A new report released Monday by the Inter-American Development Bank shows migrant workers from Latin America are sending less money home. The drop comes as the global economic crisis is leading to less work for migrants. The bank predicts that remittances to the region will decline this year for the first time on record.
The Inter-American Development Bank says that after years of strong growth, remittance flows to Latin America slowed in 2008, totaling $69.2 billion, which is just a slight increase from the year before.
The bank says remittances began to decrease at the end of 2008, and are expected to continue to fall this year.
IDB President Luis Alberto Moreno said it is too soon to predict exactly how much remittance flows will fall in 2009.
"These flows will be effected by length and severity of the crisis and the ability of migrant workers to weather this storm,said Luis Alberto Moreno.
The bank says recessions in major economies such as the United States, Spain and Japan have particularly hurt the industries that employ foreign workers - such as construction and manufacturing. As a result, Latin American workers have a harder time finding work, and have less money to send back home.
Moreno says despite these challenges, he does not expect many immigrants will decide to return to their home countries.
"Our take is that migrants are likely to exhaust all other options before considering a return to their countries of origin," he said. "Remittances reflect a strong commitment to family and community, and senders have shown in the past that they will do anything in their power to fulfill that obligation."
Remittances are a vital source of income for many Latin American and Caribbean economies. Seven countries in the region receive 12 percent or more of their Gross Domestic Product from workers abroad.
Despite the recent decline, remittances have been a much more stable source of income for these countries compared to private capital flows, such as bank loans and investments. This is the General Manager of the IDB's Multilateral Investment Fund, Julie Katzman:
"It makes it even more clear, that the more stable flow of money, which remittances represent, makes them even more important in the ensuing years," said Julie Katzman. "And unlocking the full developmental possibilities of those flows is essential."
Katzman notes that most of the money sent back home is used to pay for food, clothing, housing and other essentials. She says to realize the full potential of remittances, recipient families need greater access to the financial system.
"From simply having a bank account to being able to access micro-credit, get insurance or a loan to further a child's education," she said. "These are the things that remittances can do and to further families along the road to financial independence."
Remittances also are impacted by varying exchange rates between countries, a factor that may help or hurt. For example, the value of the U.S. dollar has increased in recent months compared to the Mexican peso. So, even though the number of dollars sent to Mexico fell, the spending power of the dollar rose. This was also the case in Colombia and Brazil.
But countries with currencies pegged to the dollar, such as El Salvador and Honduras, have not benefited in the same way from its rising value.