The remittance mystery

0:00This message comes from Whole Foods Market. Save on delicious sweater weather favorites with 365 brand and see hundreds of yellow sale and low price signs of sale and low price price. This is Planet Money from NPR. About a year ago, Larissa Vargas was sitting at her desk at the headquarters of the largest bank in Honduras. She was watching this flow of money come in from overseas, and it was picking up. It was gradual. It was gradual. Then, over the next weeks, then months, that flow of money from overseas into Honduras continued to intensify. She was like, what is going on here? She was surprised.

0:43I mean, this keeps going. Larissa works at Banco Ficosa. She is the remittance manager. She's been working in that department for 20 years. She handles the more than a billion dollars that come into bank accounts from other countries, mostly the U.S., through all kinds of channels like Western Union and MoneyGram. In her years at the bank, she's seen some changes, Like, as more Hondurans have moved to the United States, remittances have grown a lot. As technology has gotten better, it's gotten easier to send money across borders and to track it. What has been happening this year? Well, this year, actually, it's been quite the year.

1:24We have had a growth of 26 % increase, which is not typical. So that's a lot, Erica. I mean... 26 % growth in remittances since last year. It's definitely been a rowdy year. Remittances, in case you're not familiar, are the money people who have migrated to another country send back to their countries of origin. They work, send some of what they earn back to support their families or maybe to build a house or open a business back in their hometowns. Migrants abroad tend to send remittances on a regular basis, like every couple weeks or every month. So the change that Larissa first noticed last fall in the amount of dollars people were sending monthly, it was pretty small at first.

2:09Like, for example, you know, there was like 280. It was the average, you know, amount. And now we were seeing 290, 300. So we were like, oh, OK. That change, that was the first clue that something big was happening. Then in like January, she started to see much bigger deposits. I think they're sending all like their life savings too. How did you notice it? Yeah, we've seen like, you know, reminiscences for$7 ,000,$10 ,000 that we know that they're not very common. And so when you're seeing inflows of$7 ,000,$10 ,000, you know that they're sending way more money and that they definitely had it saved up somewhere else.

2:56Were you like, why is there so much money coming in? Yeah, definitely. I mean, yeah, no, you know, we have constant communication with our reminence companies. And so, you know, we're like, hey, are you guys seeing this on your end? What do you think is happening? And Larissa in her office at the bank in Tegul Sigapa and her colleagues at the money transfer offices weren't the only ones noticing this. Everybody wants a little piece of, you know, the remittance here, at least here in Honduras, because it's such an important part in our economy. So, yeah, she says it seems like every business she sees is trying to get in on some of that remittance action.

3:37Like, hey, come pick up your remittances here. We'll cash it out for you. And of course, we'll collect the transaction fee and you'll spend some of the money you receive at our business. So like supermarkets are saying, come in and get your remittance and use it toward your groceries. Or a bank is like, deposit your remittances with us and we'll put you in a raffle for a new car. Come in, claim your remittance and you can win a medical checkup. A medical checkup? Yeah, yeah, yeah, yeah. Like you see different things. Yeah, different, different than what we normally would have seen in prior years.

4:16And this isn't just happening in Honduras. The same sudden surge of remittances is showing up in places like El Salvador, Guatemala, Nicaragua, Haiti, Ecuador. Do you feel kind of like a detective in all of this? Oh yeah, definitely. I mean, I feel like a detective because I have to, you know, start asking questions to everybody and everybody's like, we don't know. And like, there's a lot of theories and, but really nobody has the answers. It's a remittance mystery. Hello and welcome to Planet Money. I'm Erika Barris. And I'm Greg Grzalski. The U.S. has been for decades the single biggest source of remittances in the world.

4:57But we are in the middle of a big, loud and very public crackdown on immigrants who are here without legal papers. And the number of immigrants coming to the U.S. has plummeted. And yet Larissa Vargas, she's seeing all this new money flowing into accounts at her bank in Honduras. Today on the show, the remittance mystery. We try to figure out why remittances are surging in some countries, but not others. And we learn why this surge in money inspires joy, but also fear.

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6:55Get a full year for half off, only$50 with promo code value at monarch.com. So people who have come to the U.S. from a handful of countries, especially from Central America, they've been sending more money back to their countries of origin. And it's a bit of a puzzle because you might think the opposite would be the case, that right now they'd be sending less. For lots of reasons. Like, for one, maybe they don't have extra money right now. We heard it from Central American immigrants who told us themselves, like a Honduran man in California who's been in the country for about 20 years. I talked to him while he was at home, writing up estimates for upcoming jobs.

7:42He said, OK, he could take a break to talk. By the way, he asked us not to use his full name because he doesn't have legal status and he fears he'll get deported. All the migrants we spoke to over the story asked for that anonymity. So we're calling them by their first initials. H told us he used to send money home every month, but not this year. He says the economy for him has been a little ugly recently. He does construction for a living.

