Remittances at Risk: The Trump Factor

Source: Central Institute for Fiscal Studies (Icefi):

The US president is already putting into practice his premise "America First", which leads Central America to anticipate negative changes in the flow of remittances from that country.

Icefi recommends changing the economic and fiscal model in Central America in light of possible adoption of radical US policies. 

The growing expectation that redefined US policies mean that institutionality, moderation and good sense will prevail, and that Latin America - and in particular Central America- do not seem to figure among the main priorities of the new US government, are elements of confidence for the region. However, the risk that President Trump fulfills his aggressive and radical promises stated during his election campaign continues to be a factor and, in the opinion of the Central American Institute for Fiscal Studies (Icefi) needs to be analyzed seriously and with solid technical criteria.

Given this uncertainty, the Icefi has studied the possible impact on Central American countries, especially on their economies and tax systems, which could be felt if the new US president fulfills his radical and disturbing proposals in terms of migration, trade and investment proposals. In this sense, the Icefi analyzed what could be the main channels of transmission in Central America, through which these countries could suffer ill effects.

In terms of migration, during his campaign the now President Trump promised to build a wall on the border between the US and Mexico, carry out mass deportations, take actions that would criminalize migration and initiate a policy of "zero tolerance" towards migrants, with programs such as 'entry-exit" (tracking foreigners entering with a visa in order to detect those who do not leave the country), or "extreme vetting" (to identify ideological or religious characteristics of those entering the US). According to the Icefi, compliance with these measures could lead to harmful results for El Salvador, Honduras and Guatemala (the so-called Central American Northern Triangle), through a decrease in remittances from migrants living in the US sending money to their families in Central America, a category having increasing macroeconomic importance, in magnitudes comparable to exports and foreign direct investment coming into those countries.