Remittances fuel consumption, not growth
In the Washington Post, Marcela Sanchez takes a look at the two-edged sword of Salvadoran emigration and remittances with statistics from the recent UN Development Program report. Here is an excerpt:
Money coming from abroad, however, has handicapped a part of El Salvador's economy at home. Far from becoming an export economy, Salvadoran consumption of foreign goods has increased dramatically. In other words, as soon as remittance money comes in, it leaves, tilting the economy more toward consumption and imports, and away from local production and exports.
Economic growth has slowed to a trickle over the last few years -- 1.8 percent in 2003, 1.5 percent in 2004 and 2 percent in 2005 -- lower than any other Central American country.
If remittances stayed longer in the country, they would have what the UNDP report coordinator William Pleitez calls a "multiplying effect" that would allow the money to touch more hands than those of retailers and importers. Pleitez argues that money doesn't stick around because the government is not taking action in crucial areas such as tax policy and job creation, relying too much instead on market forces to improve the fundamentals of the economy.