Post on 12-Jan-2016
Remittances to Latin America and its Effect on Development
Manuel Orozco,
Project Director, Central America
Inter-American Dialogue
Important Trend and Dynamic of the Late XXth Century
Latino immigrants have become a key factor integrating Latin America into the global economy
•As investors in small and large business projects•As grantors for social development•As consumers of home country goods•As senders of remittances to their families
Family remittances to Latin America
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
U.S. Billions
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00Mexico, US Billions
Colombia
Dominican Rep.
El Salvador
Guatemala
Honduras
Nicaragua
Cuba
Mexico (right axis)
Agriculture and Remittances
1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
0%
5%
10%
15%
20%
25%
Rem/GNP Agr/GNP
Dominican Republic: Agriculture and Remittances
1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
0%
5%
10%
15%
20%
25%
30%
35%
40%
ELSAGR ELSREM
El Salvador: Agriculture and Remittances
Key economic and development issues about worker remittances
•Macro-economic effect process•Players in the money transfer•Multiplying role•Development Potential of HTAs
Remittances as Percent of GDP
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
El Salvador
Guatemala
Honduras
Dom. Rep.
Mexico
Nicaragua
Cuba
Remittances to Latin America and the Caribbean in 2001*
Country Remittances (US$millions)
As % of GDP
As % of Exports
Mexico $9,273 1.7 6.5 Brazil $2,600 0.4 4.0 El Salvador $1,920 17 60 Dominican Republic $1,807 10 27 Ecuador $1,400 9 20 Jamaica $959 15 30 Cuba $930 5 40 Peru $905 1.7 10.6 Haiti $810 24.5 150 Colombia $670 0.75 2.4 Nicaragua $610 22 80 Guatemala $584 3.1 16 Honduras $460 7.5 17 Bolivia $103 1.25 6.71
*Information for Mexico, Central America, and the Caribbean are provided by the countries’ Central Banks. Statistics for South American countries (Colombia, Ecuador, Bolivia and Brazil), are likely to be undercounted.
Monthly remittances, January 1999-December 2001 (U.S. million)
0
50
100
150
200
250
Jan-99 May-99 Sep-99 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-010
100
200
300
400
500
600
700
800
900
Mexico
Jamaica
Guatemala
El Salvador
Dominican Republic
Mexico (right axis)
Players in the Transfer of Worker Remittances
SenderMoney Transfer intermediaries
Government involvement
Hometown association Community
Incentives
Delivers assistance
Relationship about carrying out projects
International Money Transfer Agencies
“Encomenderos”, “viajeros”Financial institutions: cooperatives, banks
Household
Changes in the Transfer of Remittances: An imperfect Market
• Change•Proliferation of companies, • Slow but gradual decline in the transfer costs;•New practices and services provided•Growing interest of the banking community and governments
•Continuity•Charges remain high, as well as exchange rate•Competition has yet to affect olygopolies•Little incentives on senders or recipients
Sustained and increasing flow of electronic money transfersMexico: Percent Distribution of Remittance Transfers
46.643.7
8.2
1.4
39.7
51.5
8.1
0.7
36
52.6
9.6
1.8
35.6
54.2
8.6
1.6
34.8
57.76
7.9
1.1
24.5
66.58
8.04
0.87
22.84
69.25
7.76
0.13
0
10
20
30
40
50
60
70
1994 1995 1996 1997 1998 1999 2000
1. Money Orders
2. Electronic transfers
3. Cash and kind
4. Checks
Fee charges and exchange rates
25.58
18.71
6.31
19.25
4.25
18.16
4.22
20.6
1
15.33
4.73
15.17
3.64
17.56
1
11.59
6.54
15.06
0
5
10
15
20
25
30
Cuba Colombia Jamaica D.R. Haiti Average Guatemala Nicaragua Mexico El Sal.
Exchange rate
Fee
Average transfer fee and exchange rate commission to send $200
Multiplying effect of remittances•Consumption effects: consumption increases a demand for goods and in turn investment. In a village $1‘migradollar’ increases income by $1.78
•Savings and investment: Ten percent of all recipients save, a smaller percentage invest the money for some business procurement
•Banking effects: Savings rate increase: > 20% of recipients open bank accounts when money arrives at banks.
