VZCZCXRO4501
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #0749/01 0732219
ZNR UUUUU ZZH
P 132219Z MAR 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 0900
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RHEHNSC/NSC WASHINGTON DC
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RHMFIUU/CDR USNORTHCOM
RUEHC/DEPT OF LABOR WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 04 MEXICO 000749 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR A/S SHANNON 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA, AND DRL/AWH 
STATE FOR EB/ESC MCMANUS AND IZZO 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD 
USDOC FOR ITS/TD/ENERGY DIVISION 
TREASURY FOR IA (ANNA JEWEL, LUYEN TRAN) 
NSC FOR RICHARD MILES, DAN FISK 
EXIM FOR MICHELE WILKINS 
STATE PASS TO USTR (EISSENSTAT/MELLE) 
STATE PASS TO FEDERAL RESERVE (ANDREA RAFFO) 
 
E.O. 12958: N/A 
TAGS: ECON ELAB EFIN EINT ETRD MX
SUBJECT: GROWTH IN REMITTANCES TO MEXICO STAGNATES 
 
 
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Summary 
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¶1. (SBU) Remittances from the U.S. to Mexico grew by only 1% 
last year to total USD 23.98 billion.  The Bank of Mexico 
(Banxico) attributed the fall to a combination of factors, 
including a slowdown in the U.S. economy, particularly in the 
construction sector, stricter U.S. immigration controls, and 
the gradual disappearance of a statistical bias associated 
with the measurement of remittances.  Michoacan topped the 
list of highest grossing recipients nationwide followed by 
Guanajuato, Mexico, and Jalisco.  Eleven areas received less 
remittance income than in 2006.  While the slowdown in 
remittances will have only a limited impact on the overall 
economy, poorer households that rely on the receipt of these 
funds will take a hit.  The GOM needs to promote the 
productive investment of remittances, work to improve 
financial intermediation and literacy, and support investment 
in small businesses.  End Summary. 
 
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Remittance Growth Sluggish 
--------------------------- 
 
¶2. (U) The amount of money Mexican workers living in the U.S. 
sent back to relatives last year stagnated after years of 
spectacular growth.  Remittances grew by only 1% in 2007, 
down from 17% in 2006 and 21% in 2005.  In January 2008, 
remittances fell by 5.9% compared to the same month a year 
earlier, the worst fall since the Bank of Mexico (Banxico) 
began recording these transfers.  At USD 23.98 billion, 
remittances were MexicoQ,s second largest source of foreign 
exchange after crude oil revenues last year -- representing 
approximately 2.7% of GDP.  The states receiving the most 
transfers included Michoacan, Guanajuato, Mexico, Jalisco, 
and Puebla -- which jointly captured 41% of total inflows. 
On a per capita basis, Guerrero, Hidalgo, and Michoacan 
topped the list.  Eleven states received fewer funds from 
remittances than in 2006.  The largest drops were seen in the 
Federal District, Michoacan, Aguascalientes, and Chiapas. 
 
¶3. (U) The Banxico publicly cites a number of reasons for the 
sluggish growth in money transfers, including slower economic 
growth in the U.S. -- particularly in the construction 
industry because many Mexicans are employed in this sector. 
Banxico also says that heightened border surveillance is 
making it harder for Mexicans to enter the U.S. in search of 
work without authorization.  Banxico adds that, once in the 
U.S., it is harder for migrants to find jobs because of 
tighter controls against employers who hire undocumented 
workers.  Another reason Banxico cites for the slowdown is 
the gradual disappearance of a statistical bias associated 
with the measurement of remittances.  Lower costs for 
transferring money, and improvements in how Banxico collects 
and records remittance data partially explain the high growth 
in remittances seen from 2000 to 2006.  Because fees for 
transferring money became much lower, money that was already 
being sent to Mexico switched to official channels.  Now that 
most people sending remittances to Mexico use formal channels 
that are recorded by Banxico, it makes sense that the growth 
rate measured for remittances would flatten out. 
 
