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Remittances: The Perpetual Migration Machine 37
Remittances: The Perpetual Migration Machine
Michele Wucker
In the late nineteenth century, wealthy
British families exiled their wayward second
sons to far-off colonies with the promise of a
monthly allowance. In return, these black-
sheep “Remittance Men,” immortalized by
Mark Twain in his travelogue, Following the
Equator, pledged to stay out of trouble and
out of the way. Today’s remittance men (and
women) are not the black sheep of their
families but the workaday heroes of the de-
veloping world. Families in developing na-
tions send their best and brightest members
abroad to find jobs and send money home.
In countries like Mexico, India, Turkey, and
the Philippines, the mantra is no longer,
“Go away and stay away,” but “Go and don’t
forget us.”
Prime Minister Rajiv Gandhi once
called Indians abroad a bank “from which
one could make withdrawals from time to
time.” Today, developing countries are mak-
ing withdrawals from the “bank” of global
migrant worker remittances at an increas-
ing rate. In 2003, migrant workers living
abroad sent more than $100 billion in re-
mittances to their home countries—a source
of funds that is being hailed as the great
new hope for the developing world.1
Last year, migrant worker remittances,
which are growing at a double-digit annual
rate, amounted to nearly twice the amount
of global development aid ($56 billion). The
$38 billion in remittances sent to Latin
America in 2003 were nearly equal to all
foreign investment in private companies in
the region. Remittances account for more
than 10 percent of the gross domestic prod-
uct (GDP) of six Latin American nations, and
for over 29 percent of Nicaragua’s GDP. In
Haiti and Jamaica, remittances generate
more revenues than does foreign trade. In
Honduras and Nicaragua, average annual re-
mittances per household amount to more
than double annual per capita GDP; in Haiti,
they amount to more than three times per
capita GDP. Nor is this a phenomenon seen
only in poor countries; in the late 1990s,
émigrés owned one of every five dollars in
the Portuguese banking system.
By comparison to the notoriously
volatile capital markets, remittances are re-
markably steady. Indeed, they often rise
during economic crises, when receiving
countries are having the hardest time at-
tracting capital. These funds often support
not just the person who receives them, but
entire families, and local communities bene-
fit from the multiplier effect as money cir-
culates among businesses.
Ironically, the better off immigrants are,
the less likely they are to send remittances.
Thus, it is the poorest workers who are most
responsible for keeping their home countries
going. The moral implications of this situa-
tion are complicated further by the practices
of the financial firms that skim sometimes
excessive commissions and fees from this
flow of money.
Money transfers from émigrés—what
Bangladesh calls “manpower exports”—are
helping the least developed countries stay
afloat, for now. Yet remittances have side ef-
fects that may create other problems in the
future. For one thing, although many devel-
opment economists see these transfers as a
stable source of income,2the flow of remit-
Michele Wucker is a senior fellow at the World Policy Institute and the author of Why Cocks Fight: Dominicans,
Haitians, and the Struggle for Hispaniola.
38 WORLD POLICY JOURNAL •SUMMER 2004
tances is vulnerable to political and econom-
ic shocks abroad. Even more worrying is the
fact that developing nations may see this
flow of cash as an excuse for not undertak-
ing needed development projects.
But the biggest side effect of remit-
tances on policy considerations is this: the
money eventually stops coming unless peo-
ple continue to emigrate. By adding a huge
financial incentive to the traditional func-
tion of emigration as a social safety valve,
remittances discourage governments from
making the changes needed for people to
stay home—and, indeed, reward them for
encouraging people to leave. In other words,
remittances feed a perpetual migration
machine.
This machine can rob a country of its
ability to improve itself if the best and
brightest of its citizens go abroad. It is cru-
cial, therefore, that receiving countries han-
dle remittance flows wisely in order to be
able to end their reliance on manpower ex-
ports as a means of survival and induce
skilled émigrés to return home.
