Washingtonpost.

Newsweek Interactive, LLC

Migration's New Payoff
Author(s): Devesh Kapur and John McHale
Source: Foreign Policy, No. 139 (Nov. - Dec., 2003), pp. 48-57
Published by: Washingtonpost.Newsweek Interactive, LLC
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GLOBALIZATION AT WORK
Migration
S
ew Payoff
Every
day, migrants working
inrich countries send
money
totheir
families
in
the
developing
world. It's
justafew
hundred dollars
here,
afew
hundred dollars
there. But
lastyear,
these remittances added
up
to
$80 billion,
outstripping
foregn
aid and
ranking
as one
of
the
biggest
sources
offoreignexchange for
poor
countries.
Following
aboom inthe
1990s,
this
flow of
money
is
lifting
entire countries out
ofpover!y, creating
new
financial
channels,
and
reshaping
international
politics. I By
Devesh
Kapur
and
John
McHale
hatis the mostreliable source offor-
eignmoneygoing
to
poor
coun-
tries? Whatis the principal source
Vof
foreigncapital
forsmall
family
businesses
throughout
the
developing
world? How do
most
people
in
collapsed
states like
Afghanistan, Haiti,
Liberia,
and S omalia
manage
tosurvive? Whatis the
commonfactorthathas financed internal conflictin
settings
as diverse as Northern
Ireland,
S ri
Lanka,
and Rwanda? How do
economically
weak countries
like Armeniaand Eritreasustain
belligerentforeign
policies
and disastrous borderconflicts?
The answertothese
wide-ranging
and
complex
questions
is
remittances-money
that
migrants
earn
while
working
abroad and thensend back totheir
fam-
ilies
living
intheirhome
country.
"Mother's milk for
poornations,"
is how one Asian
newspaper
described
the
phenomenon.
Thatstatementis no
exaggeration.
As nations
increasingly opened
theirborders to
foreign
workers inthe lasttwo
decades,
remittances todevel-
oping
countries have soared from $17.7 billionin
1980 to$30.6 billionin1990 to
nearly
$80 billionin
2002. Remittances have
emerged
as an
important
source of
foreignexchange
for
poor
countries. In
2001, they
were double the amountof
foreign
aid and
10 times
higher
thannet
private capital
transfers
(which
is the bottom line after
deducting
all financial
outflows,
such as
profitrepatriation
and interest
pay-
ments).
The
principal
beneficiaries are lowermiddle-
income countries
(those
with a
gross
national income
percapita
between$736 and
$2,935),
which receive
nearly
halfofall remittances worldwide.
As
such,
remittances have
emerged
as the latest
cause
c6lbre
amonggovernments, foundations,
and
multilateral institutions. The Inter-AmericanDevel-
opment
Bank
(IDB) sponsored
a
special investigation
?o
LLJ
o
ev-
LL
Q51
Devesh
Kapur
is the Frederick S .
Danziger
associate
profes-
sor
ofgovernment
atHarvard
University
and anon-resident
senior
fellow
atthe Center
for
Global
Development. John
McHale is associate
professor
atthe
Queen's
S chool of
Business in
Ontario,
Canada.
NOVEMBER I DECEMBER 2003 49
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Migration's
New
Payoff
of
strategies
thatwould
help
workers
living
inthe
United
S tates
send their
wages
toLatinAmerica
and the
Caribbean,
where remittances totaled $32
billionlast
year
alone
(20
times the amountofU.S .
foreign
aid senttothe
region).
The U.S .
Agency
for
International
Development
is
spending$500,000
onasimilar
program
onbehalfofthe 20 million
Mexicanworkers wholast
year
senthome
nearly
$10
billion,
which is twice the value ofMexico's
annual
agricultural exports
and overathird more
thanMexicantouristrevenue.
Governments in
developing
countries are also
There and Back
Again
4
*Pe
ioOs
ofcef of
S eotsiot?)
lop
0t
, .
o
l
I
'9'7
60
P epo
S ource: Balance of
Payments
S tatistics
(Washington:
International
Monetary Fund, 2002)
doing
whatever
they
canto
keep
the
money
flow-
ing.
In
Pakistan,
where remittances are
expected
to
reach arecord $4.5 billionin
2003,
the
government
unveiled a
plan
last
July
to
"export"
anaddition-
al
200,000
workers. "This
export
of
manpower
would
bring
reliefto
200,000
families inthe same
way
as the constructionoffourdams and two
highways
indifferent
parts
ofPakistanwould
bring
employment
and reliefto
500,000 families,"
observed Pakistan's laborminister.
Butit's not
just
the volume of
money
thathas
gov-
ernments and multilateral
organizations
excited.
Remittances have also
emerged
as the moststable source of
financial flows. Unlike
foreign
aid,
the flow ofremittances is
not
subject
tothe whims of
donatinggovernments,
orheld
hostage by
onerous conditions
imposed by
multilateral
lending
institutions. And incontrastto
foreign
investmentor
loans,
remittances are insulated from
the herd behaviorof
private
investors and
moneymanagers.
