US economic woes impact El Salvador

In 2007, remittances from Salvadorans living abroad, mostly in the US, hit a record $3.7 billion and consituted 18% of the country's gross domestic product. But this stream of economic support may be weakening. Marcela Sanchez, in her column in the Washington Post described how the US economic slowdown has a ripple impact on El Salvador's economy:

While economists predict that a recession in the U.S. will have a major impact among its closest trading partners such as El Salvador, Latin Americans don't have to read macroeconomic indexes to feel the pinch. As manufacturing and construction slow in the U.S., and the amount of work dwindles, immigrant laborers are having a hard time making ends meet, let alone sending money back home....

In the past, remittances have traditionally increased in times of greatest need, such as in response to economic slumps or natural disasters. Remittances rose significantly after Mexico's 1995 financial crisis and following hurricanes in Central America. This time around, if countries such as El Salvador also enter an economic downturn, the possibility of a remittance surge to help soften the blow is remote.

The statistics kept by international monetary institutions are starting to show this slowdown. This week the InterAmerican Development Bank reported that growth of remittances to Latin America grew at a "sharply lower" pace in 2007 than in previous years. Remittances to El Salvador grew only 1.7% in January 2008 compared to the same period in 2007.

Meanwhile, those dollars being sent back to El Salvador purchase less and less as the value of the dollar continues to fall and inflation in the prices of basic foodstuffs hits hard at the pocketbooks of El Salvador's families. These economic trends show the necessity for El Salvador to create policies promoting sustainable types of development that reduce dependency on the flow of dollars from workers abroad.