Mexico's biggest cash source is under threat from Trump
Petroleumworld.com 01 26 2017
The country's largest source of cash comes from Mexicans living in the United States. That is now under the microscope after Trump issued an executive order Wednesday to start building a wall on the border.
During his campaign, Trump said multiple times that Mexico will pay for the wall. He even threatened to halt or tax cash transfers -- known as remittances -- from the U.S. to Mexico if the country refused to pay for it.
"They will reimburse us for the cost of the wall. That will happen, whether it's a tax or a payment -- probably less likely that it's a payment, but it will happen," Trump said on January 11.
But Mexico's president won't stand for it.
"We must assure the free flow of remittances," President Enrique Pena Nieto said Monday. Remittances are "an invaluable contribution to national development and indispensable for millions of Mexican families."
Remittances were likely a top issue on the table when Mexico's top ministers met with Trump's advisers in Washington Wednesday. Trump and Pena Nieto are scheduled to meet on January 31.
Between January and November of 2016, $24.6 billion flowed back to the pockets of Mexicans from friends and relatives living overseas, according to Mexico's central bank.
That's even higher than what Mexico earns from its oil exports -- $23.2 billion in 2015. And almost all of that cash comes from the U.S.
The average remittance from Mexico is about $300. Essentially, Mexico's most lucrative natural resource are the people who leave home.
Remittances help drive Mexico's economy, from paying for new home construction to schools, especially in low-income areas. The cash transfers from the U.S. have also been growing faster than wages and inflation. And it's a critical time for Mexico's economy, which is showing signs of weakness .
With Mexico's currency, the peso, near an all-time low , its economy only grew 2.2% last year, Mexico's finance minister says. Trump's threats are only going to make it worse -- the IMF estimates Mexico will only grow 1.7% this year.
On top of slower growth, the government hiked gas prices by as much as 20% at the start of the year as part of an energy deregulation policy. That's sparked widespread protests and looting.
All to say: Dollars mean a lot to many Mexicans and they're becoming more and more valuable. Taxing or halting that flow of cash could negatively impact millions of Mexicans.
But experts caution that even if Trump halts or taxes remittances, Mexicans will still find ways to get cash over the border without paying a tax.
Alberto Ramos, head of Latin America research at Goldman Sachs ( GS ) , says that when wire services charged high fees a decade ago, Mexicans still got their money across the border either in-person, through the mail or via traveling relatives.
"If you tax that money it won't necessarily stay in the U.S. It can still go to Mexico through informal channels," says Ramos.
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