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."
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.