The darker side of Mexico’s $63bn remittances boom

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Mexicans living in the US sent home a staggering $63.2bn in remittances last year and President Andrés Manuel López Obrador hailed the news as a triumph. “This means that living conditions . . . improve and poverty is reduced,” he crowed in a speech last week.

Remittances have almost doubled under the populist left winger’s presidency from $34bn in 2018. Mexicans send more money home each year than any other country except India, whose population is more than 10 times bigger, according to World Bank data. Mexican remittances are now equal to 20 per cent of the federal government’s entire budget.

Investors are happy too. The flood of remittances has helped make the Mexican peso one of the developing world’s strongest currencies in recent years, generating handsome returns for those who parked their money in pesos and reaped the additional benefit of a big interest rate differential with the US.

But look a little closer at the remittance numbers and cracks emerge in the happy picture of industrious Mexicans helping their compatriots back home in ever greater numbers.

The near-doubling of remittances comes at the same time that the total number of Mexican-born migrants living in the US — the group most likely to send money home — has declined slightly, from 11.7mn in 2010 to 10.7mn in 2022, according to the Migration Policy Institute. Earnings in the sectors where they are most active, hospitality and food services, have risen by 32 per cent over the five years from 2018 to 2022. 

In the same period, the number of remittance transactions increased by more than 50 per cent to 150mn and the total amount sent rose from $33.7bn in 2018 to $58.5bn in 2022.

The geographic distribution of remittances also throws up questions. Chiapas, not traditionally a state sending many migrants to the US, showed a rapid recent growth in its share of remittances, rising from 2 per cent in 2018 to 5.4 per cent in 2022.

Drill down a level further and it emerges that Ojuelos de Jalisco, a town of just 30,000 people in Jalisco state, received $38mn in remittances in the third quarter of last year, equal to $1,343 per month for every single household. Yet despite the infusion of cash, official government data still showed 47 per cent of the town as below the official poverty line.

Indeed, a study last year by the NGO Signos Vitales discovered that there were 227 municipalities in Mexico where the number of transfers was equal to more than one per month for every household in the town.

There is, of course, another explanation for the rapid growth in remittances. Mexico’s flourishing drug cartels switched during the pandemic to sending money home disguised as remittances because border closures prevented the traditional method of smuggling back cash in vehicles.

The traffickers found the new method convenient, secure and easy enough to stick with it after the border reopened, paying Mexicans back home a small commission for following instructions sent by text message on how to pick up cash wired to them and then where to deposit it.

Jalisco, Michoacán and Guanajuato, the three biggest recipient states of remittances, all happen to be home to powerful trafficking cartels, as well as sources of migrants. “You hear more and more voices saying there is something dark in all this,” says Ernesto Revilla, Latin America chief economist at Citibank and a former senior Mexican finance ministry official. “There’s more and more evidence that there could be drug money mixed in the remittances.”

Unsurprisingly, López Obrador has fiercely resisted the notion that drug money could be fuelling the growth in remittances. After Reuters published a detailed investigation into the phenomenon last August, the president publicly denounced the news agency as “forgers and liars”. He was similarly dismissive of the Signos Vitales study, which estimated that $4.4bn of Mexico’s 2022 remittances came from drug profits.

To be sure, much of the remittance money does come from hard-working Mexicans wiring money home to their families and it is impossible to know what proportion of the total represents narcos repatriating profits.

But the issue matters for two reasons: the more illegal money that crosses the border and enters the financial system, the stronger the cartels become. And the more vulnerable Mexico’s peso and current account is to a sudden shock, whether from law enforcement or from shifts in the drug trade.

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