http://www.sbsun.com/Stories/0,1413,208 ... 62,00.html

Remmittances spawn mini-industry in United States
By Mason Stockstill
Staff Writer


Sunday, July 10, 2005 - Which costs more: sending $200 via Western Union to Ohio, or sending the same amount to Mexico? The fact that it costs 27 percent less to wire money to Mexico, even after calculating the unfavorable exchange rate offered by the agency, shows how important the tens of billions of dollars sent overseas by immigrants living in the United States can be.


Immigrants in America were responsible for the vast majority of the $16.6 billion in remittances that flowed into Mexico in 2004. Billions more went to other countries. According to the International Monetary Fund, the United States is the source of about a third of the $140 billion in annual worldwide remittances.


On the national level, that money is a drop in the bucket for the $12 trillion U.S. economy. But for the immigrant communities where millions of dollars are sent home rather than being spent here, the remittance flow can have a negative effect.


"Money that would otherwise go toward saving for children’s educations, buying a second hot dog cart, fixing up a house in a dilapidated immigrant neighborhood – that money isn’t being spent on those things," said Mark Krikorian, director of the Washington, D.C.-based Center for Immigration Studies. "It’s going home."


Krikorian said dozens of studies have analyzed the impact remittances have on the developing countries they’re sent to, but very few look at how that loss of income affects the sending countries.


While it’s true that funds sent to impoverished family members across the border go a lot further than they would in America, Krikorian said the money could be put to good use here.


For example, for each Mexican immigrant in America, about $1,600 is delivered to friends or family every year – almost enough to pay the tuition for one student at a California state college.


In California, the U.S. Census Bureau estimates only one in 10 children of Latino immigrants obtains a college diploma. The statewide average for all ethnicities is one in four.


Additionally, more than 40 percent of immigrants lack health coverage, according to the census, though many insurers offer basic family plans for $200 a month or less.


"It is a drain in terms of the resources that Latino communities have to build up with their own resources in the U.S.," said Louis DeSipio, a professor of Chicano/Latino students at UC Irvine. "Individuals have the right to do with their money as they please . . . but at the same time, it’s a shame that there is not a way that those resources can be spent in the U.S."


Meanwhile, the money transfer industry has found a way to take a cut of the more than $100 million sent out of America every day. Those millions are part of a hotly contested battle for market dominance that pits huge banking conglomerates against a 154-year-old telegraph company, its smaller rivals, and a handful of locally owned firms that cater to the Latino community.


Until recent years, the cross-border flow of money went unnoticed by financial institutions like large banks. It was only in 2002, when remittances to Mexico had swelled to $9.8 billion, that banks such as Wells Fargo and Bank of America began to allow Mexican immigrants with only consulate-issued ID cards to open bank accounts – paving the way for easier money transfers.


Since then, several different ways of transferring money from America to Mexico and other countries have cropped up, including binational credit cards and ATM accounts where deposits can be made in the United States for withdrawal elsewhere.


Still, those banks only account for about 3 percent of the 45 million U.S.-Mexico electronic transactions each year, according to the Central Bank of Mexico. The rest is handled by money-transfer firms such as Western Union, MoneyGram and smaller, locally owned companies.


The fees charged by those companies for sending money abroad vary greatly, but considering the United States was the source of $38 billion sent from immigrants to family and friends in Latin America in 2004, that means at least $4 billion in transfer fees are up for grabs each year.


Those fees have dipped in recent years, following a successful class-action lawsuit against Western Union and efforts by the presidents of both the United States and Mexico to lower the cost of remittances.


"Our two countries have made it a priority to keep hard-earned money in the hands of those who need it most," President Bush said at a news conference in Mexico last year.


Krikorian said he’s heard a few suggestions for how to keep more of that money in the local economy, such as creating a tax on remittances. But as long as the money is needed for family members overseas to survive, immigrants will continue to send it home.


"I’m not sure that there’s a policy response for that," he said. "If anybody has any ideas, I’m eager to hear them."