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Reporter's Notebook: Diego Mantilla

Remittances and Latin America

Posted by Diego Mantilla - April 4, 2006 at 10:57 am
Last year Latin American and Caribbean migrant workers sent back about $53 billion to their countries in remittances coming mostly from the United States and Western Europe, according to a survey released by the Inter-American Development Bank. “About 75% of [Latin American and Caribbean] remittances are sent from the United States (US$40billion) while remittances from Western Europe, particularly, Spain, Italy, Portugal, and the United Kingdom now account for almost 15% of the market (US$7.5 billion),” the survey reads.

Latin American and Caribbean countries get more money in remittances than any other region in the world. And this vast sum of money dwarfs other cash inflows.

“This amount exceeded, for the third consecutive year, the combined flows of all net Foreign Direct Investment (FDI) and Official Development Assistance (ODA) to the Region,” according to the survey.

Roughly a third of the money went to Mexico. The second biggest country share was Brazil’s–slightly more than 10 percent.

Andean countries (Colombia, Ecuador, Peru and Bolivia) got more than $9 billion, about 15 percent of the total, the same as Central America.

As the U.S. Congress deals with immigration, any decision is bound to affect not only people in the States, but across the Americas as well. Money from migrants is a substantial part of many economies.

For six countries–El Salvador, Guyana, Haiti, Honduras, Jamaica and Nicaragua–remittances represent more than ten percent of GDP. Another six–Belize, Bolivia, Dominican Republic, Ecuador, Guatemala and Paraguay–get remittances that account for between five and ten percent of GDP.   

Fifteen countries get more money from remittances than from tourism. The list includes the two biggest economies in the region, Mexico and Brazil.

For El Salvador, Guatemala, Honduras and Nicaragua, money from workers abroad is more than 50 percent of exports. In Haiti and Jamaica the value of remittances exceeds that of all exports.

Remittances to Argentina rose almost eightfold, from $100 billion in 2001 to $780 billion last year. “It is estimated that more than 250,000 people have left Argentina since the economic crisis of 2001. Migrants’ main destinations of choice have been Spain, Italy, the United States, and Israel. Except for the U.S., those countries were preferred due to ancestral ties,” according to the survey. And last year for the first time more money came in from Argentinians abroad than flowed out from foreigners working in Argentina.

Likewise, many left after Ecuador’s banks collapsed in 1999. “In the last four years, an estimated million Ecuadorians left their country for Spain, the United States, and countries in Central America,” the survey reads. “Remittances are the second largest financial source from abroad, after oil exports, and equaled to 170% of banana exports in 2005.”

In Mexico, despite the U.S. border crackdown, money from workers abroad increased 50 percent since 2003 and more than doubled since 2001. Even with high oil prices, in 2004 remittances reached 70 percent of oil exports.

Overall, remittances to the region grew roughly 130 percent in four years, from $23 billion in 2001.

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Comments

Amazing. Toward a People's Wire Transfer Network?

Submitted April 5, 2006 - 1:54 pm by Benjamin Melançon
I always thought of remittances as the sums incredibly saved by people with $10 an hour jobs and sent to relatives in Latin American countries with even less economic opportunity, as some of my coworkers at Christmas Tree Shops did.

The line about Argentinians leaving for Spain, Italy, and Israel as countries of origin suggests that a significant part of the $53 billion in transfers may be between relatively more wealthy workers in the U.S. etc. sending money to families that might be relatively well off themselves in the home country.  I wonder if anyone has done research on that.

In any case, I'm betting most of the $40 billion sent from the United States to Latin America and the Caribbean is poor-to-poor.

Which is why I'm very, very angry that Western Union taking 10 to 20 percent or more and we, civil society et. al., haven't come up with a better way of moving this life support around.

It could never be costless as you need a  huge number of places for people to send and receive payments, but these could be maintained with far smaller fees and, more important, that infrastructure could also used for international grassroots activism and communication.

I've got my re-growing savings to put up for making this big idea happen, and our immigrant brethren have $40 billion.  Just a matter of getting enough people together.  Drop me a line.

Here's some background on how wire transfers are done today, from a 2003 December 22 Business Week article by David Fairlamb in Frankfurt, with Geri Smith in Mexico City and Frederik Balfour in Hong Kong, told from Western Union's perspective rather than that of the people involved:

Western Union, which started life in 1851 as a telegraph company, is coming under pressure.  Commissions on most transactions run 10% or higher, making Western Union a most reliable profit generator for its Denver parent, First Data Corp. (FDC ), which acquired it in 1995.  Analysts expect the wholly owned unit, which almost collapsed a decade ago after fax machines undercut its Telex business, to make more than $1 billion in operating profits on revenues of more than $3.5 billion this year [2003].

Although Western Union controls 80% of the market in regions such as Latin America, it can no longer take its position for granted. "This is a real high-margin business," says Jeffrey J. Slowik, executive vice-president of PayQuik, a Philadelphia supplier of money-transfer technology to banks. "It's hardly surprising rivals are moving in."

Among Western Union's big rivals: Bank of America, Citibank, and Wells Fargo. Those three are targeting remittances worth $25 billion a year that Hispanics working -- legally or illegally -- in the U.S. send to Latin America.  Each has recently bought into or established a relationship with a Mexican bank: Citi owns Banamex, Bank of America (BAC ) has a stake in Grupo Financiero Santander-Serfin, and Wells Fargo (WFC ) works with Bancomer. Immigrant workers can now transfer money easily and [slightly more] cheaply to relatives through those banks' ATM networks or by wire transfers.

How much in startup costs would it take to reach a critical mass of people in, say, a particular immigrant community and the people in their country of origin?  Think big.

Avoiding American Wire Services

Submitted April 15, 2006 - 8:42 am by Benjamin Melançon
A reader wrote me:

You expressed concern about Western Union
and other money transfer services charging 10-20%
in fees.  Most of the Latinos that I know do not
use the American wire services.  They use very
inexpensive ones in the Tiendas Latinas that
charge about $10 to send up to $1000.00 to Mexico
among other countries.

My first thought: I wonder if I can use one of these inexpensive companies to bail out my brother yet again in West Virginia.  Probably not.

My second thought is that I'm very surprised that transfer fees would be low as 1%.  Maybe they're gaming the exchange rate (Western Union did and lost a lawsuit).  I also know that a number of Brazilians, anyhow, do use Western Union and I'm still interested in an organization taking only the minimum cost of transfer, as a moral issue, and because such an organization could serve as the infrastructure for a radical communications network as well (not to mention a network of community banks to replace payday loan places).

Mostly, though, there is no question I was speaking rather stupidly.  People who generally have a better sense of community than the average person in the U.S., and who have sent $53 billion dollars a year to their home communities, have figured out far better ways to do it than I have figured out to bail out my brother in miscellaneous U.S. states.  I'd love more detail.

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