How remittances came to replace oil as Mexico’s main source of foreign income
Forbes.com columnist Dolia Estevez analyzes how and why remittances, the earnings that Mexican workers in the U.S. send home, replaced oil revenues as Mexico’s number one source of foreign income last year.
In late 2014, oil was still Mexico’s main source of foreign exchange, but due to a dramatic fall in oil production following a lack of investment and a plunge in international oil prices, this is no longer the case.
“Remittances surpassed crude oil revenues for the first time in history in December of 2014. Since then, remittances have continued to increase even to the point of representing more than twice the value of crude oil exports since December of 2015,” José Alfredo Coutiño, Moody’s Director for Latin America, told me.
Pedro Aspe, finance minister during the administration of Mexican President Carlos Salinas, attributes the change to two main factors. “Over the past decade, Mexican exports of oil have fallen at an annual rate of 7%. This year it will not be different because of the huge drop in the volume of oil being exported and a plunge of over 55% in oil prices,” he told me.
Crude oil production in Mexico reached an all-time high of 3.5 million of barrels per day in 2003. The country current production level is 2.2 million of barrels per day.
Aside from Mexico’s oil industry woes, Coutiño said, remittances have surpassed oil revenues because there are more and better-paid jobs for Mexican workers in the U.S. and because the tracking system and accounting of money transfers between the two countries has improved.
Mexico’s third source of foreign exchange is tourism, which totaled $17.4 billion in 2015, according to Mexico’s Central Bank data. Despite the violence affecting large parts of Mexico, the country continues to be an attractive destination for millions of tourists.
World Tourism Organization (WTO) reported that over 32 million international tourists (mostly Americans) visited Mexico last year, making the country the world’s ninth biggest tourist destination for the first time in the WTO’s yearly ranking.
Some economists say that exports of manufacturing goods are actually Mexico’s third source of foreign income, not tourism. But, explains Coutiño, “It’s incorrect to compare manufacturing with remittances or oil, because manufacturing is not a single group like remittances and oil, but rather a category of countless subgroups.”
Presumptive Republican presidential candidate Donald Trump wants to impound a portion of the Mexicans’ remittances to pay for the wall he promises to build on the Southern border if he becomes President, a proposal that Mexico has strongly rejected.
Agustín Carsten, Chairman of Mexico’s Central Bank, recently warned against the idea of impounding remittances. “The remittances are the property of the people who earned them and they have the right to transfer them internationally. Therefore [impounding them] would be a significant violation of the property rights of our co-nationals abroad,” the banker said, according to the Mexican press.
By Dolia Estevez for forbes.com