Remittances to Central America are higher in the first half of 2017 compared to last year. Furthermore, data from El Salvador, Guatemala, and Nicaragua show that the growth of remittances in these countries accelerated this year. For these Central American countries, remittances of expatriates working abroad, particularly in the United States, are a vital economic lifeline.

El Salvador

The Network of Researchers of the Central Reserve Bank announced their findings at an event titled “New Statistics of Remittances and Trade of El Salvador.” The event was led by Xiomara Hurtado, head of the External Sector Department of the Central Reserve Bank.

According to the Central Reserve Bank, 1.5 million remittances transactions were carried out each month. The remittances came from 138 countries. The United States, Canada, Italy, Spain, Panama and Costa Rica were the primary sources of remittances to El Salvador.

A remittance is an amount of money sent by an immigrant to their home country. These funds are often transferred from an individual working abroad to their family in their home country. Remittances are often used to pay for food, housing, and education; are saved; or are invested in a family business.

Since November 2016, the average amount sent has increased after years of depreciation. Hurtado points to a “precautionary effect” brought on by the election of Donald Trump in the United States as pushing Salvadorans living in the United States to send larger remittances.

Data from Central Reserve Bank show that families in El Salvador received $2.454 billion from remittances between January and June of this year.  Remittances from the United States during that period totaled $2.294 billion.

Guatemala

Remittances to Guatemala have been steadily rising for years. According to the Central Bank of Guatemala, remittances totaled $664 million in June 2017, an increase of more than $128 million from that time last year.

Screenshot (196)

When graphed, the data clearly show the constant growth in remittances between 2010 and 2017. Between January and June, remittances increased by 16.5 percent compared to the same period last year.

Screenshot (197).png

The increase in remittances in combination with a decrease in imports and an increase in exports has strengthened the Guatemalan quetzal relative to the US dollar. On August 17, the exchange rate closed at 7.27 quetzals per dollar. The quetzal has appreciated against the dollar by 1 percent since last June and by 3 percent since a year ago.

Screenshot (198)
Source: XE

As El Periodico reports, the situation is worrying Guatemalan exporters like Antonio Malouf, president of the Guatemalan Exporters Association.

“In February the Banguat [Central Bank of Guatemala] told us that we would return to Q7.50 and now we are worse than ever. We see no light at the end of the tunnel and it is a worrying situation for exporters, but also for those who receive remittances, those who enter foreign exchange for tourism or for the collection,” said Malouf.

The Central Bank of Guatemala intervenes in the market to stabilize the quetzal. However, recent trends of the US dollar make aggressive intervention to bring the exchange rate to Q7.50 per dollar an expensive and losing battle that the Central Bank will not attempt.

The US dollar has been depreciating in value relative to other currencies as well. Since reaching a high point in December, the US dollar has depreciated by approximately 7 percent against the currencies of its principal trading partners.

Nicaragua

Nicaragua is the poorest country in Central America. According to the World Bank, Nicaragua had a gross national income per capita of only $2,050 in 2016. Many Nicaraguans rely on remittances sent from family members living in the United States and Costa Rica to supplement their meager household incomes.

Remittances to Nicaragua between January and June totaled $664 million. That is a 9.1 percent increase from January to June 2016. On average, remittances sent to Nicaragua grew by 12.6 percent between 2000 and 2008. After the global financial crash, remittances grew at a slower rate: 7.4 percent between 2010 and 2016.

Screenshot (199)
Source: Central Bank of Nicaragua

Manuel Orozco, a senior fellow at the Inter-American Dialogue and the director of the Migration, Remittances, and Development Program, has written extensively on remittances and Nicaragua.

In a recent op-ed for ConfidencialOrozco lays out several ways that remittances improve the Nicaraguan economy, such as by providing households with extra income to purchase goods and increase their savings and by disproportionately improving the income of women. Orozco also mentions the sheer number of households that receive remittances in Nicaragua: more than a quarter of all households.

The Trump effect

The growth was not limited to El Salvador, Guatemala, and Nicaragua. Mexico saw an increase in remittances in the first half of 2017 too.

Since expatriates living in the United States are the primary source of remittances to these countries, the increase may point to a change caused by the Trump administration’s immigration policies and proposed legislation in the Republican controlled Congress. Fear of deportation by immigrants in the United States without permanent legal status may be causing them to send a larger portion of their income to their families abroad.

The growth in money being sent out of the country is obviously not what the Trump administration intended by its tough policies, but it is a reasonable response to their bellicose, anti-immigrant rhetoric and actions. If immigrants continue to question their ability to continue to live and work in the United States, then we can expect to see remittances continue to grow so long as President Trump occupies the White House.

Support El Hemisferio by donating here