American Dream Hit by Dollar’s Decline

Richard Lapper, Financial Times (London), April 1, 2008

Migrant workers are choosing to move to Europe, Australia or Canada instead of the US in order to protect the purchasing power of the money they send home to their families, according to one of the world’s leading experts on remittances.

The shift is a result of sharp falls in the value of the US dollar against other international currencies, many of which have been boosted by the rise in commodity prices.

“We are seeing workers from Bangladesh, Nepal and especially the Philippines choosing destinations where they’ll get paid in stronger currencies,” Dilip Ratha, head of the World Bank’s remittances and migration unit, told the Financial Times.

Mr Ratha said the trend was especially notable among skilled workers, such as doctors, nurses and information technology specialists.

In its most recent analysis of remittance trends, published at the end of last year, the bank said the slowdown in the US economy had depressed the growth of remittance flows to Mexico and some other Latin American economies. However, overall flows to developing countries were still expected to have grown by 8 per cent to reach $240bn (€150bn, £121bn).

Mr Ratha said that in the past four years the US share of remittances to Central American and Andean countries had declined from more than 90 per cent to 80 per cent, with migrants from Ecuador and Bolivia especially likely to favour European destinations.

Recent evidence from Brazil shows a similar preference for Europe and Canada, even among unskilled workers. Migrant workers from Brazil have been especially affected as the country’s own currency, the real, has nearly doubled in value against the dollar since early 2003.

In a survey of 200 migrants who had recently returned to the Brazilian city of Governador Valadares, local sociologist Sueli Siqueira found that 28 per cent planned to migrate again but this time to Europe or Canada.

Mr Ratha argues that much of the recent increase in remittances in many countries has been due to efforts by migrant workers to protect the purchasing power of their families at home, in the face of inflation and local currency appreciation.

Stripping out the impact of local currency appreciation and local inflation, Mr Ratha found that, between 2004 and 2007, cash flows to the Philippines, India and Mexico—the three countries which, along with China, receive most remittances—increased by 3 per cent, 13 per cent and 19 per cent respectively, compared with increases in nominal dollar terms of 50 per cent, 44 per cent and 38 per cent.

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