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End of the Remittance Bonanza?

July 5, 2007

Commerce and Immigration News

In the past decade, remittances from migrant workers in the United States emerged as one of the pillars of the Mexican economy. From north to south, entire communities became dependent on the flow of money from relatives laboring away in El Norte. Current trends, however, suggest that the remittance boom could have hit a peak. Recent statistics from the official Bank of Mexico (Banixco) report a slowdown in remittances entering the country.

The central bank reported that $7.3 billion was received during the first four months of 2007, an amount that represents a drop in comparison to 2006’s remittance total that reached an estimated $25 billion. What’s more, Banixco disclosed that remittances registered a drop this year of approximately $13.5 million from March to April.

Some analysts attribute the dollar downturn to changes in the pattern of migration. Rodolfo Rubio Salas, a researcher with the Colegio de la Frontera Norte, told a Ciudad Juarez reporter that more family members of migrant workers in the US are joining their relatives north of the border.

“There has been a process of family reunification in recent years,” Rubio said, “and this means that migrants don’t have to send money to their families in Mexico.”

Mexico is likely to witness significant economic and political consequences if migrant remittances continue on a downward spiral. According to Chihuahua economist Ruben Borunda, small retail businesses represent one sector of the economy that could be hurt by further decreases in remittances. A study by the lower house of the Mexican Congress reported that almost all remittance monies are spent on personal necessities, with less than two percent invested in productive activities.

Politically, remittances have surfaced as a point of contention in the debate over the Calderon administration’s proposed tax reform, which includes a proposal to slap a two percent tax on bank deposits. Edmundo Ramirez Martin, a federal congressman from the opposition Institutional Revolutionary Party (PRI) recently warned that taxing bank accounts could have an adverse effect on the migrant-fueled economy. Congressman Ramirez contended that 25 percent of remittances arrive in the heavy spending and traveling month of December.

“(Remittances) are not made by electronic transfers but are personally deposited in bank accounts in Mexico by the migrants and their families,” the federal representative added.

From 2002 to 2006, remittances registered in Mexico leaped from $9.8 billion to nearly $25 billion. As a source of foreign exchange for Mexico, remittances are only surpassed by oil exports and overshadow revenues from direct foreign investment and tourism. Some accounts now report that Mexico is the biggest receptor of remittances in the world, even ahead of India and China.

Sources: El Diario de Juarez, July 4, 2007. Article by
Aracely Castanon. El Sol del Centro, June 27, 2007. La
Jornada, June 15 and 23, 2007. Articles by Roberto
Gonzalez Amador and the Notimex news agency.

Frontera NorteSur (FNS): on-line, U.S.-Mexico border news
Center for Latin American and Border Studies
New Mexico State University
Las Cruces, New Mexico



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-5 Responses to “End of the Remittance Bonanza?”

  1. admin says:

    A message from a Mexican-American friend living in Queretaro Mexico:

    Yup, I saw that on the news. Doesn’t surprise me. And, then they wonder why only 10% of Mexicans pay taxes, right now as it stands?! This is why most are part of the informal economy. Currently, Jose and I are paying up to 30% taxes on packages that we receive from outside of Mexico. To levy this importation tax they even include the cost of shipping, this in addition to the stated value of whatever is in the package! Gee, I wonder why Jose, and others like him, don’t declare themselves to Hacienda (darse de alta en Hacienda)?

    But, isn’t this the same ol’ crap that we see in every country, most certainly our own? In the U.S. 75% of the tax burden is borne by those making less than $100,000 per year. Of those, people earning under $50,000, pay the most in terms of percentage of earned income-they don’t have as many write-offs as those earning $75,000 and above (housing costs, business related expenses and the like, etc).

    Some friends of ours sell opals and other semi-precious stones over the Internet. They live here in San Juan-Maria’s from here, her husband Bill is from L.A. Last quarter (they pay taxes quarterly here) they were fined close to $90,000 pesos for not paying taxes on time. They actually did pay taxes, except it was at their current, lower, rate and not at the increased rate that was later determined. The reason they didn’t pay all of their taxes on time is because Hacienda couldn’t figure out at what rate to tax them, and what would be allowed as legal business expenses/deductions. It didn’t matter that the delay was due to Hacienda’s own lack of knowledge. Rates are determined by what you do for a living, how you conduct business, and where. Maria was saying that every year-or more often-Hacienda keeps changing their tax rate. She said that part of the problem, at least in their case, is that there isn’t anyone knowledgeable, at Hacienda here in Queretaro, of the ins and outs of Internet sales to foreign customers.

    We see all kinds of horror stories with various friends and customers of Jose’s. The one’s that are very successful, are either not declaring anything to Hacienda, or they inherited old money. In either case they aren’t paying anything. It’s easy to see why they want to go over board on taxing bank accounts and the like.

    Same ol’ same ol’. Big fish taking advantage of little fish. So, much for living in Margaritaville.

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