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June 2004, Volume 11, Number 4

Adding Value to Immigrants' Cash Remittances

Adding Value to Immigrants' Cash Remittances
New York Times, June 6, 2004

ON the highway connecting El Salvador's national airport to the capital, San Salvador, most of the billboards don't promote luxury cars, fancy tourist hotels or clothing stores. Instead, they advertise the electronic transfer of remittances - las remesas - the money earned by Salvadoran men and women in the United States and sent back in allotments of maybe $200 or $300 a month.

For hundreds of years, immigrant workers in America have sent modest amounts to their families in the old country, often by hand - through a trusted friend or an informal agent. Entire villages in Poland and Greece survived off such homely remittances in the 1950's.

Next week, for the first time, heads of state of the world's wealthiest nations plan to discuss remittances, in a belated acknowledgment of their huge role in providing aid to the poor.

Those small bundles of money add up to one of the biggest transfers of wealth from rich countries to poor ones. The global remittance market may be as much as $150 billion annually, triple the development aid given by the wealthy nations to the poor and, in many countries, far more than direct foreign investment.

When they meet on Tuesday at Sea Island, Ga., President Bush and the other leaders from the Group of 8 industrialized nations intend to discuss ways to reduce the cost of sending the money home, and to make it more useful for poor nations once it gets there. But the range of ideas on the table is fairly narrow: reducing the size of commissions paid to companies that transfer the money, drawing immigrants to the traditional bank and financial system so more of the money is saved and made available for loans, and using those savings for specific small-scale development programs.

Absent is any discussion of the plight of the workers who earn and send back the money. They often risk their lives to reach a rich country like the United States, where they may hold down two jobs and earn less than $20,000 a year, suffer years of separation from their families and endure an uncertain legal status.

Nor will the leaders examine why poorer societies continually need to export labor to survive - or what can be done to break the cycle.

Despite these limits, Manuel Orozco, Central America project director for the Inter-American Dialogue, a research group based in Washington, says the discussion at the summit meeting is an important step forward. "It's a backdoor way to begin talking about migration and these workers, a subject that is very sensitive in rich nations," he said. "On balance, it is positive to begin these discussions and understand the critical importance of remittances."

By their nature, such meetings tend toward a cosmic perspective; the lives of individual workers are often missing from discussions of trade and globalization. Government leaders dedicated to dismantling barriers to the free flow of goods and services often avoid talking about opening borders to the people who make those goods or perform those services.

But the discovery over the last five years that remittances are a huge and essential money source for developing countries like Albania, El Salvador, Tonga and Lebanon is putting some aspects of labor on the global trade agenda. Mr. Orozco and the Inter-American Development Bank put together the first studies showing how remittances had exploded with globalization and the technological revolution that allowed money to be wired quickly to ever-more-remote areas of the developing world.

Now the World Bank and the International Monetary Fund are tracking the global flow of remittances. Dilip Ratha, a senior economist at the bank, prepared the charts and studies for the talks this week. "If we can reduce the cost of sending these remittances, it would mean an additional $10 billion flowing to the poor in developing nations," Mr. Ratha said. "If we can get the money moving through formal channels, that would mean greater savings and more credit for these people."

Kathleen Newland, director of the Migration Policy Institute, a group that studies immigration issues, said the discussion should include recommendations for allowing migrant workers to travel back and forth legally, so they could take an active role in improving their home communities. "That would have a bigger impact on development," she said.

Though remittances cover basic expenses for poor families, like food, clothing, shelter and some education, poor countries need more investment and entrepreneurship. With foreign aid at low levels and foreign investors preferring proven powerhouses like China, many poor nations increasingly depend on their own workers to go abroad and send money home.

DEVELOPMENT experts like Dani Rodrik, professor of international political economy at the Kennedy School of Government at Harvard, said they would be disappointed if world leaders failed to address the larger issues of the labor force. "Return migration is crucial in the long run," he said. "Workers returning home with their remittances could become a huge new flow for new investments as long as there were enough incentives to invest."

Though many workers return to their home country when economic opportunities are offered there, migration for the most part has been a one-way street. Workers come to the United States or other wealthy nations and, often, their families eventually follow. Some critics fear that there will be a permanent class of countries that survive by providing cheap labor to rich nations.

"With this now-highly mobile labor force going to countries with the jobs, you could see perpetually underdeveloped societies that will always need to export their labor to survive," said Joseph Siegle, a fellow at the Council on Foreign Relations. "I don't think that's the long-term solution we are looking for."