Navigating Mexico: AMLO’s Growing Dependence on Remittances

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The word sounds like an old-fashioned phrase on the top of a government receipt from the 1950s or 1960s.

But in today’s world, remittances for some countries are just as significant economically as what the national agriculture sector produces or the entire budget for public safety.

In the case of Mexico, these monthly remittances, mostly from undocumented migrants working in the United States, have become a mainstay of the national economy, representing more than $58 billion in cash revenues in 2022, an amount that was 13.4 percent higher than that of 2021.

In fact, only India beats Mexico by the amount sent in remittances in 2022.

India, which is about 11 times larger in population than Mexico, sent back $100 billion in remittances in 2022, compared to Mexico’s $58.5 billion, according to World Bank figures. The next closest was China at $51 billion.

So despite all the talk of free trade agreements, Three Amigos summits and the United States-Mexico-Canada Agreement (USMCA), Mexico is still very dependent on the United States for its foreign revenues.

In fact, remittances in Mexico now account for about 5 percent of the country’s total GDP, just behind manufacturing at 17 percent, and below tourism, which also accounts for about 4 percent. (As for oil, in recent years, the state-run Petróleos Mexicanos, or Pemex, conglomerate has had a negative impact on the nation’s economy.)

Remittances arriving from the United States and Canada are more important to the economy than its agriculture revenues at 3.89 percent of the GDP and the automotive industry’s contribution at 3.5 percent.

The truth is that Mexico is a small country compared to India or China, and is only able to gather huge remittances because of its close geographic proximity to the United States.

It is questionable whether the Mexican economy could survive without them.

It should also be understood that remittances are not some gracious government concession.

Remittances are rooted in Mexican poverty, which forces people to migrate to other countries to be able to earn money to support their families.

Also, it is likely that remittances will grow less this year since the U.S. economy is expected to grow by only 1.4 percent in 2023, according to estimates from the International Monetary Fund (IMF), compared to 2 percent in 2022.

And finally, because of a heavily overvalued peso against the U.S. dollar, sales from Mexico to the rest of the world are becoming more expensive, making them less attractive and competitive.

Moreover, because of the strong peso parity, Mexican families received 4.2 fewer pesos in remittances during the last quarter of 2022 compared to the same period in the previous year, according to the Center for Latin American Monetary Studies (CEMLA).

Mexico’s growing dependence on remittances is a clear sign that the country’s labor market urgently needs interventions to increase job productivity, pay better wages and incorporate more women into paid jobs.

In the United States, the salary that a Mexican can aspire to is, on average, up to nine times higher than what he or she receives in Mexico in blue-collar activities such as construction and cleaning services.

Since leftist President Andrés Manuel López Obrador (AMLO) took office in December of 2018, the Mexican economy has contracted by approximately 10 percent, the largest economic decline in the country since 1932.

This collapse is due primarily to the government’s inadequate public health strategy in dealing with covid-19 and the absence of an economic stimulus response to address the effects of the pandemic on the country’s gross domestic product.

There are also persistent public-insecurity problems and a growing climate of uncertainty for investors and businesses due to the federal government’s hostile rhetoric and policies toward the private sector.

In short, AMLO’s Mexico could not survive without monthly remittances from migrants.

But with the simple stroke of a pen with a U.S. presidential decree, the United States could cripple Mexico’s economy in two ways.

Currently there are no tariffs on the remittances leaving the United States, and despite wide-scale violence in Mexico and the absence of any serious rule of law, only a few isolated travel warnings or bans have been issued by the U.S. State Department.

But all that could change.

Mexico knows full well that the United States holds the cards for the two most valuable bargaining chips: the possibility to tax remittances and the ability to cripple travel.

So while Mexico’s president likes to play the defiant rebel who stands up to Uncle Sam, the fact of the matter is that U.S. President Joe Biden still has two major aces up his sleeve if AMLO’s administration goes too far.

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