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					Remittances
  Lecture 9
                 Introduction
• “Globalization has meant more than trade and
  finance.” (What has it meant?)

• “Migration represents a very important dimension
  [in globalization], and family remittances
  specifically have constituted a major factor in
  integrating societies into global context
  economically and socially.” (How has it been
  integrated?)
                 Introduction
• “Because of migration Central America and
  Caribbean economies have gradually transformed
  themselves from agro-exporting economies to labor-
  exporting economies” (Why labor-exporting
  economies?)

• Thus, migration has created “linkages between Latin
  America migrants and their Latin American
  countries of origin.”

• “There is a growing interconnection influences by
  the flow of family remittances to Latin America.”
                         Introduction
Globalization: Anthony Gidden defines it as
    “the intensification (networks) of worldwide social relations which
    link distant localities (spaces) in such way that local happenings are
    shaped by events occurring many miles away and vice versa
    (circular migration)” (1990:64).

Ankie Hoogvelt (1997) suggest that were are experiencing deepening
    capitalist integration that takes place in three phases:
1. Global market discipline- is observe in the process by which
    economic agents dominant standards of price, quality, and
    efficiency in global scale and applying them to their domestic
    markets.
2. Flexible accumulation through global webs- as the practice of
    carrying routine production via firms that create and maintain the
    networks around the world.
3. Financial deepening- is the result of a growth in financial
    transactions that is higher that the growth of production and trade.
                         Introduction
•    Recent studies have focus on the three measure of
     integration of labor markets in the global economy.
    1) Is the proportion of foreigners in the domestic workforce.
    2) Is the ratio of the domestic force in export-dependent industries
       and employed by domestic affiliates of foreign multi-national
       enterprises.
    3) Remittances that contribute to a home country’s GNP and
       provide it with valuable foreign exchange.


•    In this case, they propose using the ratio of remittances to
     gross domestic product (GDP) as an indicator of
     integration.
                          Introduction
•    Studies of three remittances have often focused on three
     issues:
    1.   The wealth- generating capacity of remittances through saving
         and investments.

    1.   The factors influencing their flow.

    2.   The effects of remittances in the recipient economies at the
         household level.

•    What studies have concluded about remittances is that
     they have an important effects
    –    on economic growth,
    –    trade,
    –    the distribution of wealth in the home recipient country.
    –    Produces a different pattern of economic behavior.
                    Introduction
• Latin America economy has become more
  integrated through trade and investments.

  –   North American Free Trade Agreement (NAFTA)
  –   Southern Cone countries, MERCOSUR.
  –   Latin American Free Trade Area (FTAA)
  –   Central American Free Trade Agreement (CAFTA)


• However, Remittances has emerged as the leading
  economic indicator with the most potential.
               Family Remittances
• Latin American migration to the U.S. in the 1970s
  and 1980s have created new linkages between
  –   Individual-individuals (family)
  –   Towns-towns (Hometown associations)
  –   Cities-cities (Daughter Communities)
  –   Countries-countries (trade agreements)
  –   Regions-regions (CAFTA)


• Family remittances are currently one of the most
  important forms of linkage among emigrant Latinos
  and Latin America.
                Family Remittances
• Researchers have focus on two aspects of the globalization
  of remittances:
   – Scope (Stretching)- are the agents in the circular migration such as
     market intermediaries, governments, hometown associations,
     international groups, and individuals.

   – Intensity (Strengthen)- relates to the level of involvement of the
     previous agents in affecting the impact of remittances in the
     receiving country.


• In other words, the boundaries of spaces are stretched and
  already existing networks are strengthen.
                 Family Remittances
How important are remittances in Latin America?
• The volume of remittances began increasing in the 1980s.

• Mexico, El Salvador, Guatemala, Honduras, and Nicaragua
  remittances have increased from

• Nearly $1 billion in 1980 to $3.7 billion in 1990 and over $10 billion
  dollars in 2000!!!!

• Just in Mexico alone remittances increased from $800 million in 1980,
  to $2.4 billion in 1990, and to $6.5 billion in 2000.

• Or in Mexico represents 10% of the total value of exports nearly as
  much as tourism.
                     Family Remittances
How important are remittances in Latin America?
• Remittances in Latin America during 2002 increased by 17.6% reaching over $32
  billion.

• Latin America is now the number one destination for remittances worldwide.

