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UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance |
Issue 2 / March - April 2004 |
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News | Bonds Across Borders Remittances and Migration from Latin America and the Caribbean By Emily Krasnor In late November 2003 the Pew Hispanic Research Center and the Inter-American Development Bank released a report based on a series of studies that surveyed 12,000 individuals that either sent or received remittances in the United States or the following five Central and Latin American countries: Mexico, El Salvador, Guatemala, Honduras, and Ecuador. The report forecasts that the channels studied, through which close to $30 billion was sent in 2003, will very soon be the largest remittance channels in the world. The research illustrates that the flow of remittances is not especially susceptible to economic downturns with the finding that flows were unaffected by the U.S. economic recession of 2001-2002. However in the context of crisis or unexpected “shocks”, migration and the subsequent sending of remittances was a way to cope with the economic and political instability of Latin America and the Caribbean. The authors point out that to the families that represent “transnational economic units”, remittances are not only an expression of an economic bond across borders but an “emotional bond” as well. As many of 19% of all adults in Mexico and 28% in El Salvador received funds from friends or relatives working in the U.S. With a significant proportion of those receiving remittances having had a high school education or less, the study comments that a decrease in the flow of remittances will have a negative impact on “those who have something, but not a lot to lose.” Mexico stood out as the only country where remittances did not only reach the middle to lower socio-economic sections of the population. Mexico also differed from the other channels studied in that the percentage of remittances receivers with bank accounts was twice that in other countries and the portion using banks to receive funds was also significantly higher than the percentage of those receiving funds through wire services. One salient finding that held for all countries studied was that the majority of those receiving funds are women. Migration should not only be looked at as the transfer of work or services to another geographic region, but as what the study labels as a “fuel pump” that supports families with little to moderate levels of education stay above water. This fuel pump also raises the level of internal consumption and can contribute to political stability in the long run. For the senders of remittances, the authors of the study found that “reliability, accessibility, requirements, facility, and fees” emerge as important factors. Remittances and
Domestic Policy: Making remittances work for development? Though many cite a long-term goal of this arrangement is to slow pace of migration across borders, this goal cannot be realized unless the receiving population is not so reliant on the $100 to $300 sent every month. Bush explicitly expressed in his introduction of the program that a key aim, in the long run, is to “reduce the pressures that create illegal immigration in the first place” by expanding the economic opportunities in the neighboring countries. One way to decrease those seeking to migrate is to promote the investment of remittances (according to the White House remittances from the US to Mexico is about $10 billion a year) or provide credit so that individuals can launch micro-enterprises. However, according to the Pew-IADB report, only a small proportion of remittances are currently devoted to savings or investment while over about quarters of respondents surveyed spent remittances on household expenditures such as food housing and utilities. Robert Suro, director of the Pew Hispanic Center, explains, “A substantial number of remittance receivers have limited experience with financial institutions. To illustrate, the number of remittance receivers who have bank accounts ranges from a third of the receivers in Mexico to one-fifth of those in Central America. And, large numbers of them, for example, in Central America, have never applied for a loan. Thus, access to the appropriate financial services as well as financial education would seem to be prerequisites for channeling larger portions of remittances toward savings or investment.” As mainstream banks get more involved in money transfers and transaction costs are lowered (which can often be as much as fifteen to twenty percent of the total amount according to the World Bank) , we may begin to see more money saved or invested by the guest workers living in the United States as well as the receivers. President Bush mentioned that the initiative should facilitate savings accounts for these temporary workers so they can collect their earnings and, in turn, start a business or purchase land in their hone country; though no clear plan on the facilitation of these accounts has been released, this corollary may be seen as necessary to the program as the President repeatedly underscored that the guest worker’s stay in the U.S. will be finite, either after the initial three years or after one renewal of this term. Incentives that underscore President Bush’s stated necessity for the worker to return home mentioned at the Special Summit of the Americas in January 2004 only a few days after the program announcement includes “credit in their home countries' retirement systems for the time they work in the United States”. At the Summit, President Bush and his Mexican counterpart, stressed that the program would provide mutual economic benefit through continued efforts to lower the cost of sending money between the two countries and to increase the accessibility of capital. The program is not without its critics as many in Congress have said the measure does not go far enough in legalizing immigrants who have been working on US soil while others say it provides an “amnesty” to those who have been working illegally for some time. While the issue of immigration
reform remains complex and often divisive in U.S. politics, any legislation
may take time to be fully embraced. The full report of the Pew Hispanic Research
Center and the Inter-American Development Bank is available in English and Spanish
at: http://www.iadb.org/NEWS/docs/remittances2003.doc 1) Dilip Ratha, “Workers’ Remittances: An Important and Stable Source of External Development Finance,” Global Development Finance 2003, World Bank, 2003
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