Slow U.S. growth, zero immigration hurt remittances to Mexico

MEXICO CITY -- The money Mexican immigrants working in the U.S. send home amounts to more than all foreign direct investment here.

So what does it mean for the Mexican economy if immigration to the U.S. from Mexico slides to zero, and remittances fall flat?

The U.S. recession, then slow U.S. economic growth over the past two years, plus tighter border security and anti-immigrant laws at the state level have conspired to either drive immigrants back to Mexico or convince people here to sit tight. Deportations have increased as well. Meanwhile, drug violence along the border and cartels' targeting of migrants has also deterred immigration north. Together those trends have put a dent in the dollars Mexicans wire home.

Both remittances and foreign direct investment are well off the highs reached before the recession, $26 billion in 2007 and $27 billion in 2008, respectively.

The cash sent back to Mexican families totaled just $22.4 billion in 2012, down 1.6 percent in dollar terms from the previous year (partly due to an appreciating peso), or up less than 1 percent in pesos adjusted for inflation. By comparison, foreign direct investment last year isn't likely to reach the $20 billion mark, compared with $20.4 billion a year earlier.

In Latin America's second-largest economy, income from remittances ranks just below what Mexico earns from petroleum, tourism and the automotive industry –- yet remittances account for only 2.3 percent of the GDP.

"The effect of remittances is felt mainly in the homes that receive them," said Juan Luis Ordaz Diaz, senior economist with BBVA Bancomer. "They're a salary for those homes –- probably larger than the salary they would receive here."

In other words, according to Ordaz Diaz, remittances don't have the power to sway the Mexican economy on their own. Their real impact on the Mexican economy comes in terms of consumption, he said. Nearly 1.4 million families in Mexico depend heavily on what their relatives earn in the U.S.; the average remittance is about $290 per month.

While the number of families heavily dependent on remittances comprise only about 1 percent of the Mexican population, some regional economies do depend disproportionately on income from remesas. (These tend to be states such as Michoacan, Oaxaca, Guerrero, and others that send the highest number of immigrants north.) A drop in the cash sent home can seriously injure a state's economy.

Although Mexico's economy recovered from the recent recession far more rapidly than that of its northern neighbor, the country's economies are inextricably tied, and sluggish growth in the U.S. inevitably holds Mexico back.

As the U.S. economy improves, so should remittances –- eventually. BBVA Bancomer expects remittances in 2013 to remain flat.

The wild card in the equation may be U.S. immigration reform. Will lawmakers give educated immigrants –– especially professionals in math and science fields –– preference in obtaining a green card, as has been proposed? What will become of the low-wage workers in agriculture and the service industry, many of whom send cash home to Mexico? Importantly, will undocumented immigrants be given the same rights as others, to bring their families to the U.S.?

"People send remittances here because there are still links," said Antonio de la Cuesta, director of political analysis with CIDAC, a Mexico City-based think tank.

If Mexican immigrants bring their families to the U.S., they won't have a reason to send remittances. But any assumption that immigration has permanently slowed would be premature, said De la Cuesta. The conditions that pressure Mexicans to migrate north haven't disappeared in Mexico. While Mexico's economy is providing greater opportunity for people here than in the past, economic hardship is still widespread.

Mexico's social development agency said some 13 million Mexicans were living in extreme poverty at last count. Roughly half the population lives below the poverty line, according to the United Nations.

And wages are stagnant. While that has attracted foreign investment, particularly in manufacturing, many Mexicans know that what they earn in a day here amounts to an hour's wage north of the border.

"There are still incentives to migrate," said De la Cuesta. "The situation in Mexico remains difficult."

Photo: Flickr/Walmart

This post was originally published on Smartplanet.com