Mexico & Nafta - 15 June 2004

Remittances from Mexicans working in the US have increased by 24% in the first four months of this year compared with the same period of 2003. From January to April 2004, they came to US$4.65bn, the Banco de México reported. This is a new record.

The recovery in the US economy is boosting remittances. In April 2004, they set a new monthly record of US$1.35bn. This was 28% up on the same month of 2003. In 2003, remittances from the US to Mexico came to US$13.2bn. They are now the country's second biggest source of hard currency, after oil exports. Remittances now exceed foreign direct investment. This year, the government is hoping that remittances will come to at least US$15bn. 

The average remittance is now running at US$323, slightly above last year's US$312. The states which get the bulk of the remittances are along the west of the country: Michoacán, Guanajuato, Zacatecas and Jalisco. These four states account for half the inflow of remittances to Mexico. More importantly, migrants from these states can draw on networks in the US which can help them get established. According to research from the IDB, 25m Mexicans derive some benefit from remittances. The bulk of the money (78%) is used to finance their living standards. 

In the US
This flow of money from the US to Mexico is beginning to interest populist politicians. In two states, politicians have suggested taxing this flow. We reported in April that Pete Rí­os, a Democrat in Arizona, had tabled a bill in the state assembly to levy a tax on the remittance flow to Mexico. Now Tom Tancredo, a Republican congressman from California, is proposing to levy a 5% tax on remittances sent by all Latin Americans to their countries of origin. 

Tancredo, who is an outspoken critic of any moves to improve immigrants' rights in the US, made his proposal, which is not yet a bill, on 18 May. On the same day the InterAmerican Development Bank reckoned that Latin American migrants in the US will remit a total of US$30bn this year. Tancredo said that the proceeds from his proposed 5% tax should go to the Department of Homeland Security and be used to improve border security. The National Immigration Forum, an NGO representing immigrants argues that Tancredo's proposal is unfair since migrant workers already make a contribution to the US tax system by paying sales tax. The NIF points out that a recent study by the National Academy of Sciences concluded that migrant workers contributed US$10bn a year to the US economy. This sum does not include the value of what they produce. The NAS pointed out that in 1997, migrant workers paid US$133bn in local, state and federal taxes. The IDB study reckons that 32% of all migrant-workers in the US are undocumented.

Cyclical or non-cyclical?
Economists argue that remittance flows are not cyclical and they will continue to grow. There is some evidence to suggest that in recent years the increasing use of electronic methods of remitting money has meant that official statistics on remittances have improved. This increased data captures accounts for part of the spectacular rise in remittance revenues. Previously, remittances came in the form of goods or cash: Mexicans living in the US would often buy a car in the US and then drive it home, leaving it for their families to use or sell. Such remittances were hard to pick up from official statistics. The main reason, however, for the increase in recent years is that the number of Mexicans working in the US has increased substantially. No one knows exactly how many Mexicans are living in the US: BBVA Bancomer reckons that in 2002 there were at least 9.5m Mexicans working in the US. In 1960 there were fewer than 600,000. Around 80% of Mexican migrants work in four US states: California, Texas, Illinois and Arizona. 

Another factor boosting remittances is that the cost of actually sending the money home has started to fall substantially. The IDB reckons that the growth of the business, better technology and competition between companies seeking to break into the remittance business has led to a halving of transaction costs in recent years. These costs will fall even further under a US commitment made at the last Summit of the Americas. Academic research has shown that remittances are beginning to have a noticeable effect on education levels. Families supported by migrants tend to keep their children in school for a year longer than families which depend on the local economy.