BELO HORIZONTE, Brazil - Latin American and Caribbean workers living abroad sent a record $53.6 billion in remittances to their homelands during 2005, up 17 percent from the previous year, the Inter-American Development Bank’s Multilateral Investment Fund said today.
The new estimates were presented at the seminar A Global Revolution in Banking: Remittances and Microfinance held ahead of the annual meeting of the Board of Governors of the IDB, which will take place here April 3-5.
In his speech at the opening of the seminar, IDB President Luis Alberto Moreno said that while remittances have great potential to promote investment, job creation and capital accumulation in the region, they are not a panacea.
“Given the opportunities and risks that remittances generate, as well as the expected persistence of these flows due to demographic and economic trends of host and source countries, development institutions such as the IDB and the international community as a whole have the responsibility of trying to maximize the positive aspects of migrations and contain their costs.”
The IDB and the MIF believe that one of the most effective ways to achieve such goals is to expand access to the formal financial system, particularly in Latin America, so migrants and their families may have more options available to multiply the economic impact of their money.
“If remittances contribute to building a broad-based culture of thrift, creating opportunities of growth and employment for all, they will also succeed in reducing the costs that migrations entail for countries in our region,” Moreno added.
Remittances to the region
Some 25 million Latin American and Caribbean-born adults reside outside their countries of origin. About two-thirds of them send money home on a regular basis, usually wiring between $100 and $300 at a time.
Over the past decade these transactions have snowballed to the point where they far exceed the overseas development assistance provided by donor nations and international organizations to Latin America and the Caribbean. In several countries of this region remittances are the primary source of hard currency.
Mexico continued to be the leading recipient of remittances in Latin America, as its expatriates sent more than $20 billion home last year, around 20 percent more than in 2004. Brazilians living in Japan, Europe and the United States sent some $6.4 billion to their country in 2005, around 14 percent more than in the previous year.
Countries participating in the Central America Free Trade Agreement with the United States received more than $11 billion in remittances last year, while the Andean countries seeking a similar pact with Washington received more than $9 billion.
Average transaction costs of sending money to Latin America and the Caribbean have dropped by half since the MIF started studying these flows in the year 2000, largely due to stronger competition and the adoption of new technologies among service providers.
Cheaper remittances have allowed migrants and their families to keep more of their money but so far have not succeeded in bringing greater numbers of people in this group into the formal financial system. Fewer than 10 percent of LAC recipients of money transfers have access to bank accounts, microcredit or home loans.
The IDB and the MIF believe remittances should be a key to “financial democracy,” the opening of Latin America’s financial systems for millions of low-income people, offering them access to asset-building services already available to their better-off compatriots.
While remittances are no substitute for sound policies and programs to promote broad-based and sustainable growth, their economic impact could be leveraged through the financial system, mobilizing savings and investments in education, health, small businesses and housing.
MIF and remittances
The MIF started studying remittances in the year 2000, when they were a largely overlooked issue in international finance. The initial goal was to gauge their volume and their economic impact in Latin America and the Caribbean, but attention soon focused on the high fees most migrants were paying to send money home.
Through its surveys, conferences and activities with various stakeholders the MIF raised the profile of remittances, helping to spur competition among service providers and attracting new participants to the market, including microfinance institutions and credit unions committed to serving low-income clients.
The MIF has also backed projects seeking to leverage remittances to expand access to housing, small business loans and rural financial services in Latin America. Other projects promote entrepreneurship among migrants who plan to return to their homelands.
In Brazil the IDB will work on a financial inclusion project with the SEBRAE small business development agency and the Caixa Econômica Federal, a state-owned financial institution, linking Brazilians residing in the United States and their families back home.