of Latin America in 2008. Spain's appeal is a common language, and the fact that a Latin American migrant with a valid work visa can sign up for government health insurance from the day he arrives. "Spain has openly acknowledged its need for workers, and for people from Andean countries the easy choice is to go there," says Donald Terry of the IDB. "Would you rather go to Spain and earn euros or go to the United States and earn dollars?" That, as any true-blue American might say, is a real no-brainer.

With Mac Margolis in Rio De Janeiro, Owen Matthews in Moscow and Stefan Theil in Berlin

© 2008