Mexico's remittance bonanza balloons to record $30 billion

After all the foofarall from Mexico's officials raised in the wake of President Trump's election - from tweet wars to governors with lawsuits to traveling foreign ministers - turns out Trump hasn't been such a bad thing for Mexico's elites.

Remittances, the lifeblood of Mexico's government, are expected to hit an all-time high at $30.5 billion, the likely product of job growth in President Trump's booming U.S. economy. These remittances top Mexico's oil earnings in absolute value and amount to 2.7% of Mexico's GDP.

According to the Daily Caller:

Mexico, which takes in more remittances than any other Latin American country by a wide margin, will likely receive $30.5 billion from the Mexican diaspora living abroad — 6.5 percent more than it did in 2016. About 95 percent of Mexico’s annual remittance haul comes from the U.S., according to Mexican bank BBVA Bancomer.

For Mexico's ruling elites, remittances are an apparently great thing. As I wrote here:

Here's what's really going on: These governors live in states that are highly dependent on remittances from illegals. It comes into banks where it pools for investment and unless remittance recipients spend it all at once someplace else, it serves as capital. That gives the governors their walking around money for their states.

Remittances, most of which come from illegal immigrants sending money home, enable Mexico to collect vast sums of capital in its banking system, either from savings deposited there, or else through spending, which Mexico collects its cut of via the sales tax. Basically, the Mexican government pockets the remittance cash from illegal immigration while Ol' Gringo up north pays for the human costs of feeding, educating, housing, medicating and jailing the same illegal migrants. They take the profits, Americans pay the cost.

But it might not be the great free lunch it looks, given that studies show that remittance economies (Mexico's rose from 2% of GDP in 2014 to 2.7% now) tend to contribute to underdevelopment. Mexico would be much better off benefiting from its own people's talents instead of just taking their money, according to one study cited here from the International Monetary Fund:

According to the 2013 International Monetary Fund report "Beyond the Household," that cash not only benefits individuals, it also benefits the government. Sales taxes on money spent fills government coffers, and enables government to spend more and carry higher debt. That often doesn't contribute to economic development, the IMF warned. It goes to cronies, with the high cash infusions making "corruption less costly,"  the IMF paper said. In short, Mexico's reliance on remittances tends to keep the country underdeveloped -- a real disservice to Mexico's citizens.

What's more, the remittance trend has intensified in Mexico's three southern neighbors, El Salvador, Guatemala and Honduras, which means those economies can look forward to more underdevelopment as remittances rise, too.

In a 2014 piece I did here, I reported that El Salvador's remittances amounted to 16.5% of GDP, Guatemala's amounted to 10% of GDP, and Honduras's remittances amounted to 15.7% of GDP. Today, those figures are 17.1%, 10.9% and 17.9% respectively. And more disturbing, these countries are in a population bust meaning they cannot afford to lose people.

What it means is that as Mexico's (and Central America's) elites celebrate their newly flush coffers from the labor of their citizens abroad, they can probably look forward to increasingly underdeveloped and depopulated countries, which is not a healthy state of affairs. That in turn may make their countries ripe for unrest, particularly if deportees from the U.S. are shipped back. 

They have one way out of this: Free market reforms coupled with ironclad rule of law. That would make Latin America's diaspora happy to return to their homelands, and stave off the wave of underdevelopment these increased remittances likely signal. It's not likely they are up for it.

The other thing that may happen can come from the U.S. end. The U.S. can begin to tax these remittances as has been proposed on and off in Congress, and tamp down the bonanza to those nations which are contributing to their own underdevelopment. The cash of course can amount to a de facto payroll tax given that most underground economy jobs are not taxed, and can go to either the building of a wall, or installing an e-Verify system of legal employment, or else reimburse local governments for the cost of feeding, educating, providing health care and paying prison costs of illegal immigrants. One would assume only non-sanctuary entities would benefit. It would be a reasonable check and balance, given that remittances are now skyrocketing and will probably keep doing so.



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