Last year, Ecuadorian emigrants sent home about $1.6 billion. This figure, surpassing export and tourism revenues, makes up 8 percent of Ecuador’s gross domestic product. And yet, nearly $80 million of it was gobbled up in transaction fees for thousands of small remittances. Had these transfers been made through formal banking institutions rather than informal operators, millions of Ecuadorians might have paid less and saved more. Furthermore, they might have had access to benefits such as mortgages and other services.
As part of an initiative to lower remittance costs, raise social awareness, achieve greater transparency and efficiency, and improve the regulatory environment, the Multilateral Investment Fund (MIF) this month held a round table in Quito, Ecuador to discuss the latest research on remittances in Ecuador and the Andean region. Partly as a consequence of the crises in Ecuador, Colombia, Bolivia and Venezuela, the Andean region has become a burgeoning remittance market whose remittances totaled $5 billion in 2002. According to a study by the Economic Commission for Latin America and the Caribbean (ECLAC), transmission fees, added to the cost of converting money into local currency—Ecuador is unaffected owing to its dollarized economy—could devour nearly 10 percent of each remittance, as is the case in Venezuela and Bolivia.
Remittances in Ecuador
Knowing who makes money transfer decisions and where the money goes are crucial to designing ways to make better use of remittances. A survey in Ecuador by Bendixen Associates, a consulting firm hired by the MIF, showed the following:
· Nearly 1 million people receive remittances from abroad, mainly from Spain (44 percent) and the United States (38 percent);
· The recipients are mostly women with an above-average level of education;
· Sixty-one percent of the amount received goes to daily expenses;
· Twenty-two percent is spent on long-term investments;
· Seventeen percent is used for additional expenses or luxuries;
· Eighty percent of the recipients decide how the money is spent, but the sender decides how the money is transferred;
· Eighty-three percent of those surveyed agree that one of the main reasons people emigrate is to be able to send money back to their families.
“With $32 billion worth of remittances in 2002, Latin America has captured 30 percent of the world remittance market,” said MIF Manager Donald F. Terry. “The emigrant community from the Andean region is instrumental to the economic and social development of that region. The banking sector must understand that the emigrant represents great potential for growth and is highly inclined to save.” Roberto Ponce Alvarado, Deputy Secretary of Multilateral Relations at the Foreign Affairs Ministry in Ecuador, highlighted that “paradoxically, it is the poorest Ecuadorans who are financially turning the country around while the wealthy, who keep their money in foreign bank accounts, are excluded.”
Proposals
Some of the policies proposed by the Quito round table include:
· Bringing the immigrant community into the banking system;
· Legalizing immigrants in their new country of residence;
· Improving the financial structure of the remittance market to include services such as ATM cards;
· Providing accounts for education and housing, and creating alliances with cooperatives and national banks; and
· Establishing banks in the immigrants’ countries of residence.
The Multilateral Investment Fund is an independent fund, administered by the Inter-American Development Bank, dedicated to promoting private sector development in Latin America and the Caribbean through grants and investments.