Flying Money
The oldest references to remittances come
from the late Tang dynasty (A.D. 618–907),
when Chinese tax collectors devised the fei
qian “flying money” system. Under this sys-
tem, government liaison offices in the capi-
tal would issue certificates to provincial
merchants who sold their goods in the capi-
tal. The merchants could later redeem these
certificates for cash when they returned
home. This system meant that merchants
did not have to worry about being robbed of
their profits on the perilous journey home.
A similar system, chop, is named for the
stone seal dipped in red ink and used to
stamp a document that is then torn in two.
One of the pieces is sent to a broker in the
receiving country and the other to the in-
tended recipient of funds. When the latter
takes his half to the broker with the match-
ing half, he is able to collect his money. To-
day, the hundi (India), hawala (Pakistan and
various Muslim nations), and poey kuan
(Thailand) systems all employ a code or
pass-document to match the sender and the
receiver of funds.
The chit, (the word is a diminutive of
the Hindi chiiti, or certificate), was intro-
duced to China by British colonialists in the
nineteenth century. British workers wanting
to buy goods from local merchants would
write chits that merchants could cash with
the Chinese comprador who managed an es-
crow account into which British workers’
salaries had been deposited.3
Remittances, which are now less often
sent by such informal systems, have become
a big and highly lucrative business, with
profit margins as high as 30 percent. Mi-
grant workers now rely on money transmit-
ters like Western Union and MoneyGram,
smaller regional or national transfer compa-
nies, and, to a small but growing extent,
banks. The principle remains the same: in
return for a fee, the sending company ac-
cepts the money the worker wants to send,
then notifies its representative in the recipi-
ent’s locale, who pays the recipient in local
currency.
Until the last few years, most banks
handled mainly large flows of funds, leaving
the small remittances to the money-transfer
firms. But, eyeing a market that the finan-
cial services market research firm Celent
Communications estimates will generate
more than $15 billion in annual revenues by
2006, banks are upgrading their technology
to compete with money-transfer companies.
Their twenty-first-century version of chops
and chits is the ATM card, which migrant
workers can send home to allow family
members to withdraw funds from cash ma-
chines. Gwenn Bézard, an analyst at Celent
Communications, projects that by 2013
there will be 13 million holders of remit-
tance debit cards.4
Heavy Burden, Slight Shoulders
A global money-transfer industry has arisen
from the diligence and loyalty of migrant
workers, who as recently as the mid-1990s
paid fees as high as 30 percent of the funds
transferred to send money home. Although
fees fell to an average of 15 percent by the
end of the decade, they continue to take
a significant bite out of the money sent
back to developing countries. Today, the
average cost to send $200 or less—a typical
amount—to Latin America is 7.6 percent.
The percentage charged generally falls as the
amount of the transfer increases, but most
émigrés are unable to send enough to lower
the bite significantly.
Only 19 percent of workers who earn
more than $50,000 a year send remittances,
while 46 percent of those who earn less than
$30,000 do so.5Thus, generally speaking,
individuals who send money home are the
very people least able to bear the transaction
costs: low-income migrants who are more
likely to lack legal documentation and less
likely to understand how the financial sys-
tem works. In a 2001 study, only one in
three Latino immigrants in the United
States knew that some of the money they
were sending to their families was being
eaten up by fees, commissions, and often
unfavorable exchange rates.6
The flow of remittances from low-
income senders may be disrupted by short-
term shocks, as happened when over a
million (mostly Arab and South Asian) for-
eign guest workers fled the Middle East
with the onset of the first Gulf war in 1990.
In the wake of September 11, senders in the
United States faced unemployment amid
the ensuing backlash against immigrants
and an economic slump. In 2002, transfers
via the thousand-year-old hawala transfer
mechanism were cut off abruptly when the
U.S. government banned unlicensed money
transfers. The new rule also shut down al-
Barakat, one of three transfer firms that
were keeping Somalia from going under
with an estimated $500 million in annual
remittances. Government officials alleged
that al-Qaeda had used al-Barakat to finance
terrorist activities.7Such disruptions in the
flow of funds show how variable remittances
can be as a source of income.
