Wage Hike: Today's U.S. Money Sent to Mexico Buys Much More

Victoria Servin shows off her new pair of black leather boots, a splurge for the 21-year-old student who lives alone in an aging, one-room apartment.

Servin survives on the $1,000 a month her mother, a nurse in Phoenix, sends her to pay tuition, rent, food and bus fare. But as the peso slips to historic lows, the U.S. dollar is going much further in Mexico City — giving her more cash than she has ever had before.

"There's a huge difference now when my mom sends the same amount as she used to," she said with a smile.

The U.S. dollar has gained 34 percent against the peso since Aug. 1 as investors shed developing world assets and fled to the relative safety of the greenback. That stronger dollar means money sent home buys much more in Mexico — a wage hike of sorts for the relatives of migrants lucky enough to still find jobs in the U.S. or for migrants using U.S. earnings to build up a nest egg in Mexico.

Migrants in the U.S. are taking advantage of it, sending back $2.4 billion in October, a 13 percent jump from $2.2 billion for October 2007, the central bank reported Monday.

In August, for example, Servin's $1,000 bought about 10,000 pesos; today it draws 13,400.

It's a silver lining that just might lure a new wave of migrants to the United States, analysts say.

Mexican migrants often now earn 10 times more in the U.S. than at home, and the strengthening dollar will only encourage more to head north, said Dilip Ratha, a senior economist at the World Bank.

That's exactly what happened after a series of catastrophic peso devaluations in 1982: The next year, arrests of illegal Mexican migrants in the U.S. — a key measure of the flow of immigration — rose 30 percent to 1.3 million, according to a 1995 report by the University of California, Davis.

A stronger dollar has helped reverse the steep drop in remittances, or money sent home by migrants, that was seen in Mexico earlier this year.

Mexico's second-largest source of foreign income after oil, remittances fell 4 percent in the first eight months of 2008, the first decline since record-keeping began 12 years ago. August alone saw a 12 percent drop, the biggest ever, as the U.S. economy soured.

But October's rise trimmed the fall in remittances to 1.9 percent so far this year — with a nine-total of $20 billion compared to $20.4 billion for the same period in 2007.

About one in 10 Mexicans lives in the U.S., often working in construction and housing, sectors slammed by the subprime crisis. Many had begun to return home even before the downturn, as a crackdown on illegal immigration made it hard to find work.

All that could now change: As the world financial crisis has deepened, many foreigners dumped investments in Mexican stocks, bonds and businesses, selling them for quick cash to cover losses at home. To get that money out of Mexico, they traded in their pesos, slashing demand for the currency so much that it tanked 14.7 percent in October alone.

Analysts including Moises Jaimes — director of transfer services at BBVA Bancomer, which says it handles more remittance transfers than any other Mexican bank — expect remittances to stay steady in November as migrants in the U.S. take advantage of the strong dollar to send extra cash home.

"Now is the time to send home money to do an addition on the house, to buy a mom-and-pop shop," said Jaimes, noting that October remittances through his bank rose 45 percent to 11.8 billion pesos, worth about $995.8 million on Oct 31.

Even migrants who have trouble finding work in the U.S. need fewer dollars to send the same amount of pesos home, the World Bank's Ratha said.

The central bank forecasts remittances will fall 2.5 percent to $23.5 billion in 2008 due to losses in the first eight months. But analysts predict the greenback will hold strong and remittances steady in 2009 — and that could encourage renewed migration from Mexico, which has dropped more than 40 percent in the last two years.

"Migrants who would otherwise be inclined to leave will stay in the U.S., and people who would be inclined to stay (in Mexico) will leave," said Michael Fix, senior vice president with the Migration Policy Institute in Washington, D.C.

Until now, many migrants have been deterred by the beefed-up security along the U.S. border and an increase in workplace raids.

But that may be changing. In the Mexican border town of Nogales, laborers from Mexico and Central America pack a migrant shelter, determined to cross over and find jobs in the stalled U.S. economy.

"They want to earn dollars for their families," said director Francisco Louriero.

While still less than the 6.5 percent jobless rate reported in the U.S., unemployment in Mexico is on the rise, reaching 4.1 percent in October, one of its highest levels since 2000.

And although the weaker peso has made Mexican exports cheaper, it has also fueled price gains as imports of machinery, refined gasoline, car parts and other products grow more expensive. Annual inflation hit a seven-year high of 6.2 percent in the first two weeks of November — making increased remittances all the more useful in covering costs.

At a cafDe near her tiny apartment in one of Mexico City's hipster districts, Servin is enjoying the windfall while it lasts.

Aware of the exchange rate, her mother plans to send her about $100 less next month, to keep her on a tighter budget.

But that will still likely leave her with 2,000 more pesos than she would've had last summer.