beyondbrics

There was bittersweet news this week for the millions of Mexican households that receive remittances from family members working in the US.

These funds, which topped an astonishing $26bn in 2007, have become a vital source of income over the last couple of decades. And they have helped fund everything from garish Disneyland-inspired family homes in the remote Mexican countryside simply to ensuring that there is food on the table each day.

So the forecast contained in a study published this week by BBVA Bancomer, the Mexican arm of the Spanish bank, that remittances would rise 3 per cent in 2010 to $21bn after last year’s 15 per cent fall, surely came as more than a relief for those who have come to depend on the financial flows. The superficial message is that the recession is over, and that better times lie ahead.

Don’t believe it.

Mexican households with renewed dreams of affording a brand-new washing machine this year or treating that long-ignored medical problem should wake up: as the study points out, there are two reasons to remain guarded – if not despondent – about the immediate future.

The first is the Mexican peso, which has rallied since the second half of last year, and now stands at about 12.50 to the dollar compared with more than 15 in the first half of 2009.

That gain, the result of a torrent of capital inflows, will not only wipe out the expected dollar-increase in remittances this year but even lead to an overall 9 per cent fall in peso terms.

The second reason is the anti-immigration legislation passed in the state of Arizona last month. The law, which will hand sweeping powers to authorities to stop and detain anyone they suspect of being an illegal immigrant, will almost certainly make life harder for the estimated 500,000 Mexicans who live and work in the state, and whose principal reason for being there is to support loved ones back home.

Put the two together, and this year could well end up being considerably worse for remittances than last.

Related reading:
Outlook for Remittance Flows 2010-11, World Bank