Monday, 16 March 2009

This is Bad News for Latin America: Remittances Seen Falling This Year For First Time, Says IADB

After almost a decade of growth, remittances to Latin America and the Caribbean are likely to decline in 2009 -- the first decline since the Inter-American Development Bank started tracking flows in 2000. Bad news. Remittances have been decreasing since the fourth quarter of 2008 -- the first quarterly decline also in nearly a decade. Migrants are either being hit by the economic recession in the U.S. and most developed economies; remittances are also being affected by swings in exchange rates -- with a stronger dollar, it is harder for migrants to send more; the effect is mixed for recipients. Says the IADB in a report released today: ''The break in the upward trend took place after the first semester of 2008. After a flat third quarter, in the fourth quarter remittances dropped to $17 billion, 2 percent less than in the same period of 2007. For the few countries that have reported data for January, totals were down by as much as 13 percent.´´

What's at stake here? A lot: remittances sent home by migrant workers provides millions of families across Latin America and the Caribbean with a source of income that was the most stable source of dollars for years. Even banks have played large on this, repackaging flows into bonds that they sold along the past three or four years. According to the IADB, Latin American and Caribbean expatriates transferred $69 billion to their homelands, 1 percent more than in 2007. It's a lot of money -- the decline will be dramatic for sure.

Exchange rates swings started to have greater influence than in the past, especially in countries that experienced sharp devaluations or have large expatriate communities in Europe. Migrant workers who sent money from Europe into their homelands were hit by the sudden drop in the value of the euro since mid-2008. Remittance senders and their beneficiaries back home were also hurt by last year’s skyrocketing oil and food prices.

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