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Op-eds and articles by the Executive Secretary

Bad News for Poor Households
Op-ed by Alicia Bárcena, Executive Secretary of ECLAC, published in La Nación, Chile (30 July 2009), El Tiempo, Colombia (2 August 2009), La República, Costa Rica (1 August 2009), La Prensa Gráfica, El Salvador (4 August 2009), Clave Digital, Dominican Republic (5 August 2009) and Reforma, Mexico (9 August 2009).

The main social channel of transmission of the crisis is the generalized, simultaneous export of unemployment. This has prompted a new form of "labour" protectionism that privileges national workers over migrants, especially in the United States and Europe.

Millions of households in our region are affected by this trend. The impact is very real. It has already lowered remittances that constitute vital income to cover basic needs. Of the 200 million migrants estimated in the world, 26 million are part of the Latin American and Caribbean Diaspora. Of these, approximately 22 million are in developed economies. In 2008, migrants sent home US$ 69.2 billion in remittances. This is equivalent to more than half of the foreign direct investment received this year and almost 10 times the official development assistance the region receives.

With the crisis and the contraction of classic sectors that absorb the temporary workforce (construction, manufacturing and tourism services), these flows are expected to fall by at least 10% in 2009 and that is bad news for the poor in our region, especially for those living in conditions of extreme poverty. Until now, the decrease of 5% to 10% of remittances between the third quarter of 2008 and the first quarter of 2009 has had clear effects on the balance of payments and in the low levels of consumption and savings.

The impact and potential meaning of remittances relates not only to its volume but also to the size, structure and macroeconomic dynamics of the recipient country. Mexico, Colombia, Guatemala and Brazil are the main recipients in absolute terms. In 2008, Mexico received US$ 25 billion in remittances and is the third largest recipient country in the world after India and China. However, in proportion to gross domestic product, the impact is greater in other economies. For Guyana, Haiti and Honduras, the amounts received in 2008 represented 28.4%, 23.9% and 21.1% of GDP, respectively, while for El Salvador, Nicaragua, Jamaica, Guatemala and the Dominican Republic, they amounted to between 7.5% and 17.5% of their respective GDP.

What to do so that falling remittances do not drag recipient families back to poverty?

There are four applicable short-term measures that may mitigate the impact:

  • The depreciation of the recipient country's currency (except El Salvador and Ecuador because they have dollar economies).
  • Banks can help by lowering commissions and not imposing the costs of transfer operations on migrants. This requires minimum cooperation between the issuer and recipient financial institutions.
  • Avoid "labour" protectionism and greater migration restrictions, which are already very strict and occasionally inhumane.
  • National anti-crisis measures should focus on a set of transferences that can improve income in the poorest households.

Lastly, our region should be viewed in the long-term, seeking higher productivity that doesn't necessarily include the economic exportation of its workforce; proposals for productive convergence that explore new niches of international insertion and mobilization of domestic markets; stimulate green economy initiatives that provide options of non-carbon infrastructure, alternative energy sources and that create better quality-jobs, with innovation.

In the medium run, it will be necessary to analyze the possibility of applying powerful incentives to productive investment, made with donations from migrant organizations to their communities of origin. Apply good practices, like in the case of Azuay y Cañar in Ecuador, which receives a third of the more than US$ 3 billion of total annual remittances to that country. With these funds, the community developed the programme Strengthening Popular Finances, and, thanks to an alternative management model, created a Local Financial Structure Fund. This fund works like a bank and provides loans to low-income families, who pay them back on time. The system allowed migrant workers to multiply their dreams and improve conditions of recipient families.

We know that rescuing the population that falls under the poverty line during an economic crisis is more complex than recovering economic growth levels, and it takes double the time. After the 1980s crisis, the region took 12 years to recover its economic indicators and 24 years to return to the unsatisfactory prior levels of poverty and inequality. Because of this, urgent global and regional actions are needed and this requires cooperation among people, with a deep sense of solidarity.

Alicia Bárcena,
ECLAC Executive Secretary