Sunday, May 14, 2006

The flow of US dollars into El Salvador

The Washington Post is continuing to run articles which look at migration and its impact on El Salvador. Today's article looks at how the money sent home to El Salvador is pushing up prices in the country. Here is an excerpt:

With more dollars [from remittances] chasing limited commodities such as land and housing, prices are rising. And because El Salvador imports most of its goods from nations that can make them less expensively, the consumption boom isn't creating an increase in jobs. Meanwhile, the ready supply of desperate workers from the even poorer Central American countries of Nicaragua and Honduras keeps down wages for existing low-skill jobs -- making it difficult for the Salvadorans who hold them to make ends meet.

The impact of this dynamic is visible across this eastern stretch of the country, from which much of the Salvadoran migration to the United States has originated.

On small, family-run dairy farms that have dotted the area for generations, most ranch hands tending the cows these days are Hondurans and Nicaraguans.

So are the laborers who scrape salt crystals from the bottom of pools hugging the Pacific coastline, and the construction workers building pricey housing developments on the reddish earth a few miles inland.

"You can't find Salvadorans to do this kind of work anymore," said Jose Acosta, the supervisor at a construction site where almost all of the 35 men toiling under a harsh sun on a recent morning were from Nicaragua.

At best, the workers earn $250 a month, often far less, he said. "And these days, you need at least $300 to $400 just to survive." (more)


wally said...

"the consumption boom isn`t creating an increase in jobs"... But if there is a consumption boom, then there must have been jobs created for people to sell, install, deliver, and maintain those items that fueled the consumption boom. They don´t just magically appear in people´s homes. Factory jobs may not have grown accordingly, but thousands of jobs were created.

Anonymous said...


Do you mean jobs,selling pirate dvd's or cd's?

Man, how do you call jobs to that? . People are surviving, trying to make a living selling things.

wally said...

One of the indicators of the consumption boom in El Salvador are the many shopping malls and stores selling consumer items. They weren´t there before the consumption boom and they are there only because of it. If people weren´t buying their products they wouldn´t exist. Someone built those buildings, while many others manufactured and delivered the materials to build them with. There are a lot of people working in them, there are truck drivers delivering goods to them, and delivering the goods to the people who buy them. There are also people maintaining those buildings, and maintaining and installing those consumer items sold in them. There are also many other jobs created in the financial sector and other parts of the service industry to support this consumption boom. Did everyone get a job because of the consumption boom? Obviously not, but just as obviously a lot did. To say no jobs were created only because of it´s impact in the factories is not being very truthful.

Miguel Lerdo said...

Interesting. Remittances pushed up both wages and housing prices in El Salvador. This has benefited Nicaraguan migrants who earn Salvadorian wages and send their money to Nicaragua. For Salvadorian workers the impact is more ambiguous because they need housing for their families in El Salvador. However, Salvadorian workers can’t be worse off than the Nicaraguan migrants – they can send their families to live in Nicaragua if they choose. It seems to me that the problem here is social rather than economic. Economic forces are pushing families apart, leaving a generation of children growing up with easy money and absent parents. Is there any wonder why we have a gang problem?

A lot of these pressures might be relieved if the U.S. reduced restrictions on family reunification. Maybe Salvadorian freeloaders would move in mass to the U.S., lowering the cost of housing for those people who still work in El Salvador. Then workers, both Salvadorian and Nicaraguan, could afford housing for their families in El Salvador. But, how many Salvadorian remittance receivers would give up the easy remittances for a life of hard work in the U.S.? How many Nicaraguan remittance receivers would give up the remittances for a life of hard work in El Salvador?

El-Visitador said...

wally and miguel lerdo expose the deep thinking that takes place in the WP's editing room...

agreed, social problem more so than economic.

anyone think the time may be ripe for setting up a series of boarding schools that promise to remote parents...

(i) though, 19th-century-type British education. The kind that made Bangalore and Singapore a success
(ii) constant achievement measurement & parental notification as often as wished

just a thought. could full-boarding and full-time academics be delivered for $200/mo./kid?
isn't the price point kind of steep for the typical 3-kid emigré?

Rolando said...

I live in the capital city of El Salvador, where things are very expensive and where dollarization of our currency pushed prices even higher, not to mention remittances. Yes, we have some beautiful malls visited by those who have decent jobs or whose parents/relatives in the USA send them money. You can bet I am not talking about most of our population. This is a very evil circle where the rich gets richer and the gap between the middle and rich classes is growing. Of course the poor is getting poorer and it seems our government feels comfortable with this evil situation.

Miguel Lerdo said...

While there are legitimate concerns that dollarization reduces macroeconomic flexibility, the idea that dollarization increased prices is a myth. Businesses might have rounded their prices up 5 cents, but the change in currency did not change anything fundamental in the pricing decision. Businesses charge as much as they can regardless of currency. Or perhaps I’m wrong and people were charging “patriotic” prices until the vile American Greenback warped their minds with greed?

Anonymous said...

Many people think only the remitancces are sustainig the salvadoran "economy". Talk to any salvadoran well informed and they will tell you that it is the money laundering. The malls that Wally is talking about are usually empty. Some people think that the construction sector is the way where the money laundering goes, and on the way goes the destruction of the environment.

El-Visitador said...

"Some people think that the construction sector is the way where the money laundering goes"


You know, I do see thousands and thousands of empty, finished homes and vacanth shopping centers.

Yeah, must be empty because it was money laundering, and there are no consumers for it.

Yeah! That's the ticket.

Rolando said...

Miguel Lerdo:
Dollarization and Keeping macroeconomics figures atractive so as to get foreign investors come to El Salvador
have not helped us much. It is a healthy microeconomics level what would give us a sense of earning some money a living decently as you may well know. Issues like money laundry, corruption and lack of responsability and commitment from both major political parties make things even worse here, not to mention the lack of investment to relieve social problems. Our bad economic situation leads us to have more social problems and there is no doubt about it. This is exactly how this evil circle works.