Hispanic American Center for Economic Research

MAKING THE MOST OF AN EXODUS

The Economist Magazine

Latin America is exporting more people than ever before. That is sad, but not wholly bad

ANXIOUS to escape their country's economic collapse, thousands of Argentinesare queuing up at foreign embassies in Buenos Aires, seeking a passport or a visa. Some want to retrace in reverse the journey made by great-grandparentsfrom Spain or Italy a century ago. Others, from the country's 250,000-strong Jewish community, are prepared to brave Palestinian suicide bombers and join the 80,000 Argentines living in Israel.

Argentina's hemorrhage is part of a new wave of migration from South America. Rather than to flee political oppression, most of these migrants leave because of lack of economic opportunity, or to escape crime and violence. Some 600,000 Colombians have left their country over the past three years, fleeing war and unemployment, for example. Ecuador has seen 500,000 leave between 1999 and 2001. To some observers of the region, this exodus represents an indictment of the failure of democracy or of economic reform--those who can, vote with their feet. Today, only in Brazil and Chile is there little net emigration (ie, after subtracting inflows).

In fact, migration has a long history in the region. Many Mexicans began to seek work in the United States half a century ago. Tens of thousands fled dictatorships in South America's southern cone in the 1970s. Those countries in the region that were better-off acted as magnets to their neighbours: Argentina, for example, has about 1m immigrants from neighbouring countries. During its oil boom in the 1960s and 1970s, Venezuela absorbed more than 500,000 Colombians, as well as Caribbean's. Mexico has long attracted Central Americans, while 500,000 Nicaraguans work in Costa Rica, and 600,000 Haitians in the Dominican Republic.

But over the past two decades, not only has migration accelerated dramatically, but the final destinations of the migrants are now mainly the United States and Western Europe, rather than other Latin American countries. One Haitian in seven now lives abroad. During El Salvador's civil war in the 1980s, one in six of its people migrated to the United States. In 1998, there were about 7.5m Mexicans living in the United States, almost four times as many as the figure 20 years ago, according to the International Organisation for Migration. About 1m Central Americans have also made the journey north since the 1980s, fleeing first wars and then poverty and natural disasters. Some 15m people born in Latin America have now settled in the United States--half the country's immigrants--while 18% of the foreigners in Spain are from Latin America.

The new emigrants include middle-class, educated workers, as well as the poor. This brain drain has increased anxieties that Latin America is losing some of its most productive citizens. Ecuador's government says that 10,000 teachers have left the country since 1998. Over 70% of Peruvians finishing a PhD in American universities intend to stay in the United States, according to government figures. LOST INVESTMENT

There are many businessmen and professionals among the 150,000 Venezuelans unofficially estimated to have left home since Hugo Chavez, a populist, was elected president of Venezuela in 1998. Many have sought solace in Miami, joining their counterparts from Nicaragua and Cuba who fled previous, more radical, revolutions. Emigrants from South America tend to be more educated than those from Central America, says the United States' Census Bureau. Emigration represents lost investment in human capital, as well as lost taxpayers and potential leaders.

But, sad though it may be, the effects of emigration are not all bad, and nationals abroad can be turned into valuable assets for their home countries. First, as migration has increased, so has the money sent back home. According to the World Bank, remittances to Latin America and the Caribbean totaled over $15 billion a year in 2000, ten times more than in 1980. The true figure may be much higher, since cash is often sent via informal routes. Remittances have become a far more important source of revenue than foreign aid (see chart, on previous page). In several smaller countries, they are a bigger source of foreign exchange than foreign investment or even exports (see chart 2). According to Susan Martin, of Georgetown University, each dollar sent home translates into three or four dollars of growth as it works its way through the local economy.

Second, the outflow of workers can reduce the excess supply of labour at home. "We don't have a labour market here any more," says Claudio Peñaherrera, who hires staff for Ecuador's biggest tire factory, at Cuenca. "They finish their education and they go." His factory no longer requires applicants to have experience or a high school diploma--and it has doubled salaries to attract new workers.

It is no wonder that governments are trying to legalise more of the human flow. Regional groups such as Mercosur and the Andean Community are discussing steps to make it easier for their members' nationals to work in neighbouring countries. President Vicente Fox of Mexico has asked the United States to legalise migrant workers, in return for policing his country's borders more tightly.

PRODIGAL CHILDREN

Remittances, too, are attracting attention. The Inter-American Development Bank estimates that at least $300 billion will be sent home over the next ten years. But that depends partly on the health of rich-country economies. In a recent study, the bank found that the typical Latin American working in the United States earns less than $20,000 a year, but sends home about $3,000 of that. Since September 11th, however, over half those the bank polled said they had sent back less money, a quarter said their income had fallen, and 7% had lost their jobs. Migrants send less money home the longer they stay away, so the flow of remittances depends partly, too, on fresh emigration.

Even so, the first priority is to help migrants transfer money more easily and cheaply. The bank estimates that transfer costs--often hidden by lousy exchange rates--eat up about 15% of the money remitted to the region. In 1999, three big American money-transmission firms, Western Union, MoneyGram and Orlandi Valuta, agreed to compensate customers who sued them over hidden charges. New competitors, such as the United States' Postal Service and credit unions, now offer flat fees. Development agencies are setting up cheap transfer systems, too.

Back home, most of the money is spent on food, housing or clothing. Governments would like to channel some of it towards investment. Mexican banks have started offering remittance bonds backed by money sent from migrants. State and federal governments have encouraged associations of migrants from the same town. There are over 400 such groups from Mexico in the United States. Guatemala and El Salvador are now encouraging their migrants to get together too.

In Zacatecas, in northern Mexico, the state, federal and local authorities give three dollars for every dollar contributed by migrants' associations for investment projects. In 2000, Zacatecano groups in the United States invested $6m in new roads, schools, churches, water systems and parks. Guanajuato, a state in central Mexico, encourages migrants' associations to invest in small clothing factories at home and covers some of the start-up costs.

Efforts are under way to tap migrants' skills as well as their money. The United Nations Development Programme has launched a scheme to encourage qualified migrants to go home for short stints as teachers, consultants or researchers. In 1992, Colombia's government set up a network of expatriate researchers and engineers, which now has members in 30 countries. It fosters joint research projects, in fields such as biotechnology and robotics, mainly between European and local universities. Uruguay launched a similar programme in December, to draw on some of its 400,000 highly-educated migrants.

Something similar has happened in the private sector, where educated Latinos working in banks or multinational firms can find themselves channeling foreign investment to Latin American countries. For example, Virginia Sanchez, a middle-class Bolivian who migrated to the United States in 1991, and who has gone from being a housekeeper to working as a banker in New York, is now trying to persuade businesses to invest in her home country through the Bolivian-American Chamber of Commerce. If she succeeds, fewer Bolivians may have to repeat her journey.

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