In the United States, according to a
study by the Pew Hispanic Center and the
Multilateral Investment Fund, 6 million
people, or 42 percent of adult, foreign-born
Latinos send remittances home. Moreover,
as the study shows, this creates a self-rein-
forcing pattern: in Mexico, for example,
26 percent of those surveyed who received
remittances were considering migrating
themselves, compared to 17 percent of
those who did not receive money from
abroad. In Ecuador, 83 percent of respon-
dents agreed with the statement, “One of
the principal reasons that people leave is
so that they can send money back to their
families.”8
While remittances provide an incentive
to leave, they are not a permanent solution
to home-country financial hardship. Over
the course of decades remittance flows tend
to slow as families in the home country die
or emigrate, and ties weaken from lack of
family contact. About half of Latino immi-
grants who have been in the United States
for ten years or less send money home, ac-
cording to the Pew study. For those who
have been here for 20 to 30 years, that num-
ber drops to 23 percent. As migrants inte-
grate into the host country, their earning
power passes to the second generation, and
greater portions of savings remain in the
host country.
For remittances to stay at the same
levels, therefore, people have to keep leav-
ing their homelands. There is every reason
to believe that they will continue trying to
do so, because as remittances come in, more
people want to leave. Part of the reason for
this is the keeping-up-with-the-Joneses ef-
fect that remittances create: they fuel infla-
tion locally, especially of real estate prices,
and so it becomes even harder for a family
to survive if it does not receive money from
abroad.
This is the catch-22 of remittances: they
boost the economies of the labor-exporting
Remittances: The Perpetual Migration Machine 39
countries, which gives their citizens the
hope of being able to remain at home, yet
at the same time they contribute to the
pressures that make people leave.
Who Stays and Who Leaves?
Remittances are also problematic because
of a phenomenon that the economist Philip
Martin has called the “migration hump.”9
Emigration increases once per capita income
rises enough (often through remittances) for
people to afford to get out. Emigration does
not slow again until per capita income
reaches the other side of the “hump,” that
is, until it increases to a level at which citi-
zens no longer expect moving to another
country will improve their quality of life
enough to be worth the trauma of dislocat-
ing. This phenomenon means that a devel-
oping country is exporting its nascent mid-
dle class.
The economist B. Lindsay Lowell has
calculated that losing high school– and
college-educated nationals slows economic
growth, albeit slightly. On the other hand,
the emigration of those with only a grade
school education accelerates a country’s
economy—though again, very slightly.
This data suggests that ensuring the return
of educated émigrés would benefit labor-
exporting nations. “Employing developing
country nationals (or returnees) at a higher
wage would induce return migration, in-
crease the permanent skill level of the source
country, and increase source country
growth,” Lowell argues.10
The impact of remittances and migra-
tion on brain drain varies considerably
among countries. The World Bank’s
Richard Adams, Jr., has argued that for
most countries, migration does not cause
a significant brain drain; less than 10 per-
cent of the college-educated populations in
labor-exporting countries have emigrated
overall. For a few countries, however, espe-
cially those with wealthy neighbors, high
proportions of the most highly educated
leave (these include the Dominican Re-
public, El Salvador, Guatemala, Jamaica,
Mexico, Morocco, Tunisia, Turkey, and Sri
Lanka).11
Getting over the Hump
The challenge for sending countries with
respect to the migration hump is twofold:
first, governments need to channel remit-
tances in such a way that they improve
the quality of life at home; second, they
need to figure out how to lure educated
émigrés to return home and use the skills
they gained abroad to help the economy
grow.
“Channeling” remittances, however, is
problematic, for these funds are and should
remain private. Some countries, in trying to
use remittances to strengthen their hard
currency reserves and at the same time lure
workers back, have committed spectacular
policy blunders. Bangladesh, South Korea,
Pakistan, and the Philippines all have made
attempts to require workers to send manda-
tory amounts home through formal banking
channels. Only the Korean government has
succeeded, and only because so many Kore-
an migrant workers were employed by Ko-
rean companies in the Middle East. In re-
turn for the government’s assistance in win-
ning contracts abroad, these companies de-
posited wages in Korean banks.12 In the
1970s, Turkey encouraged its guest work-
ers in Germany to keep their savings in
deutschemark accounts in Turkey, but when
the Turkish economy collapsed, the govern-
ment would only convert the funds into
Turkish lira at an unfavorable rate, decimat-
ing the workers’ nest eggs.
