The role of remittances for the economic recovery of Latin America: “Migration is key” according to analysts

In 2023, remittances to Latin America and the Caribbean exceeded $160 billion, representing 5% of the region's total income, marking a continuation of the growth pattern of previous years.

This phenomenon not only highlights the economic importance of remittances for receiving countries but also underlines the vitality of the transnational networks that support them according to Manuel Orozco, director of Migrations, Remittances and Development Programs at Inter-American Dialogue, a think tank. Washington-based think tank.

The participation of a competitive diversity of money transfer operators has been a key factor in this regional growth, offering users a variety of options for sending funds.

“The last few years have been a very important period for remittances in Latin America and the Caribbean, in terms of the economic weight they represent for national economies. It has been a third consecutive year in which the economic weight of this flow of money has been quite significant,” indicates Orozco.

Regarding this, he assures that 2024 could be marking “a turning point” in the underlying factors that drive the growth of remittances due to “continued migration” and “the increase in the average amount sent, as well as the increase in people sending “They send remittances.”

“In recent years, more than three quarters of the growth is explained by migration and new people arriving,” he explained, underlining that “this year it will be interesting to reflect on to what extent this flow of money will continue due to migration and what it will be like.” ”.

Traditionally, the continuous increase in migration, the increase in principal remittance, the emergence of new remittance senders and market incentives have been key determinants of remittance growth.

“The critical mass of volume is having an impact, and much of it is particularly related to intermediation and the role that monetary companies are playing significantly, ensuring that the flow of money is liquid and impactful,” he added in this regard. Manuel Orozco is convinced that this year we could see “a little growth, but not in the same way as in 2020”, when the coronavirus health crisis broke out.

New policies in the US

In particular, in the United States there are political challenges that could have profound implications for the future of remittances to the region. On the one hand, it has been proposed to impose a tax on remittances in Florida, a measure that, if implemented, could discourage sending money to Latin America and the Caribbean from one of the states with the largest migrant population in the United States. . This type of policy could increase transaction costs and could potentially push senders towards less formal or more expensive channels, affecting both senders and recipients of remittances.

On the other hand, the Biden administration's stricter immigration policies present an additional challenge. These policies could limit migrants' ability to work in the United States and, therefore, their ability to send money home. The reduction in the number of migrants or the limitation of their access to the US labor market could have a direct effect on remittance flows, considering that the diaspora is one of the main sources of these funds.

Both developments raise questions about the resilience and adaptability of the remittance system in the face of political and regulatory changes. Although remittances have proven to be surprisingly resilient over the years, facing everything from economic crises to natural disasters, policies aimed specifically at them or at the migrants who send them may prove to be a challenge of a different nature.

To mitigate the potential negative impacts of these changes, a coordinated approach between origin and destination countries, as well as between money transfer operators, will be crucial. Innovation in remittance services, such as digital transfers and the use of cryptocurrency technologies, could offer cheaper and more efficient alternatives. Furthermore, policies that facilitate, rather than restrict, the flow of remittances could help ensure that economic livelihoods for many families in Latin America and the Caribbean remain robust.

A driving force for the region

The former chief economist for Latin America and the Caribbean of the World Bank Martín Rama in conversation with the Voice of America He highlighted “the importance” of remittances for the region's economy.

“Remittances are extraordinarily important: many Latin Americans work in the United States,” Rama said, and “with a little luck, the U.S. economy, which is a very dynamic and very flexible economy, will begin to recover.”

He recalled that migrants from that region “usually work in very flexible conditions,” something that could end up benefiting this community when it comes to returning to their jobs, and that is already being seen.

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