Credible Future - Can Micro Loans Make a Macro Difference?, Development & Aid, Economy & Trade, Headlines, Human Rights, Labour, Latin America & the Caribbean, Migration & Refugees

DEVELOPMENT-LATAM: Influx of Dollars, Exodus of People

Ulysses de la Torre*

MEXICO CITY, Jun 13 2006 (IPS) - The social effects of remittances from migrant workers and the growing business of microfinance may not lend themselves as easily to news headlines as their economic or financial impacts, but that does not make them any less significant.

Experts note that it can be hard to determine the extent to which social changes in migrant-sending countries are the result of depopulation, the transmission of cultural values, or merely the result of what happens when poor people become more financially empowered. However, broken families, brain drain and changing gender roles are a few of the initial social changes which are commonly acknowledged in Mexico and El Salvador. And the money has been flowing long enough now that other social changes are becoming visible.

Microfinance is a business model that offers favourable terms for any combination of savings accounts, insurance, loans (known more commonly as “microcredit”) or mortgages to those historically considered too poor to warrant the attention of banks.

Some microfinance institutions report a rising tendency of clients to use a combination of remittances and microcredit to pay the costs of migration, thus inserting microfinance directly into the underground economy in human trafficking. Considering that the average cost to migrate from El Salvador to the United States is 6,000 dollars, a sum which would take more than three years to accumulate from a minimum wage salary, this development is not surprising.

Other microfinance professionals speak of rising unemployment in their communities as evidence that remittances promote complacency.

“This is a society that is getting used to remittances,” argued José Napoleon Duarte, the executive director of Fundación José Napoleon Duarte. Duarte’s father, of the same name, was El Salvador’s president from 1984 to 1989. “The beneficiaries of remittances are in sectors that have become used to not working, not producing and therefore not thinking.”

“Unemployment is rising and people lack motivation to study because they know they’re just going to leave once they turn 18 years old,” said Brígido García of Fundación Campo, another Salvadoran microfinance institution.

Duarte and García are not alone in their views. Several other microfinance professionals interviewed expressed similar concerns, and a United Nations Development Programme (UNDP) report released late last year on human development in El Salvador confronted the issue directly.

“This report allows us to understand some behaviours that in any other context would appear absurd. For example, how does one explain that in surveys people classify the lack of employment as one of the principal national problems, while the Ministry of Agriculture reports that there is not sufficient manual labour to harvest coffee?” it asks at one point.

“Why are a growing number of shopping malls being constructed that appear filled with people, while the economy registers its tenth year of slow growth?”

Anecdotal explanations for the paradox are beginning to emerge. Increasing numbers of Hondurans and Nicaraguans are coming to mostly rural areas of El Salvador to work, but the data is mixed on the extent to which outgoing Salvadoran manpower is cancelled out by incoming Nicaraguans and Hondurans.

Although research from the International Organisation for Migration suggests El Salvador’s labour inflow actually surpasses the outflow, uncertainty remains about how meticulously returning nationals are counted by all countries in the region.

At the same time, central bank surveys show that not only are Salvadorans migrating north in larger numbers, but between half and three-quarters of the country’s population is also thinking about migrating. Most of those surveyed express a desire to join family members already in the United States – a potential reunifying trend to counterbalance the rupturing of families.

By contrast, a survey done by the Inter-American Development Bank in 2003 found that only 19 percent of Mexican households think about migrating to the United States.

A second explanation is a growing “culture of consumption” taking root among recipients of remittances. Although this cultural change is a common observation among many Latin American countries, research from the Inter-American Development Bank shows that El Salvador’s recipients spend 84 percent of remittances on consumption – by far the highest rate in Latin America, followed by Mexico with 78 percent.

“Capacity building, training, education have not flourished, only consumption. That is the great social multiplier effect – society is wearing down because cultural norms have changed,” said Duarte. “It isn’t the same today in El Salvador as it was before. It doesn’t mean that it is now better or worse, but just that it has changed and multiplied, and why? Because incoming dollars give people the capacity to buy, to consume.”

“Everyone says that people don’t work when they get remittances. But you need to understand that instead of working for six dollars per week or per day, people are receiving 300 dollars a month. It’s better than working, that’s absolutely true,” said Vanessa Vizcarra, Microfinance International Corporation’s regional director for Latin America.

She added the trend is not entirely negative, since remittances are gradually being channeled to non-consumption uses, such as investment in a business or a house.

Other research has shown that remittances allow children to stay in school longer. Since 2000, the proportion of remittance-sending Salvadorans abroad with at least some university education jumped to 19.2 percent, up from 9.3 percent before 2000. The World Bank has estimated this percentage to be closer to 40 percent. But data showing the extent to which remittances contribute to reducing illiteracy is inconclusive.

The social effects of remittances are clearly widespread and undeniable. How beneficial they are remains a point of contention in the development community, but one thing universally agreed upon is the need to keep in mind the double-edged nature of remittances.

“The Mexican economy has become addicted to remittances in the same way that the economy of the United States has become addicted to migrant labour,” said Rodolfo García Zamora, a professor of economics and immigration at the Autonomous University of Zacatecas in Mexico. “And we have to value the positive impact and the negative impact without any falsifications.”

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