Can remittances help to fuel development?

The manager of the IDB’s Multilateral Investment Fund explains how money sent home by immigrants could be leveraged to benefit whole communities

Donald Terry is the manager of the Multilateral Investment Fund (MIF), a member of the IDB Group that provides financing to foster private sector growth in Latin America and the Caribbean.

Before joining the MIF, Terry served in the U.S. government as deputy assistant secretary of the Treasury and as staff director of three congressional committees: the Joint Economic Committee, the House Committee on Small Business, and the House Committee on Banking. He has a bachelor’s degree in political science from Yale University and a law degree from the University of California Law School at Berkeley.

Terry recently spoke with IDB press officer Peter Bate about the MIF’s proposals to create special funds that would channel remittances from Latin American immigrants in the U.S. into community development projects in their home countries.

IDBAmérica: Establishing investment funds that would pool resources from the public sector and migrant communities and invest them in community development projects supposes that expatriates will trust governments enough to become business partners. What can authorities do to earn that trust?

Terry: As with all investment funds, the key to establishing trust is setting up a transparent structure, run by professional and independent managers focused on profitability, the safety and the security of all investors, and local development. Governments have often learned the hard way that direct involvement with private financial decisions (“directed investments”) is best left to private managers. All MIF-sponsored funds are managed by experienced private groups under strict prudential guidelines.

IDBAmérica: What role would the MIF play in these funds?

Terry: MIF will play a catalytic role. Our aim is to provide the seed capital for the first generation of initiatives. We will ensure that appropriate governance structures are in place and that the stage is set for the private sector and local governments to continue with the effort. In short, MIF helps to build the basic investment platform, which, if successful, is capable of considerable expansion in subsequent years.

IDBAmérica: While remittances may have a net positive effect when all factors are taken into account, isn’t there a risk that governments themselves may become dependent on these capital inflows? What can be done to reduce that risk?

Terry: We believe remittances will be a fact of life for Latin American economies for quite some time. In a sense, dependency already exists, since the remittances are providing critical sources of disposable income for many families in the region. MIF funds can help to channel a small portion of the funding that is already being provided towards sustainable projects that can enhance local communities over the long term, thereby reducing such dependency.

Date posted: October 2001