Development Potential
•Initiatives for development: Hometown Associations
•Development Activities
• Key issues:• Project identification• Capacity building• Follow-up
Range of Activities Performed by Migrant Communities for their Home Country
PCharity:toys, clothes, church donations,
PInfrastructure: parks, cemeteries, sportscomplexes, street pavements, ambulances, firetrucks
PHuman Development: scholarships, sportutilities, libraries, health equipment,
PInvestment: income generation programs forthe community
POther: fund-raising
Growth of Mexican Clubs in Chicago
0
5
10
15
20
25
30
35
40
Guerrero Jalisco Zacatecas Guanajuato
1994 1996 1997 1998 2000
The New Economies of Latin America
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
$0.00
$100,000,000.00
$200,000,000.00
$300,000,000.00
$400,000,000.00
$500,000,000.00
$600,000,000.00
$700,000,000.00
0%
20%
40%
60%
80%
100%
Remittances (Y1) Coffee Exports (Y1)
Trad. Exports (Y2)
Guatemala: Trade and Remittances
Nicaragua: Traditional Exports, Aid, Remittances and Tourism
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
$0.00
$200,000,000.00
$400,000,000.00
$600,000,000.00
$800,000,000.00
$1,000,000,000.00
Remittances
Trad. Exports
Intl. Tourism
Foreign Aid
Policy Implications
• How can international development organizations address the Latino diaspora as agent of development?
• Rural development and migrants share important feedback
• Empowerment of money recipients
• Local development efforts
The Future of Remittances
Factors influencing People's Propensity to Remit
Ri = Popi + Migri + Socioeci + Commiti + Emergeni + Marketi
Where:Ri = Remittances of person i (or propensity to remit)Popi = Percent of population that remitsMigri = Continued migration flow (total & household)Socioeci = Socioeconomic condition of immigrantCommiti = Commitment retained with home country familyEmergeni = Level of emergency in home country familyMarketi = Market competition
Marketi = Locationi + Costi + Service Friendlinessi
The flow and return of remittances
Migración a los EEUU
RemesasFamiliares compran bienes
importados de los EEUU
(1)
(2)
(3)
Pais de residencia del inmigrante EE.UU.
País de origen delinmigrante
R e to rn o d e re m e s a s a E E .U U(4)
Financial Strategies to Attract Remittances
•Government Regulations on Remittance Income•Government Capture of Remittance Shares•Voluntary "Check-off" Contributions•Government and Private-Sector Remittance Bonds•Migrant Foreign Currency Accounts and Bonds•Influencing Migrant Labor Earnings: Incentives to Invest in Home Country•Micro-finance institutions and credit union involvement•Offering Trading Licenses to Remittances Sender and/or Recipient •Migrant-Sending Government Outreach to Migrants•Migrant-Sending Government and U.S. Community Joint Ventures•Hometown-Community Matching Funds•Hometown-Community Investment Plans
Marketing Strategies• Expand services and distribution networks
• Establish multiple business partnerships with other corporations • Airlines: American, United, Taca • Banks • Stores
• Launch Community Outreach through Institutional Support • Education support for home economics, investment, etc. • Education support to integrate in U.S. society: English, naturalization courses, • Be more vocal about the company's work with the community
• Transparency of service: report where money goes
• Reduce transaction costs
• Fund hometown associations • Sponsor festivities • Donate funds for development projects
• Know your clients better • Identify their profile: the average as well as the outlier, and market accordingly • Become a people's business
Monthly remittances, January 1999-December 2001 (U.S. million)
54.349.5
68.156.760.960.358.859.360.9
54.262.364 64 67.9
74.568.7
60.963.759.963.169.772.369.3
80.179.876 79.877.678.473.9
88.478.780.382.281.183
32 33.136.1
49.4
34.633.725 24.6
30.1
45 45.752.256.3
41.340.752.7
43 41.940.741.143.843.755.859.159.655.7
60.6
41.5
55.647 47.246.8
37.441.445.446.1
106.797.2
115.5117.9119.4108.6
119.1
106.5106.4113.9
121.5
141.1132.1
125.9
140.7
121.7
153.4143.6
152156.2
142.7
159.8155.6167
147.6147.2149.6139.7
179.1
157.8162.9166.8
146.7
169.6158.7
180
117
138.2148.3
113.8
130.6121.5
110.7120.4
130
186.7
170
201.9
132.7136.4
162.6
124.4
142.4
124.6120
126.1
138.1
199.2
187.6
213.7
0
50
100
150
200
250
Jan-9
9
Mar
-99
May
-99
Jul-9
9
Sep-9
9
Nov-9
9
Jan-0
0
Mar
-00
May
-00
Jul-0
0
Sep-0
0
Nov-0
0
Jan-0
1
Mar
-01
May
-01
Jul-0
1
Sep-0
1
Nov-0
1
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
Mexico
Jamaica
Guatemala
El Salvador
Dominican Republic
Mexico (right axis)
Shifting Dynamics in Latin American Economies:Decline of Agricultural Exports in Central American and Caribbean Countries
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Haiti
RepDom
Labor Force in Agriculture
0
10
20
30
40
50
60
70
80
90
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Haiti
RepDom
Agriculture as percent of GDP
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
RepDom
Transfer ProcessTransfer depends on:
•Technology employed (ET, Fax, e-mail, etc.) •Distribution Network (bank, courier, person)•Location •Regulations•Instrument delivered (cash, money order, checks)
Bank BankRecipient
Bank
Courier
Traveler Delivery person
Sender
Courier
70% of transfer is electronic