While various sectors in the United States prepare for the next economic recession, and President Joe Biden assures that the stagnation of the economy can be avoided, experts and analysts warn that the flow of remittances to El Salvador and the region will decrease as the set the American economic slowdown.
US economists point out that inflation and the increase in prices among basic consumer products will continue in the coming months; while the recession will begin to be more evident in early 2023. However, changes in the economy are already affecting Latino and immigrant families who send remittances to Central American countries.
“This impacts many products in a general way, we are not only talking regarding food and basic products, but also vehicles, gasoline. That will remain high for a while,” said economist Giovanny Delfino.
“The first effect is felt in remittances, because the economy of the United States cools down and when the economy cools down, people work less and the value per hour of work goes down.”
Giovanni DelfinoAmerican economist
In fact, the changes in prices are already being felt and the price of gasoline is one of the prices that has caused the greatest economic impact on the family economy. Four months ago, a family might fill the 18-gallon tank of their truck for regarding $65. Now, that amount has almost doubled and to fill the tank of the same car you pay approximately $113.
Delfino explains that the first effect of the rise in prices, changes in the family economy and the stagnation of the local economy in the United States first impacts family remittances.
“The first effect is felt in remittances, because the economy of the United States cools down and when the economy cools down, people work less and the value per hour of work goes down. People who received two thousand or three thousand dollars of income They will no longer receive that. Then they will be able to send less money to El Salvador or Guatemala,” he said.
chain hit
Edwing Lima, economic consultant and bitcoin expert in Europe and the United States, warns that as the US Federal Reserve and the European Central Bank increase interest rates, the economic impact on countries like El Salvador will be greater.
Lima explains that if, for example, the interest rate in the United States reaches 5%, this number will not be the same in Salvadoran banks or in Central American banks and might reach, in that region, up to 8%. During the last weeks several local transactions have been affected in Washington DC due to the increase in the interest rate, one of these is housing.
“As the economy cools down in the United States, we have two effects. The first is in remittances, they arrive less because people work less and the value per hour of work goes down. And on the other hand, entrepreneurs in El Salvador are going to capture more expensive money and when the money is lent, the money is going to be lent more expensive,” explained Lima.
On top of all this, Lima points out that the economic problem generated by the purchase of bitcoin in El Salvador will deepen the economic stagnation in the Central American country, which now needs to lend money in order to honor its fiscal commitments and international debts.
“El Salvador’s country risk is 26%, but to that you have to add the 2% or 3% interest rate of the Federal Reserve. In other words, for El Salvador to be able to borrow to pay its debts has to pay 30% more to lend, and a debt of 30% a year means that this debt doubled in two years,” said the consultant.
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