REMITTANCES AND MIGRATION PART I: A VIEW FROM

UNCLAS SECTION 01 OF 03 MEXICO 002042

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/MEX, WHA/EPSC, EB/IFD, AND EB/EPPD
STATE PASS USAID FOR LAC:MARK CARRATO
TREASURY FOR IA MEXICO DESK: JASPER HOEK
COMMERCE FOR ITA/MAC/NAFTA: ANDREW RUDMAN

E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD SMIG MX
SUBJECT: REMITTANCES AND MIGRATION PART I: A VIEW FROM
RURAL MICHOACAN


Sensitive but unclassified, entire text.

This is the first in a series of four cables examining the
effect of U.S. migration and remittances on the economy of
rural Mexico.


1. (SBU) Summary. Immigration to the U.S. and the subsequent
transfer of wealth through remittances is having a major
social and economic impact in rural Mexico, as financial
transfers are the primary source of income in many areas.
While emigration has been common since the 1970's, the rate
has dramatically increased in recent years due to a growing
agricultural crisis and significantly higher wage rates in
the U.S. With remittance income so important to struggling
rural communities, migration is implicitly, if not
officially, encouraged by local leaders. The amount of money
sent back to Mexico grew by 17% in 2005 to 20 billion dollars
(according to estimates by the Bank of Mexico),and federal,
state, and local governments have instituted numerous
programs to capitalize on this boom. However, rather than
being used for long-term investment, these transfers are more
often used for basic consumption or to supplement inadequate
entitlement programs. While a critical source of revenue,
remittances are unlikely to spur significant economic
development in rural areas without corresponding social
reforms designed to create an environment more conductive to
entrepreneurship and investment. End summary.

MIGRATION DRIVERS
--------------


2. (SBU) Many of the reasons for the record level of
migration can be seen in rural Michoacan, an agricultural
state known as "the garden of Mexico." The economy of
Venustiano Carranza, a community of approximately 50,000
residents, has traditionally been based on tomato and onion
farming. Eight members of the city council, all born and
raised there and considered pillars of the community,
discussed current migration issues from a local perspective.
The city council members explained to Econoff that the rate
of emigration was greatly accelerated in the late 1990's when
tomato and onion prices dropped dramatically, creating a
severe economic depression and eliminating most employment
opportunities for younger workers. According to Ricardo
Garcia, president of the local farming cooperative, this dire
situation has continued with only 30% of arable land
presently being farmed due to low prices and a lack of
irrigation. Jesus Davila, the city accountant, provided
Econoff illustrations of the economic malaise - municipal tax
revenue has fallen by 25% since 2000, while the local rate of
unemployment has risen by 35%. These developments have
affected almost every facet of community life, limiting
educational and advancement opportunities. While all of the
City Council members extolled the value of education, the
region's only post-secondary school was closed in 2003 due to
low enrollment.

THE SOCIAL IMPACT OF MIGRATION
--------------


3. (SBU) All of the leaders of Venustiano Carranza agreed
that migration to the U.S. and the resulting economic
transfers were necessary to ensure the survival of the town.
Dr. Sergio Gudino, Council Secretary, admitted to Econoff
that emigration to the U.S. is seen as an honor and an
obligation by most citizens. This attitude is encouraged by
civic leaders; Javier Mendez, another council member, stated
that he had two sons working in the U.S., and another was
about to leave. Mendez also claimed that 80-85% of families
in the town had at least one migrant, and that approximately
50-60% of the total city population resided in one of two
homogeneous communities in California - Winter Garden and
Oxnard. Indeed, the streets of Venustiano Carranza were
inhabited almost exclusively by the very young or the very
old.


4. (SBU) This large-scale migration has also resulted in
powerful migrant associations in the U.S. which often exert
significant influence in local policy making, even from their
remote location. The city council of Venustiano Carranza
consults with association representatives in California after
each council meeting, as well as before all important
decisions. The mayor of Cojumatlan, a small town located on
Lake Chapala about twenty kilometers to the northwest, has

MEXICO 00002042 002 OF 003


found it necessary to make three trips per year to the U.S.
in order to brief their relevant associations regarding
community projects and issues. This influence, however,
appears to encourage greater transparency and accountability
on the part of local leaders, and was at least officially
welcomed by the representatives of Venustiano Carranza. On
the street, the involvement of emigre federations appeared to
be quite popular with residents of the town, with several
shoppers conveying their support for this phenomenon to
Econoff.


5. (SBU) Most of the city council members expressed to
Econoff that the majority of migrants plan to return,
although anecdotal evidence seems to suggest this does not
often occur. Javier Martinez, a council member, explained
that normally the head of the household or the eldest son
will migrate alone at first, leaving the rest of his family
in Venustiano Carranza, until established in the U.S.
Various City Council members mentioned that as time has
progressed there are an increasing number of whole families
who have now relocated. However, while the eventual return
of many of these families may be dubious, the migrants'
financial commitment to their hometowns appear to remain
high, perhaps due to typically strong remaining family ties.
As evidence of this commitment, city council representatives
pointed out the festival of the patron saint (which occurs in
June each year),during which the city population nearly
doubles due to temporary return of the Diaspora.

