Funds at risk for families back home

The dependence of a Salvadoran town on remittances from emigrants in the United States mirrors the worry in much of Latin America.

BY LIZA GROSS | Miami Herald
November 30, 2008

INTIPUCA, El Salvador -- For almost two generations, residents of this rural community who emigrated to the United States have sent back tens of millions of dollars to support their families and bring prosperity to their once impoverished town.

Officials of Intipucá, 120 miles east of San Salvador, were so grateful for those remittances that they built a park to honor migrants, with a statue representing the first resident to leave for the United States back in 1967.

''Remittances have transformed Intipucá,'' said Omar Chávez, a town leader and himself the beneficiary of funds sent by his brother Pedro, who has lived in Maryland since 1979. Thanks to those remittances, the Chávez family was able to cover basic needs, like food and clothing, and educate its children.

Now, the slowdown in the growth of remittances caused by the U.S. economic crisis threatens the welfare of residents of this town of 10,000 and towns throughout Latin America and the Caribbean.

The 2008 Inter-American Development Bank survey of remittances from the United States to Latin America shows that remittances, flat for much of last year, might even begin to fall this year.

The survey added that while the total of remittances from the United States to Latin America will probably reach overall levels comparable to those of the past two years, the number of migrants sending remittances may fall by up to 25 percent during 2008, compared with 2006.

Such a slowdown ''would negatively impact the standards of living of millions of families in the region who depend on the remittances migrants send home,'' according to IDB officials.

CLOUDY OUTLOOK

In a report on the outlook of remittance flows from 2008 to 2010, the World Bank said that remittances to Latin America will remain flat next year in the best-case scenario, but that in the worst-case scenario, they will decline to $58 billion from $61 billion.

''The crisis is now in the advanced markets, and it will have an impact in the emerging markets,'' said Massimo Cirasino, a World Bank economist.

Cirasino said that all Latin American governments should be worried about a decrease in the flow of remittances, but that countries with weak economies will be more negatively affected.

''Some countries have a certain leeway,'' he said. ''In a country like Brazil, for example, there will be pressure on politicians to activate programs'' to stimulate the economy. But, he added, ''there are other countries that don't have the financial resources.'' Those countries, Cerasino said, will have to turn to the IDB or other international institutions for help.

In El Salvador, remittances account for 18 percent of the country's gross domestic product. They are the equivalent of 126 percent of El Salvador's total exports and of 242 percent of all direct foreign investment.

Last year, $70 of every $100 of El Salvador's income from abroad came from remittances, while only $5 of every $100 came from traditional agricultural exports, such as coffee and cotton. Back in 1978, $81 of every $100 of income from abroad came from agricultural exports.

Eighty percent of the remittance revenue comes from Salvadorans in the United States. The numerous roadside billboards advertising remittance-related businesses frequently feature stars and stripes or other red, white and blue themes.

Many worry that maybe the worst impact is yet to come. An actual decrease may occur early next year, said economist William Pleytez, with the United Nations Development Program.

The slowdown in remittances affects all social levels, but particularly the poor, Pleytez said.

The slowing growth of remittances should be a red flag for businesses and governments, said Katharine Andrade Eekhoff, a professor at Universidad Centroamericana José Simeón Cañas and an expert on remittances and migration. ''It could all fall like a house of cards if the recession deepens,'' she said.

Not everyone has such a grim view. Miguel Lacayo, a former minister of economy and a Harvard MBA graduate, sees hard times ahead but not catastrophe. Lacayo does not predict a reduction in remittances. At worst, he said, ``perhaps they will continue to grow in the single digits for the next two years.''

Three times more remittances go to the province of San Salvador than to any other part of the country, Andrade Eekhoff said.

María Isabel Contreras, a 25-year-old law student in San Salvador, said the $600 she gets monthly from her mother pays for her education.

''This support is key to my future,'' said Contreras, whose mother has lived in Los Angeles for seven years. ``I can't repay all the effort she puts in day after day to give me what she is giving me.''

But it is in the rural areas, where the proportion of households receiving remittances is higher than in urban areas, that the impact of remittances is most dramatic.

''It's changing the local economy,'' Andrade Eekhoff said.

In Intipucá, modest clapboard houses and food stalls with straw roofs coexist with two-story concrete homes featuring intricate wrought-iron fences, ornate moldings and other architectural details. Late-model pickup trucks, some sporting decals of the American flag or the bald eagle, are common.

LOCAL BETTERMENT

In addition to providing for their families, former Intipucá residents abroad have helped underwrite community projects, such as water wells, cobblestones for the streets, and improvements to the municipal stadium, said Mayor Enrique Méndez.

About 50 percent of the population has moved to the United States and sends remittances.

Méndez is fiercely proud of the help his town has received from remittances, but he acknowledges evidence of trouble and is worried. ''The crisis in the U.S. is affecting remittance,'' he said. ``For some families, the frequency and quantity have diminished.''

According to Méndez, remittances have reached $2 million a month in the past, but ``that has come down considerably in recent months.''

Arnoldo Portillo, manager at the local Banco Agrícola, where residents pick up their remittances, said he began to notice a change about six months ago.

''If before they sent $100, now they are sending $60,'' he said. ``There is movement, but the proportion is smaller.''

Portillo, who has relatives in Los Angeles and Dallas, said the bank serves about 80 customers on a heavy day and about 50 on light days, almost all picking up remittances.

José Guevara, 22, worked in construction in Virginia and sent $250 a month to his mother, an insulin-dependent diabetic. But he was deported last November after immigration officials picked him up during a raid. He left behind his income and a 2-year-old son and has been unable to find work in El Salvador.

''We paid for the medicine and for the rent'' with remittances, said his mother, Ada Isolina Sánchez, an agricultural laborer. She said she must now resort to credit to cover those expenses.

At the local travel agency, Yudith Escobar is selling far fewer plane tickets to the United States. They are typically paid for with remittance money or extra funds meant specifically for the fare.

''The change is dramatic,'' Escobar said. ``I have seen a reduction of 30 to 40 percent in ticket sales.''

"I have a friend who has completely stopped receiving remittances because of the economic situation that has deteriorated in the U.S. and the rising prices here. She had to give up her studies," said Contreras the law student.

She hopes for the best but is afraid. ``I have a year to go at school. I am worried this could happen to me when I am about to finish. It's scary for young people.''