MICROCAPITAL STORY: Inter-American Development Bank (IADB) Projects First Time Drop in Real Value of Remittances to Latin America and the Caribbean in 2008

The Inter-American Development Bank (IADB) recently announced a projection that the value of remittances sent by migrant workers to their families in Latin America and the Caribbean will grow in 2008 by its slowest rate on record.  Migrants sent home about USD 66.5 billion last year but may increase that amount by about 1.5 percent in 2008, bringing the yearly total to USD 67.5 billion.   Despite the nominal increase, remittances in 2008 may for the first time contribute 1.7 percent less (p. 1) to household incomes after accounting for rising Latin-American inflation and the falling U.S. dollar. 

According to the Washington Post, this year marks a turn in what has up until now been a “soaring” level of Latin American remittance transfers fueld by increased migration and lower costs.  Researchers first noticed the slowdown earlier this year for Brazil and Mexico, the top two recipient countries, and then saw a decline in August for El Salvador and Guatemala compared with the August 2007 numbers.  The slowdown is especially significant for El Salvador and Guatemala because remittances account for 18 and 12 percent of these countries’ gross domestic products, respectively. 

In a statement released by the IADB (p. 1) were four significant factors that may have contributed to the slowdown.  First, inflation attributable to food and fuel increases prices for both migrants and remittance-receiving families and decreases the value of their remittances.  Second, the economic troubles for the U.S. economy and more recently the Spanish economy make finding jobs for immigrants more difficult.  Third, the migration climates among remittance-sending countries have become more restrictive, hampering migrants’ abilities to transfer their incomes.  Fourth, the appreciation of various Latin American and Caribbean currencies against the dollar erodes the purchasing power of remittance income.

Established in 1959 and headquartered in Washington, DC, the Inter-American Development Bank addresses development challenges in 26 countries in Latin America and the Caribbean by offering loans and grants and by providing research, advice and technical assistance to private, public and government entities.  Forty-seven countries are members of the IADB, 26 of which are Latin American and Caribbean countries who collectively hold 50 percent of the voting power.  Nevertheless, the largest shareholder is the United States, with 30 percent.  Over the past year, the bank has provided about USD 10 billion in loans and grants, and its current portfolio of projects numbers more than 600.  Since 2002, the bank has been gathering data from central banks in Latin America to track remittances.  For more information on the bank’s recent involvements, see Microcapital’s coverage of the Microscope Index, the Foromic Conference and the IADB’s Awards for Microenterprise Development.  To learn more about recent remittances trends, see Microcapital’s 2008 update

Additional Resources:

Inter-American Development Bank

Inter-American Development Bank: IDB estimates of 2008 remittance flows to Latin America and the Caribbean

Microcapital Story: “Inter-American Development Bank’s Awards for Microenterprise Development Will be presented at the Inter-American Forum on Microenterprise (FOROMIC) in Paraguay to Recognize Advances in Microfinance

Microcapital Story: “Foromic Conference, hosted by the Inter-American Development Bank, to Focus on Responsible Finance, Response to International Crises, Rural Finance, Housing, Technology, Venture Capital and the Importance of Networks

Microcapital Story: “Peru and other Andean Countries Ranked Best for Microfinance within Latin America and the Caribbean, according to the IDB, CAF and EIU’s Microscope Index

Microcapital Story: “Remittances and Microfinance in 2008

The Washington Post: “Remittances to Latin America Decline as Global Economy Sours

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