THE ECONOMIC IMPACT OF MIGRATION
--------------


6. (SBU) One of the fundamental questions posed by
remittances is whether this income allows poor recipients
greater economic, educational, and social advancement
opportunities. Today, the population of Venustiano Carranza
is almost completely dependent upon financial transfers from
the U.S. (estimated to be 60-70% of the total economic
activity of the city by council members),which serve in many
cases as a substitute for lost agricultural profits. As a
result, most remittance income seems to be utilized primarily
for basic consumption. As many economists estimate that each
dollar sent back to Mexico actually creates wealth by a
factor of 1.8, the real life impact of remittances may even
be greater. Practical examples of this impact were evident
during a visit to the local market. Maria Esquivel, a
life-long resident of Venustiano Carranza, told Econoff that
the meat she was buying was paid for by wire transfers she
receives from her husband in the U.S. Juanita Ramirez,
another resident, explained that while she earns a small
income working in her parents' grocery store, the money sent
by her husband enabled her to rebuild her home. Maria Perez
said that although she receives a small widow's pension,
remittance income from her son is necessary for her to
survive. Although several examples of family businesses
being funded by remittances were provided by city council
members, they tended to be small grocery stores not likely to
produce significant employment opportunities or tax revenue.


7. (SBU) A more promising route to longer-term economic
development is government initiatives such as the
"Three-for-One" program created by the Fox administration in

2002. Under this program, each dollar donated by migrant
groups in the U.S. to be used for local infrastructure
improvements is matched by federal, state, and municipal
governments. Since proposals are submitted and supervised by
migrant associations in conjunction with municipal
authorities (although approved by a standing committee in
Mexico City),there may be a potentially higher level of
communication, transparency, and accountability concerning
development projects than in the past, not to mention a
higher level of funding. "Three-for-One" has already made a
large impact in Venustiano Carranza; the city council
described several recent projects, including the renovation
of a historic church and restoration of the central plaza.
Although Gudino admitted that conflicts regarding community
priorities occasionally arise between the council and the
associations (with associations tending to favor
beautification projects instead of badly needed
infrastructure improvements),he described "Three-for-One" as
a windfall for the financially depressed community.
According to Gudino, Venustiano Carranza undertook 1 project
in 2003, 3 projects in 2004, and 4 in 2005, demonstrating the
growth of the program. City Council members also described

MEXICO 00002042 003 OF 003


planned future projects for Econoff which may help revive
local economic fortunes; the construction of a new fish oil
processing plant and an irrigation project.


8. (SBU) Implementing a different strategy than Venustiano
Carranza, leaders in Cojumatlan have prioritized improvement
of educational opportunities. According to city Mayor
Leonardo Hernandez, Cojumatlan has suffered a similar fate as
Venustiano Carranza, losing nearly the entire youth
population to migration due to lack of employment
opportunities. Despite exploring ways to attract tourism
from being located on Lake Chapala, Cojumatlan has also seen
its economic fortunes deteriorate. However, Hernandez has
implemented several specific programs designed to utilize the
wealth created by migrants; 2005 saw the purchase of a new
school bus as well as the construction of a new computer
training center, both funded by donations by Cojumatlan's
expatriate community in Oxnard. Hernandez explained that the
school bus was a critical need, allowing numerous secondary
school students an educational opportunity for the first
time. While Hernandez agreed that most remittances sent
directly to family members are used as subsistence income, he
expressed hope that a new Caja Popular Mexicana credit union
just built would be able to encourage local small business by
offering financial services previously unavailable in
Cojumatlan.

COMMENT
--------------


9. (SBU) "Three-for-One" and other independent programs based
on remittance income offer potential for rural economic
development. The increasing prevalence of these programs
demonstrate their popularity, and the growing power of
migrant associations may promote greater accountability and
transparency in local government. However, the programs'
ability to create significant economic advancements may
depend on willingness to emphasize educational and
infrastructure projects over beautification. Moreover,
contributions through government programs such as
"Three-for-One" still represent a small percentage (estimated
by the Bank of Mexico at 5%) of the total wealth transferred
back to Mexico.


10. (SBU) In general, remittances do not appear to have
stimulated substantial economic growth in rural Mexico.
Remittance income is literally enabling the existence of many
towns such as Venustiano Carranza and Cojumatlan by taking
the place of traditional agricultural income. Buttressed by
this artificial income source, these communities seem to defy
the laws of global economics. However, there may be a
vicious cycle; because of systemic lack of investment and
other external factors, they are dependent upon
foreign-earned income for survival. But as this dependence
has increased, societal pressure encouraging the most
productive members of the population to migrate has also
increased. For this reason the chances for economic revival
may progressively become more remote. While a great
opportunity for Mexico, remittance income alone is probably
not a panacea for Mexico's rural economic woes. Instead, in
some ways migration could be considered an addiction for
rural Mexico - deleterious to the long-term health of a
community but providing a short-term fix. Without systemic
educational and social reforms creating a stronger
entrepreneurial culture, remittances are unlikely by
themselves to fuel significant economic activity. However,
remittances may reduce the pressure to enact these difficult
reforms, possibly explaining some of the policies and
reactions regarding this issue by the elite Mexican political
class.


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KELLY