Impact of U.S. Elections on Remittance-Dependent Economies in Latin America
The future of several Latin American economies, particularly those in Central America that heavily rely on remittances sent from the United States, is in a precarious position due to the upcoming presidential elections in that country, stated Fitch Ratings last Friday.
Why is this so critical? Key points. What do the numbers reveal? Context.
Potential differences in immigration policies between the Republican and Democratic parties could significantly impact Central American nations, which are heavily dependent on remittances from the U.S. "Central America is very vulnerable to U.S. immigration decisions since these remittances account for a large percentage of their economic activity," Fitch Ratings noted in a statement. In countries like El Salvador and Nicaragua, remittances make up over 30% of their GDP, while Mexico is also among the top recipients of remittances globally, where earnings have steadily grown over the last decade, reaching nearly 3.5% of its GDP, up from 2% previously. In the past five years, remittances coming into Nicaragua have tripled, although flows to other nations, like El Salvador and Jamaica, have seen much slower growth. A study based on the Current Population Survey in the U.S. revealed that a 1% increase in household incomes in the country leads to a 0.2%-0.3% rise in remittances sent abroad. Elections in the U.S. could lead to changes in immigration policies, as Donald Trump's campaign indicates his intention to restrict border crossings and increase deportations, while, if elected, Kamala Harris would aim to promote bipartisan legislation to reform the asylum process and limit the temporary stay of immigrants. These political shifts could deeply impact migrants and the Central American economies that heavily depend on remittance flows from the U.S.
The economic dependence on remittances is a complex issue. A change in immigration policies could not only disrupt the financial stability of these countries but also affect the quality of life for millions of people. It is crucial for both citizens and governments in these nations to have a contingency plan in place for potential changes in remittances, diversifying their income sources and seeking alternatives to strengthen their internal economies.