Perhaps the most notorious case of a
government manipulating remittances for
its own purposes involved the 4.5 million
bracero agricultural guest workers who came
to the United States in a special govern-
ment-sponsored program to deal with a
manpower shortage after the outbreak of the
Second World War. The United States with-
held 10 percent of these workers’ wages,
to be paid once they returned to Mexico.
40 WORLD POLICY JOURNAL •SUMMER 2004
Somehow, the money disappeared. The
United States says Mexico was at fault,
but there is some evidence that at least part
of this money never made it out of the
United States. Workers and their descen-
dents are still fighting to win back $500
million in wages and interest, and in March
2001 they filed a lawsuit against the U.S.
and Mexican governments, the Wells Fargo
bank, and three Mexican banks. In August
2002, a San Francisco judge threw the case
out, partly on statute-of-limitation and ju-
risdictional grounds. But even the not nec-
essarily immigrant-friendly California State
Legislature thought this was unjust and
in January 2003 it extended the statute of
limitations to allow the workers to press
their case.13
At the opposite end of the spectrum of
failed policies, some countries have barred
émigrés from holding home-country bank
accounts. Colombia, for example, did not
end this practice until late in 2003.14
Policymakers have learned that there are
ways to increase the impact of remittances
on the home country without killing the
goose that lays the golden egg. The most
successful programs are a mix of public and
private initiatives. Morocco, for example,
subsidizes the cost of sending remittances
through its state-owned Banco Popular.
This gives migrant workers an incentive to
use the formal system, but workers actually
use it only because they have confidence
that the system will work—unlike the dis-
astrous Turkish example. Remittance flows
thus create a positive feedback loop that can
encourage governments to maintain respon-
sible monetary policies.
Encouraging workers to send remit-
tances through formal financial channels
can help reduce costs to the workers them-
selves as well as increase the receiving coun-
try’s hard currency reserves, strengthen lo-
cal financial systems, and make more credit
available to nurture local economies. En-
couraging competition among money trans-
mitters and promoting better use of tech-
nology will further reduce the costs of trans-
fers and thus increase the amount of money
available to developing countries.
According to the Inter-American Dia-
logue Task Force on Remittances, “the sin-
gle most important task, for both govern-
ments and non-governmental agencies, is to
encourage senders and recipients to make
use of banks and other financial institu-
tions.”15 The task force recommends that
governments open the remittance market to
such financial institutions as credit coopera-
tives and micro-finance organizations, pub-
lish regular analyses of services provided by
firms so that users can compare costs and
choose accordingly, and compile market re-
search to help develop strategies to increase
participation in formal financial services.
Until 2001, when the United States
banned unlicensed money transmitters, just
over half of the remittances sent from the
United States went through informal money
transfer systems, which often were much
cheaper than formal sending mechanisms.16
Before September 11, 2001, hawala fees, for
example, were typically between 0.5 percent
and 3 percent of the money sent. The trade-
off now is higher fees for individuals in re-
turn for greater protections against money
laundering and terrorist financing, and
stronger banking systems in the receiving
countries. In view of the meager resources of
many sending migrants, however, fees need
to come down.
