INSIGHT-Rich world's jobs crisis jolts money flows to millions

INSIGHT-Rich world's jobs crisis jolts money flows to millions

Reuters  | Jun 01, 2020 18:00

INSIGHT-Rich world's jobs crisis jolts money flows to millions

By Nelson Renteria, Drazen Jorgic and Sofia Menchu
June 1 (Reuters) - Carlos Sosa, a Salvadoran waiter in New
York, used to send up to $500 a month back home to his mother to
help pay for her medical bills and food. But now, after the
coronavirus hit and he lost his job in early March, Sosa has
burnt through his savings and the wire transfers have stopped.
The 42-year old says he is struggling to pay for even his
own rent and is concerned for his mother. “It's been a very
tough situation,” said Sosa, who is in the middle of processing
his U.S. residency papers. “The economic part is the most
traumatic of all this."
Lockdowns imposed by wealthy nations to slow the spread of
the novel coronavirus, and the jolt those restrictions have
delivered to their economies, are severing a vital lifeline for
many often vulnerable people around the world: the billions of
dollars in remittances sent home by relatives working abroad.
Roughly one in nine of the global population receives
remittances, or about 800 million people, according to the
United Nations. Early data show severe drops have already taken
place. El Salvador saw remittances collapse 40% in April from a
year earlier, to $287.3 million, according to the country's
central bank.
Sosa says he looking for a new job but the ones available
feel risky, involving cleaning places like trains or hospitals.
He has warned his mother that there would be no more wire
transfers for some time. As he told her: “We will have to see
how we survive this because things here are difficult.”

GLOBAL IMPACT
The World Bank has said it expects global remittances to
low- and middle-income nations to fall by $109 billion, or
almost a fifth, in 2020 to $445 billion. The bank projects the
pandemic will cut into the wages and employment of migrant
workers, who tend to be the most vulnerable when there is an
economic downturn in host countries.
The steep drop in remittances carries dire consequences for
the many countries around the world that are heavily dependent
on such payments and whose economies are already reeling from a
slump in demand triggered by the coronavirus crisis. The risks
range from rising poverty and hunger to balance-of-payments
emergencies for developing economies reliant on the cash.
The vulnerable spots include India, China and Mexico, the
top recipients of remittances by value, according to the World
Bank. The Philippines, the fourth-biggest recipient of
remittances, has nearly one in 20 of its adult population
working abroad.
Mimi Ysulat used to send home up to HK$2000 a month, or
about $260, to her husband and children in Antique province in
the Philippines. But the Hong Kong couple whose children she had
looked after for nine years have told her to stop working as of
late April. Now, the 49-year-old can think of only one way to
get money for her family to survive: "Borrow from my sister,
borrow from my friend. Just borrow, borrow, borrow."
The impact could be felt more acutely in emerging and
frontier market economies even more dependent on transfers. El
Salvador and neighbouring Honduras are particularly vulnerable.
Both received remittances that amounted to about a fifth of
their gross domestic product in 2018, according to World Bank
data. Analysts say that cash bolstered the countries'
construction sectors, stimulated consumption and helped many out
of poverty.
The world's two largest sources of remittance payments have
been severely disrupted. The United States, which tops the World
Bank's list, accounting for some $68.50 billion of payments
globally in 2018, has seen unemployment skyrocket, with more
than 40 million jobs lost since March. The Gulf economies, the
world's No. 2 source, have been hammered by lower oil prices.

