Remittances

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Remittances are transfers of money by foreign workers to their home countries. The World Bank officially estimates that migrants from developing countries in developed countries sent home more than $223 billion to their families in developing countries in 2005 – a figure more than twice the level of international aid. Remittances are playing an increasingly larger role in the economies of many countries. Remittances contribute to economic growth and to the livelihoods of needy people (though generally not the poorest of the poor). As remittance receivers often have a higher propensity to own a bank account, remittances promote access to financial services for the sender and recipient, an essential aspect of leveraging remittances to promote economic development. (Remittance also refers to the accounting concept of a monetary payment transferred by a customer to a business.)

In Latin America and the Caribbean remittances play an important role in the economy of the region totaling over $60 billion US$ in 2006, with about 75% originating in the United States. This total represents more than the combined sum of Foreign direct investment and official development aid combined. In six Latin American and Caribbean countries remittances even account for more than 10% of GDP and exceed the dollar flows of the largest export product in almost every country in the region. The Inter American Development Bank's Multilateral Investment Fund has been the leading agency on regional remittance research. All IDB[1] remittances info can be found at the MIF's remittance portal[2]. This research has often been carried out in collaboration with Manuel Orozco of the Inter-American Dialogue, his remittance research can be found at the Dialogue[3] and at remittances.eu[4]. In this region Mexico, one of the best documented examples of migration and remittances, received remittance inflows of 26 Billion US$ in 2006, 95% of which originated in the US[[5]].

Remittances are not a new phenomenon in the world since several European countries such as Spain, Italy or Ireland have been heavilly dependent on remittances received from their emigrants along the XIX and XX centuries. In the case of Spain, remittances amounted to the 21% of all of its current account income in 1946. All of those countries created polices on remittances developed after significant research efforts in the field. For instance, Italy was the first country in the world to enact a law to protect remittances in 1901 while Spain was the the first country to sign an international treaty (with Argentina in 1960) to lower the cost of the remittances received. One source for these historical facts is the Spanish think tank remesas.org, that can be found in www.remesas.org

The global struggle against terror has also had an effect on the migrants sending remittances since these are sometimes sent through informal channels which often have histories far predating the modern banking system. Since 9-11 many governments have taken steps to address these informal money transfer businesses In the US through the Patriot Act (Title III) and in the EU through a series of EU Money Laundering Directives. Though no serious terror risk should be associated with migrants sending money to their families, misuse of remittance channels remains a serious government concern. The effects of enforcement action have sometimes had counterproductive effects as in the case of Al-Barakaat, a Hawala network responsible for the largest remittance flows to Somalia.

In 2004 the G8 met and decided to take action in lowering the costs for migrant workers who send money back to their friends and families in their country of origin. In light of this, various G8 government developmental organisations, such as the UK government's DFID [6] and USAID [7] who have conducted a number of in-depth surveys concerning remittances to the developing world with the ultimate goal of lowering costs to senders of money and thus increasing the amount of monies received.

The World Bank has a webpage for remittances [8], and the World Bank and the Bank for International Settlements [9] have developed international standards for remittance services [10].

A majority of the remittances from the US have been directed to Asian countries like India (approx. 26 billion US$), Philippines (approx. 14 billion US$) and China (approx. 23 billion US$). Most of the remittances happen by the conventional channel of agents (Western Union, Moneygram). However, with the increasing relevance and reach of the Internet, online money transfer has gained momentum over the years. Some of the popular online global remittance providers include Remit2India [11], Remit2Home[12], Western Union [13], eMoneygram[14] and Xoom[15].

Early research on the effect of remittances in particular countries include Richard P.C. Brown's "Public Debt and Private Wealth. Debt, capital flight and the IMF in Sudan" (1992) Basingstoke: Macmillan.

Examples of remittances include:

• Samoans and other Pacific islanders living in New Zealand, Australia and Hawaii.
• Latin Americans living and working in the United States.
• Middle Easterners living and working in Europe.
• Ethnic Koreans residing in Japan sending money back to North Korea.[16]

[edit] External links

• Briefing Paper: Remittances This brief explains what a remittance transfer is and assesses the impact that remittances may have on developing economies.