Latin American and Caribbean immigrants reducing poverty through online remittances

by Leonardo Montel
labsnews.com

Latin America is the region in the world that receives the most money through online remittances from abroad. In countries like El Salvador, Honduras, Jamaica, and Haiti, remittances have reached more than 20% of GDP.

Despite the global economic stagnation, mainly caused by the pandemic and the war in Ukraine, online money remittances continue to grow. By 2022, according to the World Bank, there has been a 5% increase in sending money from one country to another through websites and apps. Latin America continues to lead the online remittance queue with an estimated 9.3% growth in flows over the past year.

Remittances have always been an important form of income transfer between countries, especially among those who have family or friends living abroad or people who migrate to richer countries with the aim of returning to their home countries after a few years of work. However, the process of sending money via traditional remittances used to be expensive, time-consuming, and complicated. In recent years, technological advances in the industry have allowed the development of faster and more affordable solutions, which may explain the growth in the volume of international remittances recently.

But there are also other factors, such as globalization and the popularization of remote work, which allows greater travel and earnings in other currencies. Professor and researcher in economics at the Free University of Berlin, Christian Ambrosius, explains that remittances are especially important for low-income families when there are some kind of emergency circumstances, conflicts or natural tragedies.

“Especially when we have different types of emergencies, if negative income shocks happen, for example, earthquakes, floods, other disasters. So remittances are very important to stabilize household income and function as a family insurance in situations of economic shocks”.

Christian Ambrosius. Professor and researcher at the Institute for Latin American Studies, Free University of Berlin.

In Mexico, the second largest economy in Latin America, 25% of households receive remittances and the total amount of remittances to the country hit a record high in 2022, according to an announcement by the country’s president, Andrés Manuel López Obrador, reaching $58 billion. The receipt of money through remittances from abroad is concentrated in the poorest regions, such as the southern state of Oaxaca.

Ambrosius explains that it must be taken into account that Mexico has a very large migrant population living in the United States. According to the U.S. Department of Labor’s population census, about 27 percent of the country’s immigrant population is of Mexican origin. Ambrosius also points out that “something that always matters is also the value of currencies, so a stronger dollar, for example, generates the possibility of more remittances”.

The same logic applies to migrants from other Latin American countries and this was one of the reasons that made it possible for Vanessa Mattos, 28, to help her family in Brazil while she studies for a master’s degree in Germany. She works in a restaurant to cover the costs of her studies and says that the high devaluation of the real against the euro has improved her conditions to maintain financial assistance to her parents, who live in the interior of Bahia. “In the beginning, in 2020, the euro was more appreciated, so I was able to send more money. Even so, today, I don’t see myself helping my parents in the same way that I am helping them now if I were in Brazil. Not for now, in the economic situation that it is.

The Brazilian student sends about 100 euros (R$570,00 – current exchange rate of the commercial euro) per month to her parents. “Depending on the bills they have and what they need, I do the calculations and send them. Sometimes more, sometimes less, because it also depends on what my salary is for the month,” says Vanessa.

Online remittances are a crucial part of the gross domestic product in small Latin American countries such as Haiti, Jamaica, Honduras, and El Salvador. In Guatemala, remittances reach about 20 percent of GDP, after exports and foreign investments. For about six million families – out of a total of 17 million receiving remittances – this money is the main source of income, according to World Bank data. In Nicaragua, half of the remittances from abroad represent 60 percent of the income of the receiving families and, on average, 15 percent of the income of the senders, according to the organization Inter-American Dialogue.