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USA: Capturing the Power of Immigrants' Capital

by Gumisai MutumeInter Press Service
May 20th, 2001

WASHINGTON -- Even when the chips are down, Maria Hernandez never fails to send at least 200 dollars each month to her rural home in Mexico. Or so she thinks.

''At times I've been laid off, but I am like the backbone of the family. If I don't send any money, my mother and my two daughters go without food and miss school,'' says Hernandez, 32, who came to the Washington suburbs three years ago and earns about 2,000 dollars a month doing odd jobs like cleaning apartments.

Hernandez and millions of other migrants from Latin America and the Caribbean represent an increasingly important source of financial assistance to their countries. They transferred some 20 billion dollars to the region last year, according to the Inter- American Development Bank (IDB).

What Hernandez may not know is that a sizeable chunk of the money she has sent over the years never made it to her mother, who lives on the outskirts of the northern Mexican city of Chihuahua. Instead, much of it has lined the pockets of intermediaries who charge costly fees and top up their profits by manipulating exchange rates.

Equally troubling, many transfers to Latin America and the Caribbean are usually made through informal and insecure channels, says Pilar Ramirez, president of the Private Financial Fund of Bolivia.

''Many Bolivians prefer to use the riskier channels because they find the formal, more secure channels to be unreceptive and untrustworthy," says Ramirez. "Their migrant condition and informal documentation opens them to abuse and discrimination.''

The problems facing individual migrants and their countries in harnessing the remittances for development is the focus of an IDB conference here.

As the scale of migration has risen in recent years, so has the scale of remittances. Development planners have begun to ponder how to integrate migrant capital into the formal financial sector, lower transfer costs, and encourage senders to save and invest in their countries.

Individually, the remittances are very small - an average transfer is 250 dollars, sent approximately 10 times a year, according to the IDB's Multilateral Investment Fund (MIF). The businesses that actually transfer the remittances typically charge fees of between 10 percent and 20 percent.

''The majority of such transfer fees remains in the US,'' says Carlo Dada of the Inter-American Foundation, an organisation that funds civil society and community projects in the region. In the case of transfers to Haiti, he estimates that as much as 90 percent of the money stays in the United States.

To get around this, Dada's organisation is working with the Haitian Development Bank to establish an alternative system so that Haiti - the region's poorest country - benefits from the transfers.

More than a million of Haiti's 8 million residents have migrated from their country and the 720 million dollars they send back each year account for 17 percent of gross domestic product (GDP) - the highest level in the region.

Remittances account for at least 10 percent of GDP in six countries: the Dominican Republic, Ecuador, El Salvador, Haiti, Jamaica and Nicaragua.

There are significant communities of Haitians in the Dominican Republic, Bolivians in Argentina, and Nicaraguans in Costa Rica but the preferred destination of most regional migrants is the United States. Residents of Latin American and Caribbean descent now constitute five percent of the US population, or 14.5 million people.

The 20 billion dollars that flowed into the region last year represents 150 percent of the interest paid on the total Latin American and Caribbean external debt during the last five years, the MIF says, and some 300 billion dollars is expected to roll into the region by 2010.

''Even though remittances are an old story, this is a relatively new topic for the development community,'' says Dada. ''Despite the size and scope of remittances, most of the productive work with remittances occurs at the grassroots or community levels because they are tied to specific individuals.''

To avoid paying transfer fees, a large number of migrants opt for informal hometown associations that deliver their money directly to recipients for a nominal fee.

The MIF says an estimated 70 percent of remittances flow into areas with limited or no formal banking or micro-finance institutions.

''The challenge is to find ways of channeling these funds into the banking system, keep them there and put them into productive investments,'' says Pablo Schneider, president of the Central American Bank for Economic Integration. ''This is especially important given the region's low savings ratios.''

''Why not learn from Portugal?'' asks Pedro Belo, general manager of Banco Comercial Portugues in New York.

He says that given his people's centuries-long tradition of migration, the Portuguese government was quick to recognise the benefits of remittances and approved several incentive packages, such as tax breaks and subsidised interest rates, to enable those in the diaspora to acquire property back home.

Now, remittances to Portugal amount to 3 billion dollars annually or 20 percent of total deposits in the country's banking system.

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