Latin America May See Slowest Remittance Growth in 2008

Latin America, the largest recipient region in the developing world, may witness the slowest growth in remittances in eight years, thanks to the deepening crisis in developed economies and the crackdown on immigrants in the US and elsewhere. Adjusted for inflation and exchange rate fluctuations, this may possibly indicate a decline in real terms. Given the substantial contribution of remittances to the region's GDP, economists anticipate a fall in consumption and investment growth in many countries this year.

A recent study by the Washingtonbased Inter-American Development Bank estimates the total remittance flow to Latin America and the Caribbean at $67.5 billion for 2008, representing a mere 1.5% rise over $66.5 billion sent last year. This when compared to a 6% growth in 2007 and an average annual rate of 19% between 2000 and 2006, looks abysmal; and yet, this is not as bad as it may look in real terms. Money transfers after adjusting for inflation and exchange rate variations may actually see a decline compared to last year.

Such projections come close to matching the declining trend in remittances witnessed since early this year. While Brazil and Mexico were the first to show a slowdown in remittances, El Salvador and Guatemala joined the list in August. Barring the case of Brazil, which saw the homecoming of many expats due to improving conditions back home, the drop in remittances would badly hit families dependent on such source of income in other countries. Also, the economic performance of these countries would be adversely affected due to the substantial share of remittances in the GDP. Remittances, in case of El Salvador and Guatemala, make up 18% and 12% of GDP, respectively.

The region's economic growth, according to the United Nation's Economic Commission for Latin America and the Caribbean, is expected to slip to 4.7% this year from 5.7% in 2007. While lower remittance flow would slacken the consumption and investment demand in many countries, the fall of the US economy would lead to a drop in regional export. Mexico, which sells 80% of its exports to the US market, would be the one to suffer most.

As the situation is unlikely to improve anytime soon, development organisations and economists stress on emergent measures to draw the remittance flows into formal channels and to provide families receiving such funds greater access to financial services. The provision of the latter would enable these families to leverage the funds so long as they keep flowing in.