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DEVELOPMENT-LATAM: Tapping the Power of Self-Determination

Ulysses de la Torre*

MEXICO CITY, Jun 14 2006 (IPS) - Nobody knows when remittances or migration will stop increasing or start declining, but one of the unwavering challenges presented by these flows of money and people is how to leverage them into sustainable development.

And at the centre of this challenge lies a tug-of-war between economic activities that are as old as the discipline of economics itself: consumption and production.

“We need to acquire an entrepreneurial culture and binational capacity in communities to bring development to our country,” says Dagoberto Reyes, director of the Committee of Salvadoran Community Development in Los Angeles.

According to Reyes, potential partners from the private sector have approached his organisation looking for commercial links. The major obstacle so far has been a failure of the private sector to understand that evolving social relations and identities among migrants have yet to generate an entrepreneurial base that corresponds to that of the homeland.

“They never look for the community as partners, they look for consumers. We want to be partners with private companies – we’re the ones generating capital for them,” he said.

Finding the optimal mix of involvement from the private sector, grassroots organisations and policy makers remains the principal challenge in leveraging remittances. This challenge is intensified by the fact that Mexico and El Salvador have disproportionately high numbers of nationals in the United States: the estimated 11 million Mexicans living north of the border represents one-tenth of the domestic population, while El Salvador claims a U.S. diaspora nearly one-quarter of its domestic population.

Correspondingly, both are the two immigrant-sending nations whose expatriates in the United States are the most organised. Both the Mexican and Salvadoran governments have developed programmes for matching money sent home by migrants for community projects, Mexico’s “tres por uno” (three dollars for one) programme being the better known. The money frequently originates from what are commonly known as Hometown Associations – community organisations abroad formed by migrants in their new city of residence.

But the capacity for such efforts is limited by both the government’s ability to match the funds as well as the amount that these associations can marshal – the latter amount for either country constitutes barely one percent of its overall remittance flows. Furthermore, the ongoing depopulation in many migrant-sending communities begs the question of how useful such projects are when there are decreasing numbers of residents to benefit from them.

Proposals to tax money transfers once upon a time enjoyed more popularity, but the idea at this point has been largely removed from the discourse, recent congressional deliberations notwithstanding.

Investigative reports in the U.S.-Latin America corridor have revealed a rising business in pirated and unused social security numbers and other forms of identification for undocumented workers, allowing them to find employment that is above-board in practice, if not in theory. This implies that at least some migrant workers already pay taxes and prop up a social security system whose benefits their legal status prevents them from collecting.

What the migration-remittances-development patchwork has lacked is something – a mechanism, a plan, an incentive – powerful enough to encourage more migrants to stay in their homelands. The blame can be laid upon any one of a number of interested parties on the periphery, or all of them: government, multilateral agencies, philanthropists and grassroots organisations, among others.

The more profound implication here, many analysts believe, at least from the standpoint of the role of the state, is that fostering conditions that allow for citizens’ economic sovereignty, security and stability is a task whose oversight now appears up for grabs.

The notion that lower-income citizens can and should be responsible for their own economic sovereignty, security and stability – in short, the right to economic self-determination – is the foundation of a growing movement toward making the formal financial system more inclusive.

Encouraging more migrant workers to send money through the banking system, as opposed to the traditional money transfer operators, such as Western Union or Moneygram, is the start of this process to “bank the unbanked”.

But the greater challenge is how to convince more migrant workers and their families to channel more of their remittances toward investment or savings. Surveys indicate that at most 10 percent of remittances are currently channeled toward savings across nearly all of Latin America. While a boost in the savings rate would have longer-term economic effects, many microfinance experts say that immediate needs are too large to allow for much savings.

“We need to be more cautious in our assessment of the potential additional benefits that can be squeezed from these flows,” said David Myrhe, a programme officer for the Mexico City office of the Ford Foundation, adding that remittances are already doing double duty by redressing deficient social policies regarding public education and health.

“Pressuring recipients to channel significant portions of the remittances they receive into productive activities may translate into lower expenditures on health and nutrition, and reduced investment in education and housing.”

Getting people to save, however, requires people to hold bank accounts in the first place. This is still a challenge, and the reason does not have to do with migrant workers or their families.

World Bank research shows that between 15 and 25 percent of Mexico’s urban population has access to accounts in financial institutions. In rural areas, which receive nearly half of Mexico’s 20 billion dollars of remittances, this access shrinks to 6 percent. The situation is hardly better in El Salvador, where 28 percent of Salvadorans receive remittances but only 23 percent have bank accounts, with the skew in rural areas similar to Mexico.

Mexico’s Savings and Popular Credit Law, enacted in 2001, was intended to rectify this situation. But the fact that access in rural areas is still in the single digit percentages five years later has prompted Isabel Cruz, the director of the Mexican Association of Social Sector Credit Unions, a network of MFIs serving 60 indigenous rural communities, to call for a revision of the law.

“In theory, laws create equal rights and economic opportunities for all Mexicans,” she said. “But when economic inequality and social differentiation are so great, generic laws run the risk of making some people more equal than others.”

The challenge for governments, multilateral agencies, philanthropists and grassroots organisations is conceiving a way to deliver outcomes that are simultaneously relevant, effective, complementary and forward-looking. Meeting this challenge will determine in part the ability of lower-income citizens to achieve their own financial freedom.

But if the recent past is any indication, migrant workers and their families appear destined for this regardless. The only question now is how quickly it will happen.

*Ulysses de la Torre is a journalism fellow at the Instituto Tecnológico Autónomo de México in Mexico City. This article is the third of a five-day series that examines the ripple effects of remittances and microfinance from social, economic, development and marketplace perspectives.