Caracas Chronicles

As a global phenomenon, the rise of remittances has gained weight in recent years. According to the World Bank, funds sent under that category in 2023 exceeded USD 860 billion, of which USD 156 billion were directed to Latin America and the Caribbean. In the Venezuelan case, the consulting firm Ecoanalítica estimates the inflow of remittances at around USD 3 billion during the same period (close to 3% of GDP), an increase of almost 54% compared to the last official estimate in 2018.

Venezuelan regulation has not been short-sighted in the face of this phenomenon, especially after the start of hyperinflation in 2018, when the government imposed a sharp cut in its spending and in transfers directed to the population. Since 2019, at the peak of fiscal discipline, Nicolás Maduro’s government established a system called Remesas Patria, a mechanism under which families benefiting from subsidies paid by the government (Bonos de la Patria) could receive resources from their relatives abroad through the cryptocurrency market and public banking. With this, the public sector tried to establish a more expeditious way for Venezuelans to receive remittances, and thereby partially replace those funds that they stopped receiving due to the fiscal adjustment. Already for 2021, the Andrés Bello Catholic University’s Living Conditions Survey (Encovi) highlighted how remittances were gaining ground within the income of Venezuelans, going through several boom-bust cycles with the pandemic and the slowdown of global markets.

Show me the money (and other things)

Remittances tend to play an important role in the consumption of the households that receive them (especially for spending on essential goods), since they tend to smooth out fluctuations in the short-term income of the receiving families. In addition to the results of the 2023 Encovi, which indicate that 94% of recipient households –a third of the country’s households, according to Ecoanalítica– use remittances for their food needs and 58% for health care, various empirical findings support the importance of remittances in terms of income redistribution and people’s access (both in quality and quantity) to nourishment.

Another positive effect comes from the ability of remittances to promote the financial inclusion of both migrants and their families. Although these funds are channeled through other means –such as shipping services, transfers between family members and even deliveries in person– more and more people are turning to the financial sector to get and send remittances through traditional banking products (the so-called “digital remittances”). In the Venezuelan case, this phenomenon has been driven by the domestic banking sector itself, which has begun to formally offer this type of services to counteract the impact of the reserve policy, the price control on commissions and the constraints to mobilize foreign currency deposits on their profitability.

Thus, remittance intermediaries seem to have used banks to increase their reach within the local population, especially when more than 80% of Venezuelans over 15 years of age had a bank account in 2021 and 71% used mobile banking, according to data from Global Findex.

For migrants, it’s another story. Because their access to foreign banking is subject to their immigration and employment status, technology-intensive financial mechanisms (Fintech) have gained popularity among Venezuelans abroad. In the region, recently launched platforms such as Yape, BIM Retorna and AuraPay offer transactions than just need a smartphone.

A case of interest is that of Venezuelans in Peru, who were equivalent to 86% of foreigners in that country in 2022, with a significant fraction of these without a regular immigration status (64.7%) and without access to a bank account (86%, only in Lima), according to official figures. For this mass of migrants, the rebound in digital remittances makes their lives easier. In fact, Peru is considered one of the countries on the continent with the largest number of Fintech products for 2021, according to Finnovista.

The consequences of remittances also extend to the labor market. Some studies suggest that, in general, they act as a subsidy for those recipients without employment, reducing their incentives to look for work. In the Venezuelan case, this argument conflicts with the high cost of local living, in cases where what is received in remittances is insufficient to supplement income, causing people to seek employment even if they receive such funds.

Likewise, there is evidence that remittances increase hiring in businesses indirectly, since they are invested in small businesses or ventures. However, the same evidence indicates that such businesses tend to increase informal employment, which would pose a greater danger for a market like the Venezuelan one where 44% of the workforce operates in that niche, according to Encovi.

All of the above allows us to think that remittances to Venezuela will continue to transcend beyond the obvious consequences, taking into account the growth prospects of such funds for the coming years and the large diaspora that still remains outside the country. Perhaps the greatest dangers of such transfers would be linked to a possible overdependence of the local population on them (and therefore, on what happens in foreign markets), in addition to the distortions that such remittances could bring to local employment. Meanwhile, with a diaspora that grows and grows, there will be a lot of food for thought.