Dollars go South to purchase “food, clothing, and other basic needs.”
Mexico Remittances to Surge 20%, Central Bank Says (Update1)
Aug. 10 (Bloomberg) — Mexico will receive almost $24 billion in remittances from abroad this year, a 20 percent rise from a year ago, as the number of Mexicans working in the U.S. increases, said an official at the country’s central bank.
Jesus Cervantes, the Bank of Mexico’s director of economic measurement, said remittances will rise from $20.6 billion in 2005. The 2006 estimate is more than six times the $3.7 billion in remittances in 1995.
“We’re going to live with these increases for the next few years because for many Mexicans it’s very attractive to emigrate to the U.S.,” Cervantes said in a telephone interview.
An estimated 400,000 Mexican cross into the U.S. in search of higher paying jobs and many send money back to their families in transactions that for many years have averaged more than $300 each, Cervantes said.
The inflow of billions of dollars from Mexicans living abroad has helped keep the Mexican peso strong against the dollar and has driven consumption growth, said Alonso Cervera, an economist at Credit Suisse in New York.
The Mexican currency gained 5.5 percent to 10.85 pesos per dollar yesterday since it slipped to a low this year of 11.4806 pesos on June 19 amid concern that rising world interest rates would reduce demand for riskier emerging-market assets.
Private demand rose 6.4 percent in the first quarter from a year earlier, the highest growth rate since the fourth quarter of 2000, in part because money received from abroad is used immediately to buy food, clothing and other basic needs, Cervera said.
“That money is not saved,” Cervera said. “That money is being spent and it’s one variable that has explained the pace of growth of private consumption.”
Unlike oil and export revenue, which can fluctuate with crude prices or can be affected by a slowdown in the U.S. economy, remittances have shown constant growth over the years, Cervera said. Unless the U.S. government takes drastic measures on immigration, such as deporting Mexicans already living and working in the U.S., the amounts will continue to grow, he said.
“The remittance story is a solid one for many years,” he said.
The Mexican government has encouraged competition among financial companies that provide services for sending money home, which has caused costs to drop by about a third, Cervantes said. In 1999, Mexicans paid an average of $28.50 to send home $300. The cost is now an average of $10 and will continue to drop as more Mexicans open bank accounts on both sides of the border, Cervantes said.
Some banks are offering free transfers of money for customers with bank accounts, he said.
“The big reduction in the cost of sending remittances already took place, but there’s still room for more reductions as new technologies are incorporated,” he said.
To contact the reporter on this story:
Thomas Black in Monterrey at email@example.com
Last Updated: August 10, 2006 11:14 EDT