Luckily, as banks have begun to compete
with money transfer companies, remittance
costs have fallen considerably. They vary by
country and are as low as 4 percent in El
Salvador and 5 percent in Mexico. However,
the fees to remit funds to the Dominican
Republic and Jamaica, the highest in the
Caribbean region, average 8 percent and 12
percent, respectively.17
The International Remittance Network
(IRNet) run by the World Council of Credit
Unions (WOCCU), charges between $6.50
and $10 for transfers of up to $1,500. At
present, only members of credit unions may
Remittances: The Perpetual Migration Machine 41
send money, but WOCCU has proposed to the
U.S. Congress that credit unions be allowed
to provide such services to nonmembers.18
Financial institutions have also been de-
vising new ways to send money, which they
often advertise as lowering the costs of do-
ing so (although it can be difficult to calcu-
late the true costs of sending money). The
SafeSend card from Bank of America, for
example, is a stored-value card that can be
sent to relatives or other recipients in Latin
America and used to withdraw cash from
automatic teller machines (ATM s) or to make
purchases in stores. The bank offers lower
sending fees to customers who also open
bank accounts, including a new low-cost
package designed for customers who typi-
cally do not maintain balances high enough
to avoid maintenance fees on regular ac-
counts. American Cash Exchange, based in
New Jersey, has announced its “Poni PIN
Card,” which works in ATM s. The purchaser
of a Poni card scratches the back of the card
to reveal a personal identification number
(PIN), which he relays to the intended recipi-
ent by means of a free five-minute phone
call that comes with the card; the recipient
can access the funds by using a similar card
obtained locally and the transmitted PIN.
The company charges a $12 commission for
the card, which on its smallest denomina-
tion, 1,000 pesos (roughly $90), is still
high.
Last year, Democrat Charles Schumer in-
troduced the Money WIRE Act in the Senate,
which would force companies to disclose
their fees on receipts and in their advertis-
ing. Luis Gutierrez, a Democrat from Illi-
nois, has introduced a similar bill, the Wire
Transfer Fairness and Disclosure Act, in
the House of Representatives. Both are in-
tended to keep immigrants from being over-
charged. Neither has yet passed.
Meanwhile, officials in both sending
and receiving countries have been trying to
lower costs for money transfers in the hope
that transmitters will pass on the savings to
their customers. The Inter-American Devel-
opment Bank has been helping the Domini-
can Republic, El Salvador, Jamaica, and
Mexico put in place electronic systems that
will help local banks link up to their foreign
counterparts, lowering the costs of transfer-
ring money.
In an initiative modeled on U.S.-Cana-
dian arrangements, the U.S. Federal Reserve
Bank and the Bank of Mexico in 2003 cre-
ated an automated clearinghouse that will
reduce the costs of sending the roughly $14
billion that Mexicans in the U.S. wire to
relatives back home each year—Mexico’s
second-largest source of foreign exchange af-
ter oil. And under Treasurer Rosario
Marin—who emigrated from Mexico to the
United States as a child—the U.S. Treasury
Department has partnered with Mexico’s
federal savings bank, BANSEFI, to create an
internet-based “People’s Network” program
to channel remittances inexpensively to 3.8
million rural Mexicans. The program has al-
so promoted micro-finance initiatives, an-
other way of leveraging remittances to pro-
mote economic growth. In Mexico, it ap-
pears that remittance receivers are more
likely to use the formal financial system.
According to the Pew survey, 33 percent of
remittance receivers in Mexico have bank
accounts, as opposed to 22 percent of the
general population.
Efforts to bring immigrants into the fi-
nancial mainstream are under way in the
United States as well, where as many as half
of Latino immigrants do not have bank ac-
counts. Unfortunately, these efforts have be-
come highly politicized, especially for un-
documented immigrants. Since 2002, when
the Mexican government redesigned its ma-
tricula consular identification cards issued to
Mexicans abroad to make them more secure,
roughly 300 U.S. banks have begun to ac-
cept them as proof of identity for opening a
bank account. This aroused the ire of House
Immigration Reform Caucus chairman Tom
Tancredo, a Republican from Colorado, who
claimed that the ID cards legitimized illegal
immigrants. In May 2003, Colorado became
42 WORLD POLICY JOURNAL •SUMMER 2004
Remittances: The Perpetual Migration Machine 43
the first state to bar the use of Mexican con-
sular cards and sparked a national anti-im-
migrationist furor that prompted congres-
sional hearings on the issue. Last fall, the
U.S. Treasury reendorsed the use of matricu-
las, but the controversy has continued as
many states debate possible laws to allow
or deny the practice.
