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IBERO-AMERICA: Remittances No Substitute for Sound Development Policies

Darío Montero

MONTEVIDEO, Nov 5 2006 (IPS) - Immigrants have a right to send remittances to their families in their countries of origin, and this fast-growing flow of funds must not be seen as a replacement for foreign development aid, according to the final declaration signed by the leaders meeting this weekend in the Ibero-American summit in Uruguay.

The presidents’ statement thus indicates that the need for solid growth policies in developing countries is not reduced by the existence of large flows of remittances, which have become the second largest source of external funding for developing countries after foreign direct investment (FDI), and which now surpass official development assistance from the rich world.

In 2005, global remittances amounted to 167 billion dollars, although unregistered remittances could represent an additional 50 percent, according to the World Bank. The region that receives the largest share of global flows is Latin America and the Caribbean, which took in 48.3 billion dollars in 2005.

Article 12 of the final statement signed by the heads of state and government meeting Saturday and Sunday in Montevideo states that remittances must not be classified as official development aid (ODA), since they are private financial flows based on “family solidarity” and the right of every human being to attend to the support and welfare of others.

The declaration, dubbed the “Montevideo Commitment”, says this right must be recognised and safeguarded, like the right of recipients to receive such funds.

The theme of this weekend’s summit was migration and development – a pertinent issue given that the Ibero-American countries include Spain, the second-biggest recipient of Latin American migrants after the United States, and the source of 4.85 billion dollars in expatriate remittances last year, according to Spain’s Central Bank.

The 22 Ibero-American countries are Andorra, Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Peru, Paraguay, Portugal, Spain, Uruguay and Venezuela.

In their final declaration, the leaders also agreed not to enact coercive legislation or administrative measures that would undermine the right of migrants to send money home to their families.

Morocco, which receives the greatest flow of migrant remittances from Spain, is followed by Ecuador, one of the Latin American countries most heavily dependent on such funds. Last year, Ecuador received a record 2.26 billion dollars, nearly 40 percent of which was sent home by immigrants living in Spain.

But the world’s top recipient of remittances is Mexico, with nearly 22 billion dollars a year, reports the World Bank, which places Colombia in ninth place, with 3.8 billion dollars, and Brazil in 11th place, with 3.5 billion dollars.

Another leading recipient of remittances in Latin America is the Dominican Republic, with 2.7 billion dollars last year, 59 percent of which was sent home from the United States and 30 percent from Spain. Studies show that 38 percent of people in the Dominican Republic receive money from family members abroad.

The Central Reserve Bank of El Salvador reported that remittances, which mainly come from the United States, totaled 2.8 billion dollars in 2005 and are expected to climb to 3.3 billion this year.

A new World Bank report, ‘Close to Home: The Development Impact of Remittances in Latin America’, says that total represented 15 percent of El Salvador’s gross domestic product (GDP), while local authorities report that it is equivalent to nearly 80 percent of the national budget.

The World Bank pointed to the heavy dependence of Central America and the Caribbean on remittances, noting that such funds represent 53 percent of GDP in Haiti, 17 percent in Jamaica, and 16 percent in Honduras.

In Chile, migrant remittances amounted to 1.7 billion dollars last year, equivalent to 1.5 percent of GDP.

Uruguay, meanwhile, received 106 million dollars last year, nearly one percent of GDP, from the 440,000 Uruguayans living abroad (nearly 14 percent of the population), the director of consular affairs, Álvaro Portillo, told IPS.

But according to World Bank senior economist for Latin America and the Caribbean, Humberto López, who co-authored the lending institution’s recent report: “Although positive, the impact of remittances on poverty and growth in the region is in most cases quite modest.”

The Uruguay-based NGO Social Watch stated in its 2006 report, presented in late October ahead of the Ibero-American summit, that the amount sent home by Latin American migrants is similar to what they would have earned in their countries of origin if they had stayed.

Immigrants send between 10 and 20 percent of their income to their families back home, and the rest remains in the industrialised countries where they live and work, says the report. At the same time, countries in this region bear the costs of losing a significant portion of their young people of working-age, as well as the cost of brain drain, especially in the Southern Cone countries of Latin America.

The World Bank’s López said: “Remittances are clearly an engine for development. But they have to be seen more as a complement than as a substitute for good economic policies.”

Social Watch expressed a similar view, stating that while remittances can temporarily alleviate poverty, they cannot replace policies that foment production, employment and economic growth, and that combat exclusion and inequality.

The Uruguayan NGO said that migrant remittances are mainly used by families to cover basic expenses like food, rent, clothing and healthcare, while a mere five percent goes into productive endeavours.

Social Watch suggests following the example of Mexico, with its 3 X 1 Citizen Initiative programme, a co-financing mechanism in which every dollar that “hometown” associations of migrants channel into development projects is matched by a dollar from each level of government: federal, state and municipal.

The Ibero-American leaders echoed that demand, stating in the “Montevideo Commitment” that they will foment the use of remittances in productive and investment activities that benefit migrants’ home communities.

The summit also underscored the high cost of sending remittances through money transfer companies – an issue that has been discussed for years, but that no government has specifically tackled so far. “Commissions currently range from five to seven percent,” said Portillo.

The Montevideo Commitment says it is necessary to facilitate the transfer of remittances, reducing their cost and guaranteeing access to banking services.

The Uruguayan government has announced a new policy on the transfer of remittances. Portillo reported that the Banco de la Republica (the largest state-owned bank) would adopt a system that would offer significantly lower costs than those charged by the international companies that carry out such transfers.

Spain appears to be moving in the same direction, encouraging the banking system to provide low-cost money wire services, in order to allow migrants to avoid private money transfer agencies.

Ibero-American Secretary-General Enrique Iglesias said all of these initiatives should translate into “concrete actions,” in order to keep summit meetings like the one in Montevideo from being mere “social gatherings” of presidents.