• Remittances to every L.A. countries, except Bolivia increased by 10%, in 2002,
    –   Colombia (28%),
    –   Jamaica (27%),
    –   Peru (24%),
    –   Guatemala (23%),
    –   Honduras (22%),
    –   Cuba (22%)
    –   Dominican Republic (16.9%)
    –   EL Salvador (15.4%)
    –   Nicaragua (15%)
    –   Haiti (15%)
    –   Ecuador (10%)
    –   Brazil (10%)
            Family Remittances
How important are remittances in Latin America?
• In Nicaragua remittances represent ¼ of the national
  income.

• In El Salvador remittances have exceeded the total
  value of exports.

• In Dominican Republic and Nicaragua represent half
  of the values of exports, and about 80 percent of the
  value of foreign direct investment.
          Hometown Associations
What is the function of HTA?
• Hometown Associations (HTA) or transnational
  migrant organizations (TMOS) are formed among
  remittance senders to coordinate their support not
  only of relatives but also of their towns.

• In addition, to retain a sense of community as they
  adjust to life in the United States.

• Immigrants have formed community groups to
  maintain relationships with the home country or
  with local communities.
               Hometown Associations
•    HTA’s international activities can be described in five
     groups:
    1.   Charity: Orientations range from charitable aid to investment.
         •   Include the donation of cloths
         •   Construction materials for various projects such as church
         •   Small cash amounts to purchase goods for local activities.


    2. Infrastructure: raise money for improvements for hometown
         •   Streets,
         •   Parks
         •   Build sewage treatment
         •   Water filtration plants
         •   Buy or maintain cemetery plots
         •   Health care facilities
               Hometown Associations
•    HTA’s international activities can be described in five features:
    3.   Human development: this activities are orientated toward “human
         development.”
         •   Scholarships
         •   Library books
         •   Health supplies
         •   Medicine
         •   Sports facilities
         •   Nursery homes
         •   Daycares
         •   Schools
         •   Communal soup kitchens

    4.   Investment: capital investment for income-generation projects managed by
         local community members and often supervised by immigrants.
         •   Coops
         •   Credit Unions

    5.   Other: General fundraising
         •   Soccer Games
               Hometown Associations
•    HTA’s international characteristics can be described in five
     features:
    1.   Activities: Orientations range from charitable aid to investment.
         •   Charity
         •   Infrastructure
         •   Human development
         •   Investment
         •   Other

    2.   Structure and links:
         •   Lack of strong organizational structure
         •   Lack if institutional counterpart in their home country.
         •   Membership is small
         •   Connection is through a local leader such as priest.

    3.   Relationships:
         •   Hierarchical: hometown associations communicate their counterparts what to do.
         •   Joint Cooperation: both parties in the home and host country organization
             communicate to define the agenda. Ex. Hurricane Mitch support in 1998
             Hometown Associations
•    HTA’s international characteristics can be described in
     five features:

    4. Decision Making:
       •   Financial resources
       •   Relationship with home organizations
       •   Members preferences
       •   Organizational structure
       •   Goal and project might change over time
       •   Membership available time
       •   Needs of the town in the home country

    5. Financing:
       •   Small economic base
       •   Most raise less than ten thousand dollars on overage each year
       •   Money raised is send in cash or materials.
                         Remittances Agents
Who are the players in the Industry?
• Banks- In El Salvador, charge less than $10 for almost any amount to be sent; but they do not
  have the same outreach capacity like Western Union.

•   Courier agencies- Western Union or MoneyGram.
     – In 1995, moreover 44 percent of money transactions through MoneyGram took place from the
       United States to Mexico.

     – In El Salvador, Western Union carries out to a minimum of 70,000 transactions a month worth an
       average of $300.

     – In the Dominican Republic, the minimum, thus likely controlling at least 20 percent of the flow of
       remittances.

     – These companies charge significant fees, ranging from 8 to 14% of the value of the remittance.

•   U.S. Postal Services- created its own delivery system offering a lower rate than Western
    Union or MoneyGram.