In an environment that is often hostile
to immigrants, the question inevitably
comes up: does it hurt U.S. communities
when remittance money leaves the country?
In short, no. Though the funds are signifi-
cant for receiving economies, they are a drop
in the bucket in the overall U.S. economy,
roughly equal to the dollar value of shares
traded on the New York Stock Exchange in
just two days. Moreover, remittances pale in
comparison to the benefits to the United
States from the lower wages paid to immi-
grant workers and the steady supply of labor
they represent. To be sure, the money sent
home might instead be used to better the
lives of immigrants here. However, accord-
ing to a new study by the Inter-American
Development Bank, 93 percent of the $450
billion that U.S. Latino immigrants earn is
spent here.19
The economist J. Edward Taylor has
argued that those who send remittances
are likely to be able to afford to do so. For
one thing, he has found that families with
children in the United States are likely to
send less money back home than workers
without children.20 He also notes that home-
country family ties provide a social safety
net. This suggests remittances are well
spent, in the sense that they reduce the
cost to the U.S. economy when an immi-
grant facing health problems or other diffi-
culties can return to his family in his home
country.
Savings, Investment, and Community
Economists estimate that 90 percent of re-
mittances are spent on consumer goods, and
because of the multiplier effect that occurs
as this money passes from one business to
another, the impact of remittances on eco-
nomic growth is probably close to double
the actual amount sent. While this appears
to be good news, many experts would not
agree. This is because they say that money
spent on consumer goods would be better
spent on economic development.
However, the problem may not be as
bad as it appears. First of all, a growing
number of recipients surveyed by Pew—
between a quarter and a third—put some
portion of the money they receive in remit-
tances into savings or small investments.
Second, by some estimates, as much as a
third of remittances go to housing con-
struction, which is really investment, not
merely consumption. Finally, policymakers
are finding ways to use remittance flows—
even those used for consumption—to open
up sources of credit. The Inter-American
Development Bank, for example, is test-
ing a program that would allow applicants
to count remittance income in their loan
applications and thus increase their eligi-
bility for credit. In several countries, remit-
tance flows are adding to the amount of
credit available to local businesses and
consumers by allowing the banks that
process them to borrow from the interna-
tional capital markets at lower interest
rates. By making use of a legal mechanism
called securitization, which essentially guar-
antees that the hard currency generated by
remittances will be dedicated to repaying
investors, banks in Brazil, El Salvador,
and Mexico have already raised hundreds
of millions of dollars less expensively
than they would have been able to do
otherwise.21
Another question related to remittances
is How can developing countries harness the
resources available to émigrés on the higher
end of the income scale, who are less likely
than low-income migrants to send remit-
tances but who are likely to be interested in
investment or philanthropy for community
development? Governments should—and
are beginning to—make it easier for these
44 WORLD POLICY JOURNAL •SUMMER 2004
immigrants to invest in their communities
back home.
The Pan-American Development Foun-
dation, a nongovernmental organization af-
filiated with the Organization of American
States, works with hometown associations
and other immigrant outreach groups that
have been created to channel émigré dollars
into development projects such as the build-
ing of churches, sanitation systems, roads,
and hospitals, particularly in Haiti, El Sal-
vador, and Mexico. Donations that immi-
grants make to the Transnational Commu-
nity Development Fund are tax deductible
in the United States, and some generate
matching funds from the U.S. Agency for
International Development. Similarly, the
Mexican government matches, three for one,
community or hometown association dona-
tions to local public works projects. So far,
this governmental program has channeled
$60 million into development projects.22
Under the Unidos por la Solidaridad
(United in Solidarity) program run by El
Salvador’s development agency, FISDL, and
the government’s directorate for citizens
abroad, DGACE, Salvadoran hometown asso-
ciations can apply for matching federal de-
velopment funds for social infrastructure
projects. So far the hometown associations
have donated $2.1 million for 45 projects,
matched by $6.9 million in government
funds.23
To harness the migration machine for
development, countries must find ways to
harness the skills of better-off émigrés as
well as their financial contributions, thus
turning brain drain into “brain circulation.”