¶4. (SBU) Dr. Sergio Kurczyn Ba$uelos, the Deputy Director for 
Economic and Political Research at Banamex, told Econoff that 
while he agreed with the reasons Banxico cited for the 
slowdown, it is "strange" that growth dropped off so quickly 
in just one year.  He said that while the contraction in the 
U.S. construction industry will have an impact on employment 
rates among Mexican migrants, the effect may not be as 
dramatic as some believe because many workers will simply 
switch to other occupations.  While Kurczyn agreed that the 
perception of increased security at the U.S.-Mexico border is 
probably deterring Mexicans from migrating north, he remarked 
 
MEXICO 00000749  002 OF 004 
 
 
that it is hard to quantify whether or not stepped-up 
enforcement is contributing to the slowdown in remittances. 
He said that while the number of apprehensions has fallen 
along the border, there are limitations to using this number 
as a proxy for the flow of Mexican workers into the United 
States.  (Comment: Moreover, some argue that stricter border 
controls deter Mexicans already in the U.S. from returning to 
Mexico to visit family members.  Comment.) 
 
¶5. (SBU) Dr. Gerardo Esquivel from Colegio de Mexico 
disagreed with some of KurczynQ,s comments, noting that 
trends in the U.S. labor market were the main reason the 
growth in remittances has slowed.  He told Econoff that 
migration to the U.S. picked up during 2000-04, adding that 
these immigrants found jobs in construction and other sectors 
that allowed them to noticeably increase their income -- and 
hence the amount of money they were able to send back to 
relatives.  Esquivel said that many Mexicans in the U.S. work 
in sectors that are sensitive to the performance of the 
economy, so it is not surprising that unemployment among 
workers of Hispanic origin in the U.S. has increased more 
than it has for other ethnic groups over the past year.  This 
has translated into less money being sent to Mexico. 
Esquivel added that slower growth in the U.S. also deters 
some Mexicans from heading north to find a job.  He noted, 
however, that he did not buy the argument that stricter 
immigration controls were a factor in the slowdown in the 
growth of remittances. 
 
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How Is the Money Sent to Mexico? 
-------------------------------- 
 
¶6. (SBU) According to Banxico, workers send money to Mexico 
via four vehicles: money orders, personal checks, electronic 
transfers, and cash and in-kind transfers.  Electronic 
transfers are by far the most popular method.  As a share of 
all remittances, electronic transfers rose from 71% in 2000 
to 95% in 2007.  This increase is due in part to U.S. and 
Mexican government initiatives to allow Mexican citizens 
living in the United States to open bank accounts regardless 
of their immigration status.  U.S. banks are allowed to 
accept the Mexican matricula consular card, issued by Mexican 
consulates in the United States, as an official form of 
identification to open accounts.  (Comment: Although these 
systems are designed to make the transfer of money faster and 
less expensive for the customers, the rapid movement of such 
vast sums of money by persons of questionable identity leaves 
the money transfer systems open to potential money laundering 
and exploitation by organized crime groups.  End Comment.) 
As noted above, another reason electronic transfers have 
become more popular is the large reduction in transaction 
fees for sending money to Mexico.  According to a report from 
Profeco (MexicoQ,s federal consumer protection agency), these 
fees fell 63% from 1999 to 2006. 
 
--------------------------------------------- ---- 
Remittances Play Crucial Role in Some Communities 
--------------------------------------------- ---- 
 
¶7. (U) Finance Secretariat officials have told Econoff that 
the slowdown in remittances will have only a limited impact 
on the overall economy since these transfers represent such a 
small percentage of GDP.  Nonetheless, poorer households that 
rely on the receipt of these funds will take a hit.  For 
these families, remittance income is critical for maintenance 
of their modest standard of living.  Often these households, 
which are usually headed by women, use remittances for 
household necessities such as food, clothing, and health care 
for themselves and their children.  According a 2007 Banxico 
report, more than 85% of remittance funds are used to 
purchase consumption goods, while 6% is used for educational 
expenses and only 0.4% for small business investment. 
 