8:14He says he fixes houses and builds houses. But recently he's had more trouble getting enough work. So he and his wife and their four-year-old son are living on what he makes. They haven't had money to save or to send home. Instead, they've been trying to cut costs, like canceling some streaming services.

8:37H is trying to save money on groceries. He's buying fewer toys and clothes for his son. And there's another reason immigrants right now might have less money to send home. Some are afraid to go to work because of ICE, as in Immigration and Customs Enforcement. Over the summer, Congress approved a threefold increase to ICE's annual spending budget. In a press release this week, the Department of Homeland Security said more than 527 ,000 people have been deported so far this year. And there's sort of a shock and awe to the way ICE is operating that's creating intense fear. Masked agents are making aggressive and sometimes violent arrests.

9:18And there are videos of those arrests all over social media. Elle, a woman from El Salvador who lives in New Jersey, has seen them. You feel a lot of inceltitud, uncertainty, she says.

9:36The truth is, Elle told us when you leave your house to go to work, you don't know if you'll make it home. Another woman from Guatemala in Pennsylvania told us she's actually been taking on less work, only cleaning houses for tried and true clients because she's scared of working for strangers and ending up detained. Many businesses are reporting their employees aren't showing up to work. The Federal Reserve recently cited immigration policies as a potential cause of labor shortages, particularly in industries migrants tend to work in. So yes, there are some intuitive reasons to think that remittances would be going down.

10:12And yet, what Honduras and Guatemala and El Salvador and other countries are seeing is this increase in the amount of money immigrants are managing to send back to their countries, which surprised a remittance researcher named Manuel Orozco as much as it did Larissa and her colleagues at Honduras' biggest bank. Yes, I mean, I didn't expect it because what I was expecting is rather a contraction in the amount sent given the increase in deportations. Manuel researches migration and remittances at a think tank in D.C. called the Inter-American Dialogue. He's been studying remittances for decades.

10:51He testified about them before Congress. He even helped write a federal rule that protected people sending remittances from unfair fees and fraud. Is it safe to say that you are like Mr. Remittance? That's what people say. It is? Do people actually call you Mr. Remittance? Don't put that. They used to call me the remittance rock stars. You know I talked him into letting us use that. Yeah. When Manuel started seeing remittance rates go higher and higher in some countries, he also started investigating. The increase at this level of more than 20 percent, it's, I mean, I've been monitoring data systematically month to month since 2002, basically.

11:34And I haven't seen such an increase. Now, the usual cause of a bump in remittances is there are more migrants entering the U.S., but Manuel knew migration to the U.S. from Honduras and other nearby countries is down. So he started calling people he knew at central banks in Central America. So if no migration was happening, how would you explain the increase? Another cause of more remittances can be a booming economy or surging wages. But Manuel wasn't seeing that in the data either. Now, it is easier to send money than it has like ever been before. A couple decades ago, if you were sending money, you had to physically go into a money transfer place like a Western Union storefront.

12:21You would give them your cash or have them cash a check and they wire the money for a fee. Now you still have to pay a fee to send money, but you can do it all through your phone. Elle, the woman from El Salvador, told us she uses a popular app called Remitly.

12:41She says you just enter your name, your address, your phone number and bank account,

12:50passport number, and just like that, she can send money to support her kids in El Salvador. But that ease of sending money, it's come pretty gradually. It's not something that's brand new. So it also can't be the root cause of this sudden upswing in remittances. So, OK, you cannot explain the surge by how easy it's become to send money. You can't point to more migrants coming to the U.S. because over the past year, fewer have been coming. And Manuel says you can't explain it by a booming labor market. But there are some big changes we've seen over the past year that people told us might be driving this uptick in remittances.

13:29First, a less obvious one, a new remittance tax. Earlier this year, the Trump administration proposed a 5 % tax on remittances. Congress ultimately opted for a 1 % tax on some international transfers, and that's set to take effect in January. Some of our sources say some immigrants might be trying to transfer their cash before the new tax kicks in. Now, there's another big change that is likely driving migrants to send more money. And everyone we spoke to really stressed this factor. It's a growing fear of deportation. The same fear that has driven some people to stay home from work might also be driving immigrants to send more money to their origin countries.

14:12Here's Manuel again. Now it's the fear of deportation that is triggering people to send as much as they can in case they are deported. So it's sort of a precaution. H, the construction worker who has been trying to save money this year, he told us, yeah, fear of ICE is driving a lot of decisions he's making these days. Like, no way will he fly to Vegas for a fun weekend like he used to.

14:45He doesn't want to put himself at risk, find himself in the hands of an ICE agent. I asked him, were you worried about that before?

14:57No, no. He said he did not have that worry before. But now he says he's afraid to even set foot in an airport.

15:08And that same fear, he says, is also leading him to start planning for a future back in Honduras.

