Latin America’s family remittances – heading south?

I used to think that the more than $30 billion in family remittances going from the United States to Latin America and the Caribbean every year were a blessing to the region: It amounts to more than most countries' biggest exports, and it goes directly to the poor. But now, I'm beginning to wonder.

A soon-to-be-published study by three Columbia University researchers casts doubts on the upbeat view of these money flows held by international financial institutions and many countries. By relying on this money, many countries are courting disaster, the authors say.

Granted, remittances from the estimated 40 million Latin Americans and Caribbeans living abroad to their relatives back home are booming, and account for a sizable part of their home countries' economic growth. Many countries in the region get more in remittances than in foreign investments or from tourism or other income sources.

Mexico, the biggest recipient, got $13.3 billion in remittances in 2003, a 35 percent increase over the previous year. Brazil got $5.2 billion; El Salvador, $2.3 billion; Guatemala, $2.1 billion; Ecuador, $1.7 billion; Jamaica, $1.4 billion, and Cuba and Peru, $1.2 billion each, according to the Inter-American Development Bank (IADB).

The World Bank said in a recent report that family remittances helped lift millions of Mexicans from absolute poverty. And the IADB, which began drawing world attention to the remittance boom four years ago, is trying to get commercial banks to use remittances as collateral for loans to Latin Americans who receive the money so that they can buy homes or start small businesses.

But the Columbia University study, scheduled to be published in the April 2005 issue of the Mexico-based Foreign Affairs en Español magazine, is skeptical.

''Regrettably, this optimism is not supported by the facts,'' say authors Jeronimo Cortina, Rodolfo de la Garza and Enrique Ochoa-Reza. ``Mexico and other countries are making a mistake when they celebrate the benefits of remittances, without evaluating their limitations.''

Remittances are likely to begin falling soon, as more Latin American immigrants blend into U.S. society and send less money home, the authors say.

Even if the U.S. Congress were not to approve any of various bills to legalize millions of undocumented workers, which would speed up their assimilation, there is a trend toward emigre family reunifications in the United States that will have a similar effect, the authors say.

''In the '80s and '90s, most Mexican migrants were young men looking for job opportunities,'' Cortina told me. ``Now, we are beginning to see more women and children, as part of a family reunification process. That will result in fewer remittances.''

It's something similar to what happened in Turkey, a country with a huge diaspora in Germany. Remittances from Turks in Germany to their home country boomed in the '80s and '90s, reaching a peak of $5 billion in 1998, but have dropped steadily since. By 2001, they fell to $2.8 billion, mainly because families reunited in Germany, the authors say.

In addition, the authors of the study say that the bulk of remittances going to Latin America are used to buy consumer goods rather than to pay for children's education or saved to invest in small businesses.

And it is only partially true that remittances go to the poorest of the poor: In Mexico's case, 70 percent of the remittances go to 10 Mexican states, only six of which are very poor. The others are far from the country's poorest.

This week, I asked IADB President Enrique Iglesias about the skeptics' arguments. Iglesias, whose development bank is spearheading efforts to steer remittances to economically productive uses, said he agrees that the boom may be a temporary phenomenon, but added it's not likely to end anytime soon.

''As long as the region's economies don't grow substantially faster and generate more job opportunities, migration is going to continue,'' Iglesias told me. ``And remittances will continue.''

Maybe so. Still, I wonder whether by planning their economic future on today's remittances' income, Latin American countries may be taking a huge risk. Perhaps they should remember what happened in Turkey, and focus on strengthening their export or tourism industries. Sooner or later, the remittances' well will dry up.