Remittances to Mexico Plunge Because of U.S. Crisis

Bloomberg - Mexican Remittances Register Record Decline in August
Los Angeles Times - Less Money Going to Mexico as U.S. Economy Falters


Remittances from workers in the U.S. to Mexico fell the most in August since authorities began tracking remittances 12 years ago. Remittances fell 12 percent in August from a year earlier, representing a change from $2.2 billion to $1.9 billion. Analysts blamed the drop in remittances on the financial crisis in the United States as well as increasing restrictions on immigration into the U.S.

Mexican workers in the U.S. are sending back less money in part because they work in sectors hit hard by the financial crisis. Workers in industry - including construction and manufacturing - account for nearly 40 percent of Mexican workers in the U.S. Although Mexicans are only five percent of the labor force in the U.S., they represent nearly 14 percent of U.S. construction workers. The construction industry has been a sector hit particularly hard by the financial crisis. The unemployment rate for Mexican workers was 7.73 percent, compared to about six percent for all U.S. workers.

The Mexican economy may be more affected by the U.S. financial crisis than Mexican officials have admitted. Last week, Mexican President Felipe Calderon stated that Mexico's economic independence of the U.S. would make the fallout from the U.S. crisis minimal. However, the Mexican finance minister indicated that the economy would indeed be affected by the fall in remittances, exports, and tourism related to the U.S.

Remittances are the second-largest source of foreign income for Mexico, with oil being the largest. Remittances accounted for $24 billion in 2007, and some have predicted that remittances may decline by as much as eight percent in 2008. In addition, economists have downgraded their predictions of growth for Mexico's economy in 2009 to 2.9 percent.


Discussion:
1. Are remittances ultimately helpful for Mexican economic development? Are remittances' status as the second-biggest foreign income gainer a good sign for the structural integrity of Mexico's economy?
2. Why hasn't Mexico been more directly affected by the U.S. subprime mortgage crisis?