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By Linda Hutchinson Jafar |
According to the Washington-based Inter-American Development Bank, remittances to Latin America and the Caribbean in 2002 increased by 18 per cent to more than US$32 billion. Remittances accounted for more than 10 per cent of the Gross Domestic Product (GDP) in Jamaica, Nicaragua, El Salvador and Honduras. Mexico was the region's largest recipient capturing US$10.5 billion.
In the case of Trinidad and Tobago, the remittance rate was US$51 million in 2002 compared to US$1.2 billion in Jamaica and US$100 million for Guyana - representing 16.6 per cent of that country's GDP.
Professor of International Relations at the University of Miami, Anthony Bryan said remittances are important financial "capture" which governments and banks in the Caribbean have not yet fully come to appreciate.
"Family support is but one aspect. The investment, business development and local goods consumption aspects are yet to be looked at closely," said Professor Bryan, the Director, Caribbean Studies Program at the University.
According to the United States 2000 Census, there are approximately 1.75 million people classified as West Indian or of West Indian ancestry in the US.
With the volume of remittances growing dramatically, Latin America and the Caribbean has emerged as the number one destination for remittances worldwide.
According to estimates from the IDB's Multilateral Investment Fund, if these flows continue to grow at a moderate rate of seven per cent a year, Latin America and the Caribbean could receive more than US$400 billion in remittances during this decade.
By volume, remittances to the region has already surpassed the amounts received from official development assistance and almost matched the foreign direct investment received in 2002.
In addition to sending money to their home countries, emigrants who visit or return home bring cash and also remittances in kind such as electrical appliances, toys and tools.
Dr Manuel Orozco of the Inter-American Dialogue in Washington who has been doing extensive work on remittances to Latin America and the Caribbean said continuous travel has increased the income derived from tourism in their home countries.
In the case of Jamaica where tourism is a major source of revenue to the economy, some 10 per cent of tourists arriving to the country are Jamaicans living in Canada or the U.S. A similar pattern is observed among Guyanese and Haitian immigrants.
But one of the issues that has emerged is the high costs of sending remittances and Professor Bryan believes its because banks are less involved in the transactions in Latin America and the Caribbean than in other parts of the world.
According to MIF estimates, the total costs associated with remittances to Latin America and the Caribbean rose to around US$4 billion or 12 per cent of the amounts sent back to home countries.
Professor Bryan said the cost of sending remittances can be lowered if banks make an effort to capture the remittances.
" I have had discussions with one large Caribbean bank about opportunities to capitalize on this market since they can offer a more competitive transfer rate and banks can gain significant financial benefits when they integrate this segment of the (diaspora) population into the formal financial system," he told Newsday.
Studies in Mexico have shown that special debit cards used by recipients and banks as money transfer agents are the lower cost ways of remittances.
Recently Citibank and the Bank of America introduced new programmes utilizing ATM technology to transfer remittances by issuing debit cards and "smart cards" to designated persons in Mexico upon enrollment of a person in the program in the US.
Even for Mexican illegal immigrants in the US, the Mexican government ID issued to them is recognized by US banks so that they can have bank accounts in the US and facilitate such transactions.
Worker remittances back to their home countries in the Caribbean and Latin America are also playing crucial roles in many economies.
It is estimated that each dollar of remittances that an emigrant sends home to his family produces an economic multiplier effect of three to four dollars of economic growth.
In some Latin American countries, remittances are now being used to improve schools, roads and medical facilities in rural communities.
Closer home, the Jamaican government sees remittances working for the economically-depressed island through donations to hospitals and schools, as well as investment in business or financial instruments.
So important is the issue to the Jamaican economy that the Government has embarked on a major project to determine the specific numbers of their nationals residing abroad in order to deepen and strengthen their relationship with the country.
"Because of the quantum of remittances to the region, it is clear that Caribbean and Latin American immigrants abroad are becoming major factors in helping to integrate their home countries into the global economy," said Professor Bryan.
"While some counties in the Caribbean would suffer even more if remittances were reduced, in other countries the remittances are used in small business development or used for consumption of home country goods and local transportation needs."
But remittances are a more stable type of private capital flow and also a much-needed source of foreign exchange. This stability is reflected in the securitisation of remittance flows by emerging market banks. For example, in August 2001, Banco do Brasil issued $300m of five-year bonds using future remittances of yen from Brazil's 1 million expatriates in Japan as collateral.
Thus for the Caribbean remittance is an issue which central banks and governments can pursue not only to determine what systems can be put in place to facilitate the smooth transfer of funds but also to find the best ways of putting the money to work for national development.