Credible Future - Can Micro Loans Make a Macro Difference?, Development & Aid, Economy & Trade, Global, Global Geopolitics, Headlines, Human Rights, Labour, Migration & Refugees, Poverty & SDGs

DEVELOPMENT: Workers Without Borders

Ulysses de la Torre

UNITED NATIONS, Sep 16 2005 (IPS) - Any credible discussion of sustainable development must include an abundance of statistical data, and the United Nations World Summit this week has been no exception.

But amid the onslaught of figures describing populations, resources and finances, two numbers in particular are worth keeping in mind: 78.6 billion dollars and 125.8 billion dollars.

The first amount represents the total official foreign aid that the world’s 22 wealthiest governments gave to less developed countries in 2004, according to the Organisation for Economic Cooperation and Development.

The second, from the World Bank, is the money migrant workers worldwide sent home last year. It exceeds Gross Domestic Product estimates for many countries, including Malaysia, Israel, Venezuela and Singapore.

Though commonly known as remittances, a more descriptive term might be “migrant worker foreign aid”. This figure has been increasing annually since serious record-keeping began about 10 years ago.

How much of the increase comes from improved data collection, as opposed to more money being sent, is a matter of some debate. And it is the least contentious of the many talking points emerging as remittances attract more attention. The scale of the money involved, coupled with its role as a last-ditch attempt by hundreds of millions to improve their lives, makes it worth a closer look.

The presidents of Spain and Brazil both raised the topic – albeit briefly – during a press conference about development financing Wednesday, making a serious examination all the more pressing of just what this money is and what it is not.

Some argue that remittances could or should replace official foreign aid since the money is taken out of wealthy countries’ economies. But Donald Terry, the director of the Inter-American Development Bank’s Multilateral Investment Fund, recently summed up the flaw in this proposal during a conference two weeks ago in Mexico City.

“This money does not belong to governments,” he said. “It belongs to migrants, who are sending this money home to their families and communities.”

A large body of work pioneered by the IDB indicates that most of the money goes toward immediate needs, such as food and medicine.

Others argue that the ease with which migrant workers send money across borders creates a potential money laundering mechanism for financing drug trafficking or terrorism. A cursory look at the facts renders this suggestion totally unrealistic: the average individual remittance to Latin America in 2004 – which as a region received 46 billion dollars, making it the largest remittance market in the world – was 300 dollars a month, and that’s at the higher end of worldwide averages.

At the Mexico City conference, sponsored by the Spanish-language edition of Foreign Affairs, the Central Bank of Mexico said that more than 80 percent of individual transactions to Mexico last year were for amounts less than 500 dollars.

With numbers like these, and a U.S. law requiring the submission of a “Suspicious Activity Report” for sending any amount above 10,000 dollars, a rogue outfit would need at least tens of thousands of co-conspirators to conduct business without raising eyebrows.

Members of the U.S. Congress are beginning to see the light on this point. During a June conference in Washington, Sen. Paul Sarbanes of Maryland remarked on testimony given to the Senate Banking Committee, which he chairs, regarding the topic.

“Testimony confirmed the finding of recent studies that show remittance-senders to be relatively low-wage earners who have limited formal education and little experience in dealing with this country’s complex system of financial institutions,” he said.

“They are therefore more likely to be the targets of unscrupulous actors who take advantage of them by charging exorbitant fees, often through the mechanism of the exchange-rate conversion.”

There also have been calls to tax remittances. But in the U.S.-Latin America corridor, recent investigative reports 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 are already paying taxes and propping up a social security system whose benefits their legal status prevents them from collecting.

Experts say the real potential of worker remittances, however, lies in how individuals, local governments and businesses are harnessing this money.

Banks in developing countries are increasingly using remittances as a form of collateral, allowing them to raise capital at lower interest rates.

Hundreds of entrepreneurs have entered the market in recent years, offering prepaid cards through which migrant workers can send money home at costs approaching zero, some of them bypassing traditional wire transfer mechanisms by using the internet. Observers ranging from academia to Wall Street speculate this phenomenon could revolutionise the way people think about moving money across borders.

Throughout the United States, community-based organisations formed by migrant workers pool funds from members to send home en masse for financing projects that repair schools, generate electricity and build irrigation systems, to name just a few.

As a result, some Latin American politicians now regularly campaign north of the border. This has also inspired governmental collaboration, one of the more notable examples being Mexico’s “tres por uno” programme in which the municipal, state and federal governments match the funds sent by community groups abroad.

Whether remittances are a collective answer to bureaucratic sluggishness, the inevitable outcome of a constantly evolving global labour market, or both, is a question that may never be answered objectively.

It could be an equally long time before it is possible to quantify with any certainty how much any of these responses – including those crafted at the United Nations World Summit – contribute toward reducing poverty. What is evident, however, is that those most affected cannot afford, in all senses of the word, to wait any longer for a few extra tenths of a percentage point of official foreign aid.