Mexicans in U.S. Send Record $13.3 Billion Back Home, Propping Up Weak Economy

Mexican workers living in the United States sent a record $13.3 billion home last year, the first time that remittances from individuals outstripped direct foreign business investment in Latin America’s second-largest economy.

Statistics from the Bank of Mexico issued this week show that 2003 remittances surged 35% from 2002 levels, underscoring the increasing numbers of Mexican workers toiling in the United States as well as persistent weakness in the Mexican economy.

Mexico’s central bank said foreign direct investment -- the purchase of physical assets such as plants and equipment by foreign investors -- hit a seven-year low of $11 billion last year. Analysts said that was a troubling sign for Mexico, whose export-driven economy has been slammed by slumping trade with the United States, as well as ferocious competition from China.

Christian Stracke, an analyst with New York-based Credit Sights, said direct foreign investment amounted to a vote of confidence in a nation’s economy. He said that although Mexico was fortunate to have millions of foreign workers wiring money home to relatives on a regular basis, it did not bode well as a long-term development strategy.

“I see it more as a symptom of a disease rather than some kind of strength that Mexico should be proud of,” said Stracke, who noted that foreign corporations were now looking to India and China to build plants, call centers and other offshore facilities. “The Mexican economy is not as competitive as it should be.”

An estimated 20 million people of Mexican origin reside in the United States. Their earning clout has proved a boon to their home country, as remittances have become Mexico’s second-largest source of foreign exchange behind oil exports.

Mexico isn’t alone in its dependence on remittances. Dilip Ratha, a senior economist with the World Bank, estimates that globally, migrant workers last year sent an estimated $90 billion back to their home countries, which he said amounted to more than twice of all official aid to developing nations.

He said such flows tended to be countercyclical, as foreign workers send more dollars home during global slumps. Ratha said Mexico saw a similar surge in remittances during the mid-1990s peso crisis.

“The Mexican economy is growing quite slowly,” Ratha said. “So those who are already here [in the United States] are sending money back home to those who need it more.”

Rodolfo de la Garza, director of research for the Tomas Rivera Policy Institute, said the remittances were a lifeline for many of Mexico’s poor. But, he said, such funds did not have the same job-creating effect of business investment and may actually be helping to slow needed reforms.

Business investors, de la Garza said, are shunning Mexico because the nation is dragging its feet on much-needed tax, fiscal and other changes. But, he said, as long as Mexican officials can count on emigration as a safety valve, they can continue to avoid tough decisions.

“Mexico has no incentive to do it as long as they can get people to the U.S.,” de la Garza said. “These remittances are helping to sustain people who could otherwise not be sustained, but it doesn’t change the structure of their lives.”

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Associated Press was used in compiling this report.