USA: Capturing the Power of Immigrants' Capital

Publisher Name: 
Inter Press Service

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

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

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

''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

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

AMP Section Name:CorpWatch