Wired cash: presents come from U.S. cold and hard. (Spotlight).

As the sun rose over the working-class Mexico City suburb of Guerrero one Friday morning, Mexicans lined up in front of a Western Union outlet to perform what is becoming a regular ritual for millions of their countrymen- cashing in on the labor of their loved ones working in the United States.

Cecilia Cortes, a middle-aged housewife, picked up some 2,000 pesos sent by her son, a factory worker in Los Angeles. Juan Carlos Bautista, a 31-year-old street vendor, picked up 3,200 pesos from his brother, a construction worker in Illinois.

The scene is repeated daily at banks, credit unions and other money transfer outlets around the country. As long as there have been Mexicans working in the United States, these interfamily fiscal missives have played a significant role in the domestic economy and over recent years have provided a solid bedrock for the country's oft-times volatile economy.

Remittances-money sent by Mexicans abroad-hit a record US$8.9 bib lion, or US$24.4 million a day, in 2001, according to Banco de Mexico. They have overtaken foreign tourism- which brought in US$8.4 billion dollars last year-as the second-largest source of foreign currency, after oil exports. Mexico, with a population of 101 million, is second only to India, population 1 billion, in the amount of remittances sent home yearly.

KEEP IT COMING

And this year, Mexicans in the United States are posting even more greenbacks south. Between January and June, Banco de Mexico traced US$4.8 billion dollars in remittance payments, a 10.7% increase compared to the first six months of 2001. In September, the government's population council (Conapo) said it estimated remittances in 2002 could rise by up to 20% compared to last year.

Analysts are trying to explain the increase. After the Sept. 11 terrorist attacks, people thought a tightening of U.S. borders would mean a tougher time for immigrants and less money being sent to Mexico. Now analysts are suggesting the stricter border policy has made immigrants stay longer in the United States, working more days, rather than risking a trip back home.

However, market research company MUND Americas-which has done extensive research into remittances- has a different theory. It suggests Mexicans are asking for more cash.

"People have traditionally resisted asking for money and left it to the discretion of the sender, but this year that has changed," MUND Americas president Daniel Lund told BUSINESS MEXICO. Lund speculates that the change has been caused by increased unemployment and a saturated informal economy.

Other commentators point to the cheaper costs of wiring cash. Western Union and Money Gram, which handle the lion's share of U.S.-Mexico money transfers, used to pocket some 10% of remittances in fees and inflated exchange rates. A class action suit, filed in Texas on behalf of Mexican migrant worker groups against the companies, was resolved in 2000 when the cash-wiring giants agreed to simplify their pricing schemes and introduce flat fees. Western Union will now wire up to US$300 for a straight US$9.99 charge.

WHERE TO PUT IT

Furthermore, increased competition from banks has also put pressure on Western Union and Money Gram to use better exchange rates. In May 2001, Wells Fargo began letting undocumented Mexican workers open bank accounts-by which they could transfer money to Mexico-with identification issued by their local consulate. Several other U.S. banks, including Bank of America, followed suit.

However, many immigrants still prefer the tried and trusted method of lining their clothes with dollar bills and physically carrying them home. MUND Americas estimates that considering the cash that arrives in Mexico in ways that don't show up in the central bank's computers, the real amount of remittances from 2001 is 10-12% above Banco de Mexico's estimate, or nearly US$10 billion dollars.

Likewise, MUND Americas suggests much of the remittance money is invested in ways the authorities cannot track down.

Unable to trace the money, analysts often have presumed it is spent on day-to-day living.

"There is abundant evidence that only a very small percentage out of total expenditures from remittances is spent on productive activities," State University of New York at Cortland Professor German Zarate said at a conference on the multi-billion-dollar business organized by the Federal Reserve Bank of Chicago.

"People in the country have no money to invest. Remittance money is used for survival," Marcos Chavez, an economist at the Colegio de Mexico, told BUSINESS MEXICO.

But after an extensive survey conducted in 2002, MUND Americas reported that just 20-25% of the remittance money paid living expenses; 20-25% went to pay debts; 3-5% was given to the church and civic groups; and 51% was invested. However, the money was rarely invested in savings accounts, but rather was spent on setting up businesses, mostly in the informal economy; building houses, with family members doing the work; and sending kids to college (investing in human capital).

"When you see the sheer volume of money going into key recipient states such as Zacatecas, it is impossible it can be simply disappearing," said Lund. "Many of these people distrust banks, but they operate comfortably in the market. However, it is not exactly the market the authorities understand."

Ioan Grillo is a reporter for a Mexico City daily and a freelance writer.