LATIN REMITTANCES: BOOM TO BUST
The tightening of the U.S. remittance spigot is expected to
reverse a multi-year boom in payments to families in Latin
America. Until early this year, Latin American migrants were
funnelling record-high sums from the United States, according to
central bank data and U.S.-based think tank Inter-American
Dialogue. The strong U.S. economy had been the main driver of
flows. Remittance specialists also say President Donald Trump's
campaign to halt immigration had helped boost the money flow as
migrants saved more in case of deportations.
Remittances to Mexico, Guatemala, Honduras and El Salvador
hit a combined record of $57.7 billion last year, central bank
data show. Those four countries accounted for about 64% of the
10.5 million undocumented immigrants living in the United States
in 2017, according to the most recent estimates from the Pew
Research Center.
Early data suggests a collapse in remittances as the
coronavirus, and the COVID-19 disease it causes, spread across
the United States. Sectors such as food service and hospitality
that employ large numbers of immigrants saw jobs vanish almost
overnight.
In April, remittances to Guatemala had already fallen by 20%
from a year earlier, to $690.7 million. It was a major
about-turn for a country that as recently as February was
showing remittance growth of 17% from the prior year, according
to the country's central bank. Guatemala received $10.5 billion
of remittances last year, the equivalent of almost 14% of the
nation's economy.
Elizabeth, who lives near Guatemala's capital city, used to
receive about $1,200 a month from her daughter's fiancé, who
worked as a cook in the United States. But the payments stopped
after coronavirus shuttered the two diners he worked at and
dried up his other side jobs.
The money had helped pay for Elizabeth's treatment for
stomach cancer at a semi-private hospital and regular visits
from a nurse, as well as food and other basics. The future looks
bleak, said 69-year old Elizabeth, appearing frail as she stood
in the doorway of her home near Guatemala City in early May.
"Now I only ask God to help us, and to help all those people
who lost their jobs in the United States and here,” she said.
Guatemala's central bank president, Sergio Recinos, said
declines in remittances generally have a significant impact on
his country's economy. About half of remittances go towards
consumer spending, he noted, and about 30% are spent on
construction. He said a negative impact is already being felt in
the construction sector.

“IT'S BRUTAL”
Nicaragua-based AirPak, a remittance heavyweight operating
Western Union Co. franchises in many Central American countries,
said that by the end of April, year-on-year flows were down by
about 20% across its network, which operates with 26 brands,
including MoneyGram. The median value of each transaction
declined by about a fifth as well.
"It's brutal", said Piero Coen, chief executive of AirPak,
which says it handles about a fifth of all remittances flowing
to the region.
Western Union's chief financial officer, Raj Agrawal, told
Reuters that the second quarter may be the low point for the
world's largest money transfer firm. He expects the business to
improve in coming months amid economic stimulus packages.
Still, the loss of income is expected to shake Latin
American economies, especially Central American states, where
past periods of economic hardship fuelled gang violence and
waves of immigration to the United States.
In Mexico, most remittances come from the United States.
Mexico saw a surge in transfers in March - which some analysts
attributed to fears of deterioration of employment prospects in
the United States and favourable exchange rates. But some
analysts estimate remittances could shrink more than 21% between
2020 and 2021.
The slowing flow is felt in the small town of San Bartolomé
Quialana in Mexico's southern Oaxaca state, population 2,500.
The money sent back to the town over the years has helped reduce
poverty across generations and fuel a multi-year construction
boom, according to the town's mayor, Victoriano Gomez Martinez.
But several empty building sites point to the pause in flow
of cash from the United States. On a plot of land Francisco
Mesinas was developing with cash from his three children in Los
Angeles, metal rods stick out of the foundations of the
construction site, while stacked concrete slabs and piles of
shingle lay untouched with no workers in sight.
The 30,000 Mexican pesos ($1,364.26) to 60,000 Mexican
pesos($2,728.51) Mesinas' two sons and daughter had been sending
each month for the project has dried up completely, after all
three children lost their restaurant jobs in Los Angeles.
Standing on red dirt on a site where three houses are to be
erected, along with a space for a café and a small business,
Mesinas said: “The work has stopped. They couldn't send money
for this.”

($1 = 21.9900 Mexican pesos)

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Remittance flows to low-and-middle-income nations versus other
flows https://tmsnrt.rs/2LNiQJ9
Remittance flows to low- and middle-income by region https://tmsnrt.rs/3cOJcFR
Remittances as a share of GDP in 2019 https://reut.rs/2VoNwWQ
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

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