Remittances are Down and Mexico Feels the Pain

Oct. 15, 2012— -- Agustin Fuentes works multiple construction jobs in Ciudad Nezahualcóyotl, a working class suburb east of Mexico City. Until recently, his nephew was studying in a public university in the nearby city of Puebla, thanks to the money sent to Agustin's family by a niece who cleans homes in Chicago.

But as wages get lower in the U.S., and job opportunities dwindle, funds sent from abroad have decreased, and Agustin's nephew can no longer afford to go to university.

"Two years ago my niece was sending my sister about 2,000 pesos ($150) every two weeks. Nowadays, she can only send us 1,200, 1,500 pesos ($95-115)," said Fuentes, whose voice quivered as he recalled the difficulties now faced by his family.

"They tell us that they can only work a few days a week when they used to work all week. My niece lost her job in an American family and now she is making piñatas to survive but it is nothing steady," Fuentes said.

According to data compiled by Mexico's Central Bank, remittances flowing into Mexico decreased by 11.6% from August of 2011 to August of 2012, the sharpest decline since 2010.

Mexico is the top recipient of remittances in Latin America and third worldwide, after India and China. So it is not surprising that this decline in remittances has had a significant impact on some segments of Mexican society.

Alejandro Villagomez, an economist from Mexico's CIDE University, says that approximately 1 million households in the country depend largely on money sent from relatives abroad.

"A decrease in the amount of remittances can have a significant impact on our economy and even more at a local level in areas such as [the states of] Puebla, Zacatecas, Michoacán or Guerrero, which concentrate most of the migrant population," Villagomez told ABC/Univision.

In a recent economic bulletin, Mexican bank BBVA–Bancomer, warned that sectors of the U.S. economy that employ most of the Mexican migrant workforce are showing signs of a continued slowed down. These sectors include the construction industry, leisure and hospitality, and more recently, the manufacturing industry.

In Ciudad Nezahualcóyotl, the decline in remittances is not just a statistical affair.

Miriam Aguirre is the manager of the local office of Banco Azteca. The bank receives remittances through international wire transfers from Western Union, Money Grant or Wells Fargo. She noted a clear downward tendency in withdrawals taken by local customers since January.

"The most people are taking out nowadays is 1,200, 1,500 pesos ($95-115) when they used to withdraw up to 5,000 pesos ($390). I have even seen people who send money to their relatives in the United Sates now," Aguirre said.

The rising strength of Mexican peso compared to U.S. Dollar has also had an impact on families that depend on remittances. A stronger local currency means fewer pesos for each dollar sent to Mexico.

"For each dollar sent from the U.S., they used to give us 13 pesos, but now they give you 11 pesos," said Daniel Trejo, whose son is working in Houston.

"When I was in the U.S. I was able to send b 200, 300 dollars [to Mexico] every two weeks. Now my son can only send me 100 dollars from time to time" Trejo told ABC/Univision.

According to BBVA-Bancomer's memo, remittances will continue to be low in the coming months, at least until the U.S. job market becomes healthier.

Alejandro Villagomez, the economist from Mexico's CIDE University, makes a similar forecast.

"We know that the economy is slowing down in the U.S. and growth is almost zero in Europe. The forecasts from the main international organizations are that this will continue through 2013," Villagomez said.