15:18He says he and his wife are talking about how to prepare, how they can send money back to Honduras. He told me he'd like to have a house there and some savings because it's so difficult to find work in Honduras. H is not yet part of the big uptick in remittances, but he plans to be as soon as he can pull more money together. Ideally, he said he and his wife would start sending around$500 a month. And just this week, he said he started looking at how to open up a bank account there. He's trying to figure out which bank is the best, which one he can trust. That hope he has to send money to a savings account, not just transfer it to family or friends, that's been one of the most surprising trends Larissa has seen emerging on her computer screen back at Banco Ficosa.

16:08She says she and her colleagues have all been talking about it. Like, hey, look, the banking accounts are growing. In the past, Larissa says when remittances came into the country, they mostly went to relatives so they could pay for groceries and new shoes and dental care. But this year, she's seen a notable shift as to where the money is going. Like those seven or ten thousand dollar money transfers she's been seeing come in. Instead of going to family, more of that money has been going directly to savings accounts. That's another clue that, you know, that led us on to what was happening. we determined that they're sending more of their savings because of the fear of being deported.

16:51We've heard this theory from people in the U.S. and Honduras, that migrants are sending more money than usual because they're scared of ice. But fear can't fully explain the whole picture because remittances are only surging to some countries, and very notably, not to Mexico. Mexico is actually the number one destination for remittances from the U.S. And their remittances have actually been falling in recent months. Our remittance rock star Manuel, he's done the math to try to explain this. First of all, Mexican immigrants, on average, have been in the U.S. much longer than immigrants from Central America.

17:28And Manuel says that means they're less likely to be sending large chunks of their paychecks back to Mexico. The longer you are living in the United States, the less likely you will be to continue sending money. Because there is a life cycle in the number of years sending money, and that's 30 years, and that's the top. Mexicans have been on average over 25 years in the United States. For remittances to Mexico to keep growing, more immigrants need to come in and replenish the remittance funnel. But immigration to the U.S. is falling. Meanwhile, he says many of the Mexican immigrants who did arrive more recently came through guest worker programs and are here legally.

18:11So maybe they're less scared of being deported and they're not racing to send money back to Mexico. The picture is different for immigrants from Central America. They are more likely to have been here for a shorter time. Many came after 2018. And Manuel says many of them have more tenuous legal status. They may have come here illegally or some of them with temporary protected status, which has allowed migrants from certain countries to stay in the U.S. temporarily after major disasters or political unrest in their countries. But now the Trump administration has removed that status for some countries and scheduled an end for others.

18:52So, yeah, it makes sense why many Central Americans would be fearful about their future in America and send more money back to their countries of origin. Manuel says even if they're just sending 60 extra dollars every few weeks, for Honduras, it adds up to a lot. It means an increase in GDP and economic activity. There's increased consumption. For people who run these countries' finances, for the moment, it's good news. What is the reaction from these central banks in El Salvador and Nicaragua and Guatemala and Honduras? Well, the reaction was sort of celebratory. The people receiving remittances are spending more.

19:34They're buying more shoes, more meat. It's great for the economy. And local banks and businesses all over Central America are doing everything they can to seize the moment. You see it on the streets with the advertisements of where to collect the remittances. Signs of companies like Western Union, MoneyGram, Remitly, etc. in bank agencies. In one ad for a bank that's trying to get people to deposit remittances there, you see two women gossiping about someone who got liposuction with her remittance money.

20:11But these ladies are talking about where they should save their remittance money. In a savings account. There's just one big problem with this remittance frenzy. One asterisk to all this celebration. And it's that all this money coming in now, it's very likely a temporary blip. Remittances are very likely to decline and maybe decline substantially in the near future. And that, Manuel says, will be a major challenge for a country like Honduras. If there is no growth in remittances next year, your economic activity in the entire country is going to be affected. That seems very dangerous for an economy.

20:59It's always dangerous to be dependent on one commodity. When we come back, we hear just how important remittances are to the Honduran economy. In this year, 2025, the remittances is almost 25 % of GDP. So high. That is so high. It's so high, yes, yes. And what could happen if the remittance river becomes a creek?

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22:50You can also invest on your own and trade on Think or Swim. Visit schwab.com to learn more. As of September of this year, Honduras had already received almost as much in remittances as it did all last year. Almost$10 billion. Even before the most recent surge, remittances were around a quarter of the nation's GDP. To give you a sense of just how big that is, in the U.S., for example, the entire construction industry is less than 5 % of our GDP. Remittances are just like a huge deal in Honduras. Remittances are such a huge part of the Honduran economy that if you go to the Honduran Central Bank's homepage, Among the six indicators they share prominently next to inflation and interest rates is the grand total in dollars of remittances they've logged so far this year.

23:41Dean Yang is an economist who has done a ton of research on remittances. And by the way, he says his own education is actually a product of them. He grew up in the Philippines. His dad went to work in Hong Kong and sent money to his family so Dean and his sisters could go to school. My dad being an international labor migrant, it was very direct in our family. Dean was able to attend an international school in Manila. From there, he went to Harvard and now he's a professor at the University of Michigan. And Dean's research finds that remittances do more than provide financial stability to families and lift people out of poverty.