India and China have had some success in
this regard. A Public Policy Institute of
California study of 2,300 foreign-born
Silicon Valley engineers found that 51
percent had been involved with founding
or running a start-up company in their
home countries. Half traveled to their na-
tive countries at least once a year on busi-
ness, and four out of five shared technology
information and tips about U.S. job and
business opportunities with colleagues back
home.24
Policymakers in other countries, like
the Dominican Republic and Pakistan, are
working on adapting such strategies to their
own circumstances. Mexico’s “Godfather
Program” seeks to lure Mexican émigré in-
vestments. Colombia’s Foreign Ministry has
had some initial success with the Colombia
Nos Une (Colombia Unites Us) program to
promote technology transfer and investment
from the 4.3 million Colombians abroad
and the 440 homeland associations they
have formed.
More than a dozen programs worldwide
offer financial support to help returning mi-
grants start businesses. France, for example,
pays voluntary Malian returnees roughly the
amount that it would have cost for the po-
lice to have deported them forcibly.25 While
such programs focus on deportable mi-
grants, the principle of facilitating entrepre-
neurship in the homeland could be applied
on a broader scale, and perhaps used to fi-
nance home-country training centers as
well. This could be a cost-effective way of
encouraging return migration and creating
the jobs necessary for deterring future
migration.
Various initiatives have attempted, with
varying success, to train returning migrants
to start and run businesses, and to provide
financing for such endeavors. These include
a joint program established in 1982 by the
Sri Lankan Ministry of Labor and the Mer-
chant Bank of Sri Lanka; an investment ad-
visory service offered by Thailand’s Bangkok
Bank in the 1980s; a technical assistance
service created by the Overseas Pakistanis
Foundation to help returnees channel sav-
ings, obtain credit, and navigate govern-
ment bureaucracies; and the Philippine
Overseas Employment Administration’s
centers for training and financial support.
However, these programs were successful
only among returnees who had high skills
and where the pool of local savings was deep
enough to provide returnees with sufficient
credit.26 This brings us back to the point
made earlier about the importance of chan-
neling remittances into the formal financial
system.
A Way Forward
Though remittances offer a powerful tool for
development, they are no panacea, for they
do have negative side effects. Because so
many people in poor and developing coun-
tries have come to depend on them, they
induce the flow of people across borders.
Unless forward-looking policies are put in
place, this migrant flow will continue indef-
initely, along with the accompanying trau-
ma to families and the social stresses on
both sending and receiving countries.
Both sending and receiving countries
must focus on the problems surrounding re-
mittances. Governments should continue
their efforts to reduce the bite that fees take
out of remittances by promoting competi-
tion in the remittance market and encourage
immigrants to use formal financial channels.
They should dedicate more funds to match-
ing-grant development programs and con-
tinue to subsidize home-country association
efforts to improve the living conditions and
economies of sending countries, so that their
citizens do not feel compelled to migrate.
Remittance flows can and should be used to
promote savings and investment. And gov-
ernments should encourage skilled migrants
to return home and reverse the brain drain
that occurs when countries have no choice
but to send their most able citizens abroad
to make ends meet.•
This is the first part of a two-part article on re-
mittances. The second part, which will appear
in our fall issue, will focus on the political im-
pact of global remittances in both home and host
countries.
Notes
1. The World Bank estimates that remittances
in 2003 amounted to $93 billion. The Nilson Report,
which tracks the global payments industry, puts the
2003 figure at $145 billion.
2. See Dilip Ratha, “Workers’ Remittances:
An Important and Stable Source of External Devel-
opment Finance,” in Global Development Finance
2003 (Washington, D.C.: World Bank, 2004); see
also Devesh Kapur and John McHale, “Migration’s
New Payoff,” Foreign Policy, November/December
2003.
