Friday, July 17, 2009

ANALYSIS-Crisis stems flow of migrant cash to needy E.Europe

By Luiza Ilie
BUCHAREST, July 16 (Reuters) - Job cuts and an upsurge in protectionism in the West have eaten into the money eastern European emigrants send home and frayed a crucial lifeline for hundreds of small towns stricken by the economic crisis.

Cash sent back by Romanians working abroad -- an estimated tenth of the 22 million population -- is down by a third. Poland and Bulgaria have also witnessed drops as their diasporas fight for wages and jobs in UK, Irish and southern European markets.

Despite unemployment at record highs in the favoured centres for immigrants from ex-communist Europe, Romanian and Polish officials say few of the millions who left in the years since they joined the European Union have returned.But market watchers say many have swallowed either lower wages or a spell on the unemployment register which still gives them a better deal than they would have at home, but reduces the amount they have spare to send back.

Combined with rising protectionist sentiment in some countries, that is expected to complicate matters for the likes of Bulgaria and Romania, which are already expecting their economies to shrink by more than 4 percent this year.

Since the crisis began, Spain has introduced a voluntary return programme for migrants, Italy toughened residency rules and polls showed UK anti-immigration sentiment has risen.'Countries are moving towards protectionist behaviour, so we will witness a sharper fall in remittances this year and next,' said Raiffeisen Bank's Ionut Dumitru in Bucharest. 'Fewer remittances will contribute to the consumption adjustment.'By May, Romanians had sent home 1.8 billion euros ($2.5 billion), down by a third from the same period of 2008, the central bank said.

Poland, which only issues quarterly remittance data, saw inflows slow by 17 percent to 658 million euros in the first quarter. One in 20 Poles are estimated to be working abroad.The amount sent home from the estimated 1 million Bulgarian migrants fell 16 percent to 738 million euros in the first five months of 2009, with cash from seasonal workers -- predominantly in Spain and Greece -- falling the most.'Remittances are fairly important both in Romania and Poland. Romania more so, because the economy is probably under more pressure,' said Eurasia Group regional analyst Jon Levy.'How much it is going to affect retailers, small communities ... is difficult to predict, but it is definitely a risk.

The crisis has solved one problem facing the emigrant communities. Until the middle of last year many were grumbling about currency moves which meant the euros or pounds they were earning bought steadily fewer zlotys, lei or forints.A collapse in investor confidence in the former communist region has put a stop to that, knocking up to a third of the value off the region's free-floating currencies.

Latvia's crisis over a possible devaluation of the lat also emphasised the value of the 'hard' currency they can earn in the euro zone or UK.'At the start of 2008, we were thinking of going home,' says Karolina Borowska, the wife of a Polish doctor working in Aberdeen in northern Scotland.'It was getting to the stage where we wondered if it was worth us staying. That's changed now.'The World Bank puts Romania and Poland among the top ten states by size of remittances.

Romania says its 2008 levels amounted to 5.1 billion euros, or some 4 percent of the economy.In Poland, the central bank puts the number at 5 billion euros, but World Bank researchers say the actual figures may be around double that in both countries.In the years after EU entry both states saw remittances grow and help boost poor rural communities and small towns where Cold War-era industries collapsed after the fall of Communism.The cash has become more important now due to the crisis.

Romania's government is struggling to contain spending and reform its inefficient public administration as part of IMF conditions attached to a 20 billion euros aid package, freezing state wages and reshaping the pension system.

Cash inflows have helped offset some of the risks stemming from its current account deficit, until last year one of its biggest economic problems but now three quarters smaller due to a collapse in domestic demand and investment.But World Bank experts predict a fall in global remittances of 7.5 percent overall this year to just over $300 billion, and says Europe and central Asia will likely see the sharpest drop.That will hit small villages where money sent home boosted living standards which, despite heady growth for much of this decade, are still 46 percent of the EU average.One such village is Cata, a cluster of houses in the hills of central Romania, where jobs are scarce and most of its aging population gets by on subsistence farming.'This area is almost dead economically,' said Mayor Gheorghe Vocila. 'Local businesses are few and ... the people working abroad are either coming back or ... sending less money.'

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