Jesús Antonio Soriano wanted to do something for Chalatenango, a province in the northern part of El Salvador devastated by the civil war in the 1980s. So four years ago, he and three partners developed a plan to improve the value of the land and create employment through the creation of a shopping and recreational center. The Chalate Country Club now has 60 fulltime employees and pays at least double what others in the area pay.
In the beginning, the investment was slow. But two years ago, Soriano started to offer lots measuring 500 square yards at $16,500 each to Salvadorians living abroad. Almost at the same time, the Millennium Challenge Corporation (MCC), President Bush’s “intelligent aid” program, launched its five-year $461 million initiative for education and basic infrastructure in northern El Salvador.
Sales skyrocketed. Soriano attributes the attractiveness of investing in his club to the MCC and its plans to improve highways in Chalatenango. But he is especially grateful to Salvadorians living in the United States. “Our project would not have been successful if it were not for our brothers there,” Soriano told me.
Irrespective of his gratitude, in the last few months Soriano has been concerned that his project depends on the wealth of Salvadorians living abroad. And he is especially concerned that a recession could reduce the funds that U.S.-based Salvadorians have, some of whom have already begun to fall behind in their monthly payment to the club.
With the fall in the manufacturing and construction industries in the United Status, and increased unemployment, immigrant workers are having trouble covering expenses and sending money to their countries of origin.
Just last week the Central Bank of Mexico announced that money transfers fell in January to $1.650 million, a reduction of 5.9 percent from January 2007, the largest recorded by the Bank of Mexico since it began to keep track in 1995. For El Salvador, money transfers grew only 1.7 percent in January 2007, a significant fall in the growth, which had risen to 14 percent in 2007 and 25 percent in 2006.
Money transfers to Latin American countries, which increased 25 times between 1980 and 2005, have been seen as income that can be taken for granted. Economist-in-Chief for Central America at the World Bank Humberto López explained this way of thinking. “Until a few years ago, the consensus was that the money transfers would continue.” Now, however, there has been “a strong shift in this trend.”
Even if the change is temporary, the decrease in growth should be a red flag for the region’s leaders. And this is especially true for countries like the Dominican Republic, Honduras, Nicaragua, and El Salvador, where money transfers now represent at least 10 percent of the country’s gross domestic product.
Vincent Ruddy, director for El Salvador at the MCC, assured that the corporation is in fact trying to support initiatives that will reduce dependency on money transfers. One of the goals of the MCC, he said, is to help small farmers by exchanging products of low value, such as basic grains and corn, for high-value items such as avocados, strawberries, and other fruit. Ruddy affirms that those products will allow local workers “to earn more money or the same as those that emigrate.”
Reducing the income gap is without a doubt a worthy goal, particularly since it has been a key incentive for migration. But if said projects reduce the need for money transfers, they will also lead to greater self-sufficiency, representing another benefit as well. Until then, however, the dependence on money transfers forecasts difficult days for Latin America as the region’s economies suffer because of the economic problems of the United States.