 
MEXICO 00000749  003 OF 004 
 
 
¶8. (SBU) Esquivel told Econoff that remittances are only 
channeled to investment when you use a general definition of 
investment (e.g. including education).  He cited a UNDP 
report that found remittances promote greater investment in 
primary and secondary education, but not high school 
education.  Esquivel remarked that some students in 
communities with a migrant tradition are more interested in 
emigrating than in attending high school. 
 
¶9. (SBU) Microfinance institutions and savings and credit 
cooperatives report that the slowdown could negatively affect 
efforts to integrate more Mexicans into the financial system. 
 These "popular finance" institutions -- which have gradually 
entered into the remittance transfer business over the past 
five years -- have been successful in channeling remittances 
into the financial system by educating remittance receivers 
of the benefits of keeping their savings in a regulated 
financial institution. 
 
¶10. (SBU) Esquivel said his research shows that receiving 
remittances reduces a householdQ,s probability of being in 
food-based and capacities poverty by 7.7 and 6.3 percentage 
points, respectively (Note: The food-based poverty line is an 
estimate of the income required to purchase a food basket 
satisfying minimum nutritional requirements.  The capacities 
poverty line includes non-food income for spending on 
education and health services.  The assets poverty line also 
considers expenditures on housing, clothing, and transport. 
End Note.)  These effects represent a reduction of around 36% 
and 23% in the corresponding poverty rates of a 
remittance-receiving household vis-a-vis a comparable non 
remittance-receiving household.  In general, however, 
receiving remittances does not affect the probability of 
being in assets-based poverty.  The effects of receiving 
remittances are similar in rural households.  The main 
difference is that for rural households, receiving 
remittances reduces the probability of being in assets-based 
poverty by 10 percentage points (that is, a reduction of 
about 15% in the corresponding poverty rate). 
 
¶11. (SBU) Since the 1990s, the Mexican government has tried 
to channel remittance flows into infrastructure and business 
development in Mexico.  For example, under the 
"Three-for-One" program, each peso contributed by migrants 
from their remittances is matched by federal, state, and 
municipal governments for specific improvements in their 
hometowns (e.g. roads, schools, and water systems).  Another 
government-sponsored program called "Invest in Mexico" 
provides free business planning support and directs 
remittances into small business start-ups.  Esquivel was 
critical of government programs such as "Three-for-One," 
noting that most of the money does not go toward productive 
investment projects, but rather projects such as restoring 
the local church or plaza.  While he believes these programs 
are not well designed, he admits that the communities that 
participate in these initiatives are better off. 
 
¶12. (SBU) Esquivel remarked that local governments are not 
concerned about emigration because it serves as an escape 
valve for social and political pressures, allowing the 
government to avoid confronting problems like poverty and 
unemployment.  Emigration, and the remittances associated 
with it, also provides a means to improve the local economy 
that would not have been available otherwise.  He noted that 
in Michoacan, remittances account for 15% of GDP.  Esquivel 
believes that leaders at all levels of government need to 
assume responsibility for the factors that encourage people 
to leave Mexico, and work to create jobs and reduce poverty. 
 
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Comment 
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¶13. (SBU) There are many benefits associated with 
 
MEXICO 00000749  004 OF 004 
 
 
remittances.  They not only provide a buffer against 
difficult times for many Mexicans, they also promote access 
to financial services and, in some instances, encourage small 
business development.  However, communities can become 
dependent on this income as the more productive members of 
the community move away.  Moreover, such cash infusions can 
mask structural problems and lessen the demand for social and 
economic reforms -- similar to the effect Petrodollars have 
in many countries.  The GOM needs  to increase the positive 
impact of remittances not only by promoting their investment 
in productive ventures, but also by improving Mexico's 
overall investment climate, encouraging access to financial 
services, promoting financial literacy, supporting investment 
in small businesses, and improving Mexico's educational 
system.  End Comment. 
 
 
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