June 10, 2004
Our generosity to the Third World grows and grows, with more money leaving our shores each year to do good works abroad.
Miraculously, this new aid is delivered with very little waste or overhead – not the 30% to 50% all too common to aid delivered via governmental aid agencies or even the 20% in overhead that worthy charities such as Oxfam manage – but 10%, 5% or even less. Even more miraculously, virtually all of the money goes precisely where it does great good. None of this money is squandered on showcase projects named after the local despot, none of this money is lost to corruption, all of it goes to recipients at the grassroots, to pay for medical or educational needs, to help with housing and other living costs or as micro-loans to help them start small businesses.
This successful method of delivering aid occurs through what are called remittances – the cash transfers immigrants send to their loved ones in their country of birth. These remittances have been growing rapidly over the last decade and now reach about US$100-billion a year, according to figures released at this week’s G8 Summit, dwarfing the $50-billion in foreign aid Western governments send to poor countries.
In many developing countries, in fact, foreign aid is either negligible or entirely absent. Remittances, in contrast, have been life-savers. A recent study produced by the Inter-American Development Bank that focused on remittances from the United States – by far the largest source of such funds – highlights the difference remittances make. The study found that the 10 million regular remitters among U.S. Latinos on average send about 10% of their household income to their country of birth. That 10% makes all the difference in the world for the recipients.
In Latin America and the Caribbean, remittances represent 50% to 80% of the recipients’ household income, depending on the country. Counting just the official figures transmitted through banks and other lending institutions, this region received $38-billion in 2003, mostly from Canada and the United States (large amounts are also transferred informally, via friends and other informal networks).
Remittances now underpin the economies of many countries. A World Bank study last year of 74 low- and middle-income countries found remitters reduce the proportion of people living in poverty in a Third World country by about 1.2% for every 10% increase in the country’s remittances. Other studies estimate that every dollar of remittance injected into a local economy leads to an increase in local GDP of $2 to $3, as recipients spend the money buying local goods and services and meeting their basic needs.
Remittances come partly from recent immigrants who plan to return to the country of birth but mostly from permanent residents – “New Americans” or “New Canadians,” as they call themselves on this continent – who often continue to send money back to their birth countries more than a decade after making North America their home. Typically they send money back home regularly, often monthly to replace the income they would have provided had they remained in their former country. But when disaster strikes their homeland – as happened earlier last month when the Dominican Republic was deluged with floods – immigrants open their often meager wallets further, to provide a collective outpouring of emergency relief for their countrymen back home.
Those small sums immigrants send add up to a large slice of the GDP for many countries. Nicaragua is an extreme case, with 24% of its GDP coming from remittances. But many countries also log substantial levels of remittances. In the fast-modernizing Philippines, for example, remittances have been increasing at a rate of about 5% per year, making them the country’s single biggest source of capital and accounting for about 10% of the Filipino GDP. The Philippines are on track to pull in about $8-billion in remittances in 2004.
Because Filipinos understand the importance of remittances to the Philippine economy – these transfers are credited with maintaining a stable peso and spurring economic growth and prosperity – the Philippines treats remitters as heroes with a mission. Political leaders from the Prime Minister on down laud remitters’ service to the country. And to prepare the next generation of remitters, potential emigrants are encouraged to upgrade their skills at home, the better to market their services abroad. Where once the ranks of remitters were dominated by low-skilled nannies and factory workers, higher-paying remitters have become common. Nurses, lab technicians, engineers, teachers, and other professionals – typically trained in the Philippines – now account for 35% of Filipino remitters.
The country with the highest proportion of professional remitters, however, is India. And those remitters, many of them in software and other high-tech industries, send home more money than any other country. This sophisticated group of remitters – two-thirds of Indians in North America do their banking online – has just pointed the way to more progress in encouraging remittances.
Although the cost of sending remittances has come down dramatically, in some countries the cost remains high, discouraging many remitters, or leading them to postpone remittances until a travelling friend can relay them in person. To increase the usefulness of the remittance system and put more money in the hands of recipients, yesterday’s G8 meeting struggled with the challenge of lowering remittance costs.
Also yesterday, on the other side of the globe, the Indian Overseas Bank showed the G8 how to do it: It launched “e-Cash Home,” an Internet-based online remittance service that will allow Indians abroad to remit money back home – to any bank account in India – for as little as $4. Rather than the 40- to 60-day wait that is now customary, Indian recipients will now receive their remittances in just four days. The Indian service will start in the United States, then roll out to Canada and other nations with Indian remitters. Look for similar rollouts to occur in the Philippines and other remittance-receiving nations. And look for remittances to do ever more good, as more of the remittances make it to recipients and as immigration continues to increase.
Lawrence Solomon is executive director of Urban Renaissance Institute and Consumer Policy Institute, divisions of Energy Probe
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