Remittances sent home by Mexicans working in the U.S. take a dive, and families south of the border are feeling the effects.

By Tracy Wilkinson
Los Angeles Times Staff Writer

MEXICO CITY — The money that Mexicans living in the U.S. send home, a lifeline for both the economy here and millions of families, has suffered its steepest decline on record, dragged down in large part by the American financial crisis.

The bad news, announced Wednesday by the Bank of Mexico, follows government assurances that the U.S. crisis would not have a severe effect on Mexico.

Remittances fell to $1.9 billion for August, a 12.2% drop from the same month last year, the bank said.

"In the coming months, it can be anticipated that . . . family remittances will continue to show a loss in strength," the central bank said.

Remittances are Mexico's second-largest source of foreign income, after oil exports, and have more than doubled in value in recent years, to nearly $24 billion in 2007. The money is used to pave roads, start businesses and help feed families.

But the trend began to reverse this year. The U.S. economic downturn, especially in the construction sector that employs many Mexican immigrants, and tightened controls along the U.S.-Mexican border have slowed the flow of money and people.

August's decline in remittances was the largest since authorities began keeping records 12 years ago, the bank said.

Countless Mexican towns are feeling the pinch, with small businesses failing and families struggling to make ends meet.

The bank also calculated that unemployment is running considerably higher among Mexican immigrants working in the U.S. than among the general labor force. Unemployment among Mexican immigrants was about 4.5% in March of last year and has soared to nearly 7.5% now. The U.S. jobless rate for the general workforce is 6.1%.

Mexican President Felipe Calderon said in a speech last month that his country is so free of dependence on the U.S. that financial disaster there will be but a glancing blow here.

Finance Minister Agustin Carstens later sounded less sanguine. He said in Washington this week that though Mexico is generally protected from U.S. fallout, its economy will be hurt by declines in remittances, exports of manufactured goods and tourism.

Economic analyst Rogelio Ramirez de la O warned that the government minimizes the effect of the U.S. crisis at its own peril. Although it is true that Mexican banks are not teetering on the brink of collapse, more Mexicans are sinking deeper into debt, he said. And, he added, the government is spending as though there were no tomorrow.

"The government must first understand the reality and then communicate it clearly to Congress, to business leaders and to the public," Ramirez wrote in Wednesday's El Universal newspaper. "If the government does nothing, as it has so far, it will take this country down a dead-end road."

wilkinson@latimes.com