Remittances to Latin America and the Caribbean Take a Tumble

September 21, 2009

In a sign of economic uncertainties, remittances home sent by Latin American and Caribbean expatriates are expected to drop 11% this year, according to the Inter-American Development Bank’s Multilateral Investment Fund (MIF). The $62 billion in remittances migrant workers are expected to send home is roughly equivalent to the total of such remittances in 2006.

“The crisis is clearly limiting migrants’ capacity to send money home,” said IDB President Luis Alberto Moreno. “Nevertheless, remittances have decreased less than other private financial flows to the region, as migrants continue to make sacrifices to provide for their families.”

The IDB's estimate is based on findings of a report conducted by Manuel Orozco of the Inter-American Dialogue, a Washington, D.C think-tank, in collaboration with MIF remittances specialists Natasha Bajuk and Gregory Watson.

The report was analyzes data from a survey of 1,350 Latin American and Caribbean migrants commissioned by MIF and conducted between March and June, combined with desk research and statistical analysis of migration patterns and unemployment.

The findings are in line with the MIF’s analysis of central bank data on remittance receipts. According to these official sources, remittances dropped 15% in the second quarter of 2009 with respect to the same period last year. In South America, Central America and the Andean region the slide was less steep than in previous quarters, while in Mexico and Caribbean countries the downward trend accelerated.  

The decline in remittances could impact more than 4 million people in Latin America and the Caribbean, nearly one-third of them in Mexico, by far the leading recipient of remittances in the region.

Remittances from the United States – where unemployment among Latin Americans is higher than among the general population – are expected to decline by 11% to about $42.3 billion this year.

Remittances from Europe, another major destination for Latin American migrants, are expected to drop by 14% to about $9 billion. Remittances from other parts of the world will slide about 4.5% to $10.4 billion.

The survey reveals that migrants in the United States are sending money with less frequency and in smaller amounts.

In a similar poll conducted last year, migrants averaged about 15 transfers annually. This year the average is expected to drop to 12 times. The average amount sent per transfer is slipped from $241 to $230.

However, the survey pointed out that even people who have lost their jobs are still sending money home, usually by dipping into savings. Migrants are employing different strategies to keep making remittances, even during the downturn.

About 45% of respondents said they were now reducing the amounts they send home. More than one-third have reduced ay-to-day expenses and about one-fifth have taken on second jobs.

One troubling trend revealed by the report is that the costs of money transfers, which in recent years had fallen dramatically due to increased competition and the adoption of new technologies, have ceased to decline and in some cases are starting to increase.

“It is critical to continue with initiatives that help ensure that the cost of making remittances remains low so that migrants and their families can keep more of their hard-earned money,” said MIF General Manager Julie T. Katzman.

The MIF started analyzing remittances nearly a decade ago to gauge their volume and impact in Latin America and the Caribbean. Its work encouraged new service providers to enter the market, including microfinance institutions, credit unions and commercial banks that can provide additional financial services to migrants and their families.

P2P payments in the U.S. total about $2.9 trillion annually; almost all involve cash and checks

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