3. Leonides Buencamino and Sergei Gorbunov,
“Informal Money Transfer Systems: Opportunities
and Challenges for Development Finance,” United
Nations DESA Discussion Paper No. 26, ST/ESA/2002/
DP/26, November 2002.
4. Gwenn Bézard, “Global Money Transfers:
Exploring the Remittance Gold Mine,” Celent Com-
munications, Boston, August 2002.
5. Robert Suro, “Remittance Senders and Re-
ceivers: Tracking the Transnational Channels” (Wash-
ington, D.C., Multilateral Investment Fund/Pew
Hispanic Center, November 24, 2003).
6. Bendixen & Associates, “Survey of Remit-
tance Senders: U.S. to Latin America” (Washington,
D.C.: Inter-American Development Bank/Multilat-
eral Investment Fund, November/December 2001).
7. For an account of the Somali case, see Cindy
Horst and Nick van Hear, “Counting the Cost:
Refugees, Remittances and the ‘War Against Terror-
ism,’” Forced Migration Review, no. 14 (July 2002).
8. Suro, “Remittance Senders and Receivers.”
9. Philip L. Martin, Trade and Migration: NAF-
TA and Agriculture (Washington, D.C.: Institute for
International Economics, 1993); see also Philip L.
Martin and Thomas Straubhaar, “Best Practices to
Reduce Migration Pressures,” International Migration,
vol. 40, no. 3 (2002), pp. 5–23.
10. B. Lindsay Lowell, “Some Developmental
Effects of the International Migration of Highly
Skilled Persons,” International Migration Paper 46
(Geneva: International Labor Organization, 2002).
11. Richard H. Adams, Jr., “International Mi-
gration, Remittances, and the Brain Drain: A Study
of 24 Labor-Exporting Countries,” Working Paper
No. 3069 (Washington, D.C.: World Bank, June,
2003).
12. Buencamino and Gorbunov, “Informal
Money Transfer Systems,” p. 7.
Remittances: The Perpetual Migration Machine 45
13. Tyche Hendricks, “Bush Guestworker Plan
Recalls Bracero Program,” San Francisco Chronicle,
January 16, 2004.
14. Felipe Ossa, “Colombian E-Cash Boom,”
LatAm Securitization Report, January 26, 2004.
15. All in the Family: Latin America’s Most Impor-
tant International Financial Flow, Report of the Inter-
American Dialogue Task Force on Remittances
(Washington, D.C., January 2004).
16. Bézard, “Global Money Transfers.”
17. All in the Family, Report of the Inter-Ameri-
can Dialogue Task Force on Remittances.
18. See www.cuna.org/gov_affairs/congress_
briefing.html.
19. Inter-American Development Bank/Multi-
lateral Investment Fund, “Sending Money Home:
Remittance to Latin America and the Caribbean”
(Washington, D.C., January 26, 2004).
20. J. Edward Taylor, “Do Government Pro-
grams ‘Crowd In’ Remittances?” Inter-American
Dialogue and Tomás Rivera Policy Institute working
paper, January 2000.
21. LatAm Securitization Report, January 12,
2004.
22. Alfredo Corchado, “Public-Private Efforts
Inject Life across the Border,” Dallas Morning News,
September 29, 2003.
23. Manuel Orozco, “The Salvadoran Diaspora:
Remittances, Transnationalism and Government Re-
sponses,” working paper, Tomás Rivera Policy Insti-
tute, 2004.
24. AnnaLee Saxenian. “Local and Global Net-
works of Immigrant Professionals in Silicon Valley”
(San Francisco: Public Policy Institute of California,
2002).
25. United Nations Development Program,
“Immigration and Migrant Labor: Some Lessons from
Global Experience,” October 2002.
26. Shivani Puri and Tineke Ritzema, “Migrant
Worker Remittances, Micro-Finance and the Infor-
mal Economy: Prospects and Issues,” International
Labor Organization Working Paper 21, Geneva,
1999.
46 WORLD POLICY JOURNAL •SUMMER 2004
