NS4540 Winter Term 2019 Remittances to Mexico and Central America Oxford Analytica, Central America/Mexico: Remittances to Grow, January 14, 2016

Overview I Main points With dollar strengthening against many local currencies, remittances are on the rise Weight of remittances varies greatly across Latin America, Mexico by far the most important recipient region However the impact of remittance transfers in the Mexican economy only has a significant impact in certain areas On the other hand several Central American countries, notably El Salvador, they are vital to overall private consumption Oxford Analytica, Central America/Mexico: Remittances to Grow, January 14, 2016

Overview II Majority of expatriates remit money whatever the currency situation Also opportunists who time their savings on currency weakness Single-digit growth in remittance revenue now expected in most countries Figures for 2015 likely to show an all-time high Mexico largest recipient in the region receiving more than one-third of the total Mexico also fourth largest in the world after India, China and the Philippines

Mexico/CA Remittances Remittances to Mexico have been uneven In November 2015 the total received over preceding 12 months was $24.8 billion – near-uninterrupted upswing since mid-2013 However below the $26.1 billion in 2007 Factors affecting Mexican/CA remittances Net migration of Mexicans to U.S. has been around zero for a decade Now may be negative due to a significant fall in Mexican fertility rates and much greater obstacles for Mexicans hoping to bring their families to the United States While nearly all Mexicans migrate to the U.S (98.1%) migration form Central America much more diversified with 76.2% US, 16.4% going to other countries in LA, and 2.4% Canada

Mexico Remittances

Mexico I Mexico: Regional Rather than National Impact With oil prices declining and not expected to pick up any time soon remittances are increasing in importance as a source of foreign exchange Oil revenues go to PEMEX and to the federal government while remittances to individuals Impact of remittances heavily concentrated in certain states – not necessarily the poorest, but to those with a tradition of heavy upward migration In third quarter of 2015 most important was Pacific state of Michoacan – 10.1% of total Central state of Guanajuato 9.4% Third was relatively wealthy Pacific state of Jalisco 8.8 Mexico City and State of Mexico 10.3% Poorest state, Chiapas just 2.5%

Mexico II

Mexico III Remittances represent a crucial financial boost for poor families, especially in recent months due to a significant drop in the peso against the dollar Since November 2014 the amount of pesos received per dollar has increased by 32%

Central America I Relevance for Central America While nominal amount of remittances sent home to Mexico dominants in volume, their relevance is much greater in many Central American countries Remittances – explosive growth in Guatemala since 2010 Figures for the whole of 2015 show remittance income reaching 6.3 billion dollars, tripling the amount received in the early 2000s Makes Guatemala country with second-highest remittances in Latin America Equivalent of around 392 dollars per capita, nearly twice as much as Mexico Helping to boost Guatemala’s private consumption significantly

Central America II El Salvador also important recipient (fourth in Latin America) Upward trend clear from beginning of 2010, although not as pronounced as in Guatemala and has plateaued at times. El Salvador remittances $4.3 billion in 2015 or about 16.4% of GDP, and $660 per capita Honduras also stands out in Central America as a large recipient of remittances – 90% of migrants in U.S. In contrast to Mexico, Honduras’ migrant population tends to grow significantly 23.4% from 2011 to 2015 Total inflow of remittances during 2015 should be around $3.7 billion dollars for a per capita amount of $415

Assessment Conclusions As U.S. economy keeps growing and normalization of monetary policy by the Federal Reserve Interest rates move upward, and Dollar maintains its strength Remittances should continue upward trend Except for El Salvador, dollar’s strength should boost purchasing power of recipients