Mexico: a new addiction.The flow of money from foreigners living abroad back home to relatives in Mexico continues to grow, confounding the government and analysts alike. Little is known about what happens to the several billion U.S. dollars a quarter coming into the country--rising 28% a year on average. The money now regularly surpasses traditional foreign direct investment and long ago left tourism in the dust as a generator of hard currency Hard Currency A currency, usually from a highly industrialized country, that is widely accepted around the world.Notes: The U.S. Dollar and the British Pound are good examples of a hard currency. See also: Barter, Currency, Hard Loan, Hard Money, Soft Currency, Soft Money . Oil and auto exports still outpace remittances, but perhaps not forever at the current pace of increase. Even adjusting for better reporting--a common explanation for the rapidly rising remittance figure--is not enough to offset the increases, according to U.S. investment bank Morgan Stanley's Gray Newman and Luis Arcentales. Interestingly, analysts have found that the flows of money are counter-cyclical, that is, when the economy weakens, remittances increase. It is believed that Mexicans working abroad send home more to offset lost family wages when the domestic economy slows. But such large movements of money have another, unintended impact of smoothing out the domestic business cycle. The incoming cash is a double edged sword. If too much comes in, Newman and Arcentales warn, policymakers have less reason to make economic reforms. [GRAPHIC OMITTED] |
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