Thread: Immigrants Slow Rate Of Money Transfers

Immigrants Slow Rate Of Money Transfers
Remittances Crucial to Poor Nations

By Krissah Williams
Washington Post Staff Writer
Tuesday, May 1, 2007; D01



The amount of money Latin American immigrants sent home from the United States grew at a slower rate during the first two months of the year than in the same period a year ago, according to the Inter-American Development Bank. The slowdown puzzled some experts who study such remittances, which contribute significantly to Latin American economies.

Remittances rose in the single digits in January and February after rising as much as 20 percent year-over-year since analysts began tracking the transfers at the beginning of the decade, the Inter-American Development Bank said yesterday.

Many remittance-rich nations would fall into a recession if immigrants began sending home significantly less money, which could encourage more poor Latin Americans to find work in the United States, according to the study and Donald Terry, manager of the Multilateral Investment Fund at the Inter-American Development Bank.

"We don't know if it's a trend or a minor correction," Terry said. "If it becomes a trend as opposed to a moment in time, this would not be good in terms of U.S. interests in Central America."

For all of last year, migrant workers sent $62.3 billion to their families, an increase of 14 percent from 2005. From 2004 to 2005, remittances increased 17 percent. Central American and Caribbean countries have come to rely on the money as a vital and growing source of income.

"For an economically volatile region known for its boom-and-bust cycles, remittance flows have been remarkably constant over many years and may be responsible, in part, for the recent economic stability of so many Latin American countries," said Manuel Orozco, author of a study to be released today by the Inter-American Dialogue, a Latin America think tank.

Remittances are crucial for small Central American countries, such as El Salvador, home to the Washington region's largest immigrant community. The more than $3.3 billion that immigrants sent to their families last year makes up 18 percent of El Salvador's national income and surpasses foreign aid and investment, the Inter-American Dialogue study said. Most of the money goes to rural areas and helps bring families above the poverty line.

Nearly half of El Salvador's $300 million in national savings comes from remittances, said Orozco, whose research has shown that about 5 percent of remittances are saved. Remittances are also important in neighboring Honduras, where they make up 23 percent of national income, and in Jamaica, where they account for 19 percent of gross domestic product.

Questions are surfacing over whether political and economic changes in the United States may be affecting the way immigrant workers spend their money, Terry said. The bank is conducting a survey of immigrants to determine why they are sending less home. Anecdotal evidence suggests that raids on migrant communities by U.S. law enforcement officers and fear of deportation has prompted some to curb spending, Terry said. Others may be saving money to pay U.S. citizenship fees, wagering that a congressional debate over immigration law would result in allowing them to pay a penalty and legalize their immigration status. A downturn in the U.S. housing industry could also be trickling down to immigrants, who fill the majority of U.S. construction jobs.

The Inter-American Dialogue is pushing policies that make it easier to connect recipients and senders of remittances to banking systems as a means of providing access to credit and savings for the poor.

As an example, the group cites Alante Financial, a Washington money-transfer company that offers small loans to remittance senders and plans to soon sell an inexpensive insurance program. And more Latin American banks are beginning to serve remittance recipients, which has led to an increase in the number of poor people with bank accounts. More than 183,000 accounts were opened in the past four years through an outreach program operated by the Federal Deposit Insurance Corp., the general consulate of Mexico and several Mexican banks.

The number of remittance recipients with access to financial services is small, however. Orozco has argued that connecting more remittance recipients and senders with banks could help bring more people out of poverty and create sustainable changes in rural communities.

The poor Central American families who receive remittances spend about 80 percent of the money on essentials, such as food, housing and clothes, but the remaining 20 percent could be saved if financial services were more readily available, he said. If that money were in bank accounts, more small-business loans and mortgages would be available to the poor. About 95 percent of remittance money is spent for consumption and services.

Little of the money has been converted to wealth.

Enticing immigrants and their family members back home to put their money in banks has been difficult. A measure of distrust of the financial system exists, said Amy Coughenour, deputy director of the Pan-American Development Foundation, which operates a project that helps Salvadoran immigrants invest money back home.

"You can construct a lot of interesting financial mechanisms, but trust and transparency are really important," Coughenour said. "Just by making a product or service available doesn't mean that the community is going to participate."

http://www.washingtonpost.com/wp-dyn/co ... 01698.html

The Inter-American Dialogue is pushing policies that make it easier to connect recipients and senders of remittances to banking systems as a means of providing access to credit and savings for the poor.