•   Hand deliver

•   Third party- encomenderos
               Remittances- Agents
Mexico         El Salvador   Nicaragua   Guatemala   Dominican
                                                     Republic

Dinero Seguro Gigante        Western     Gigante     Mateo
              Express        Union       Express     Express
Western       Leon           MTOM        Western     Western
Union         Express                    Union       Union
MoneyGram Western            Gigante     IRNet       Vimenca
              Union          Express
Wells Fargo    Banco         Nicaragua               La Nacional
               Agricola      Delivery
Bancomer       Bansal        Delivery                Pronto Envio

Raza Express   Bancomercio
  Remittances Agents-Host Country
• A money transfer business (one that can wire
  money to other countries) such as Seven-eleven.

• The transfer institution collects a fee.

• Transfer institution make a profit on the
   – fee,
   – commission and
   – foreign exchange differential.
Remittances-Host Country
 Remittances Agents- Home Country
• Money transfer agencies establishes agreements with agent-
  distributions in Latin America in order to ensure coverage and
  efficiency on the receiving end.

• Commercial banks are one, if not the only, key player in a given
  market because their financial operations cover large area and meet
  regulatory requirements.

• In the case of Mexico, the largest distributing agents are large banks,
  such as Banamex, BBVA-Bancomer, HSBC, and BanNorte.

• In Central America, Airpak, works exclusively for Western Union.

• Grace Kennedy is Western Union’s exclusive English Caribbean
  distribution
 Remittances Agents- Home Country
• Recipient country distributors: also play a key
  role in the remittances.

• Distributors have made agreements with more than
  one company.

• Agents must compete to attract companies to utilize
  their networks, in so they influence the price.

• If they increase the fees it would affect the sender.
Remittances Agents- Home Country
• Banks: play a direct and indirect role in money
  transfers.
  – Not only functioning as agents but,
  – Serve as intermediaries,
  – Operate as depositories for the money transfer companies
    and distributors agents.


• Bank also charged fees to keep money by the
  company or distributors agents.

• Can control prices, fees, and exchange rates.
           Remittances-Government
What is the role of government as a player in the remittances?
• As remittances become a more stable source of income for Latin
  America, its governments are finding ways to attract more of these
  funds.

• Government are making policies to address the cost reduction in
  remittance transfers but also

• Create an attractive economic environment for various kinds of
  migrant funds.

• Central Banks in Guatemala and El Salvador have regulations that are
  liberal on import duties.
   – Salvadorans are allowed to bring up to $1500 worth of
      merchandise.
   – Guatemalans are permitted to bring up to $2000 into the country
      without duty.
          Remittances-Government
What is the role of government as a player in the remittances?

• Other countries have attempted to require that a certain
  percentage of the earnings of their workers abroad can be
  deposited into a national fund.

• Former U.S. Ambassador William Stixrud has suggested
  that Guatemalan emigrants put up the equivalent of 10
  percent of the value of remittances for private investment.

• The Ambassador argues for the implementation of such a
  fund with the assistance of emigrants, the government, and
  international development organizations.
           Remittances-Government
What is the role of government as a player in the remittances?
• Sending-country governments can also stimulate remittances by helping
  emigrant groups to develop migrant associations.

•   The Mexican gov’t has had formal outreach programs since 1990.

• The federal programs include the Paisano program and the program the
  Mexican Communities Living Abroad (PCMLA).

• The PCMLA operates through the network of 42 consulates and 23
  institutes or Mexican cultural centers in the U.S.

• President Fox in 2000, created a new executive-branch office to interact
  more vigorously with Mexicans in the U.S. and attract their resources.

• By late 1998, four hundred clubs were operating throughout the U.S.,
  although most were in Los Angeles and Dallas.
        Remittances-Government
What are other programs establish to trap the
  remittances?
• Remittance bonds:

• Joint Ventures:

• Matching funds:

• Economic development funds:

• What do you think the countries should do with the
  remittances?
                  Sources
Orozco, Manuel (2002). “Globalization and
Migration: The Impact of Family Remittances to
Latin America. Latin American Politics and
Society” 44(2): 41-66.

IMF. 2003. “Sending Money Home: An
International Comparison of Remittance Markets”
(see PDF released in February 2003)
     Migration Paper Observations
• “Your paper is only as      • What are the push and pull
  good as your research and     factor
  resources”
                              • You can mention more than
• What is your research         3 patterns
  question?
                              • Margins
• Always exceed min. pages
                              • Introduce quotes
• Citation APA style
                              • Personal touch
• Lack of depth
               Announcement
• Come early on March 6!!!!!!!!

• Read Orozco article.

• No class on 3/8

• Native American Museum H.W. on 3/20

				
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