During
economic
crises,
when
developing
countries mostneed
the
money,
itis not
powerful
wealthy
countries or
sophisti-
cated financial markets that
they
can
depend on,
butrather
the millions ofotherwise
pow-
erless
working
class
emigrants.
Infinancial
terms,
remittances
are afree lunch. While other
sources of
capital carry
acost
forthe
receivingcountry,
be it
interest
payments
forloans or
profitrepatriation
forinvest-
ments,
remittances
require
no
fees orservices.
Withinthe
development
community,
remittances strike
the
rightcognitive
chords.
They
fitinwith a
communitarian,
"third
way" approach-neither
inefficientsocialism nor
savage
capitalism-and exemplify
the
principle
of
self-help. People
from
poor
countries can
just
migrate
and send back
money
thatnot
onlyhelps
theirfamilies
CL
o
C,
z
W
?w
rw
Ir
"1
50 FOREIGN POLICY
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buttheircountries as
well.
Immigrants,
ratherthan
govern-
ments,
thus become the
biggestprovider
offor-
eign
aid. Onthe send-
ingside,
remittances
need no
costlygovern-
ment
bureaucracy,
and
onthe
receivingside,
the
money
is
unlikely
to
be
siphoned
off
by
corruptgovernment
officials.
Atthe
simplest
level, remittances are
about
helping
individ-
ual families. A
couple
ofhundred dollars sent
home
every
month can
make the difference
between
abjectpoverty
and food onthe table.
Atanother
level,
these
small
transactions,
repeated
thousands of
times
everyday
across the
world,
are
quietlybinding
the fates ofnations. The
growing
numberof
people
working
abroad is
reshaping
the debate overimmi-
gration
inindustrialized countries and
forcing
devel-
oping
nations toembrace dual
citizenship,
which
helps
theircitizens find better
jobs
and send home even
more
money.
Politicians
seeking
financial
support
for
theirelection
campaigns increasingly
musttend tothe
needs and
priorities
oftheircountries'
swelling
dias-
poras.
And
policymakers seeking
tocutoffthe flow
of
money
toterrorist
groups
are
struggling
tolearn
how to
distinguish "good" money
from "bad" in
the
murky
informal
system
offinancial transfers that
has
kept
citizens infailed states like S omaliafrom total
humanitariandisaster. As with otherdrivers of
glob-
al
integration,
remittances
present
a
challenge
of
reg-
ulating
informal forces in
ways
thatharness their
vastbenefits while
seeking
tominimize theirunwel-
come side effects.
WIRED FOR MONEY
The mostobvious
explanation
forthe
growth
of
remittances inrecent
years
is the
steady
increase in
migration.
The United Nations estimates that
rough-
ly
175 million
people
were
living
outside theircoun-
A
Rising
S ource of Income
S elected Inflows of
Remittances,
1990-2001
40 ~ 4O - ---- -- __________________--?
";35
S 30
Lower middle-income countries
25
Low-income countries
S 20
=
15
CW .............
Upper middle-income countries
5
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Countries with
$735
orless
gross
national income
percapita
(i.e., S omalia, Pakistan, India)
Countries with
$736-$2,935 gross
national income
percapita
(i.e.,
Dominican
Republic, Philippines, Egypt)
4
Countries with
$2,936-$9,075 gross
national income
percapita
(i.e., Belize, Mexico, Poland)
S ource: Global
Development
Finance
(Washington:
World
Bank, various
years)
try
ofbirth or
citizenship
in
2000, up
from 154 mil-
lionin1990. Ofthis
population,
60
percent
reside in
developed regions.
Inthe United
S tates,
where near-
ly
halfofthe
foreignpopulation
entered the
country
in
just
the
previous decade,
the numberof
illegal
immigrants jumped
from 2.5 millionin1989 to8.5
millionin2000.
Elsewhere,
the
foreignpopulation
in
17
European
countries rose from 15.8 millionin
1988 to21.7 millionin1998.
Foreign
workers con-
tinue to
represent
more than50
percent
ofthe labor
force inthe
oil-exporting
PersianGulfcountries.
Anotherreasonforthe
relatively
sudden
growth
ofremittances inthe 1990s is that
manydeveloping
countries,
underthe
tutelage
ofthe International
MonetaryFund,
relaxed
exchange
controls onthe
purchase
and sale of
foreign
currencies. This
policy
sharply
reduced the black marketfor
foreign
exchange
and eased restrictions onbanks and other
financial intermediaries. As a
result,
the increase in
officially
recorded remittances
partially
reflects a
shiftfrom informal toformal channels.
There
is, however, another,
less
obvious,
factor
driving
the
growth
inremittances: a
burgeoning
infrastructure thathas
helped
ease the movementof
money
across borders. The mostvisible manifestation
ofthis is Western
Union,
aU.S .-based
company
with
NOVEMBER
I
DECEMBER 2003 51
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Migration's
New
Payoff
Taking
It
to the S treets
D
espite
the
growth
offormal transfermecha-
nisms such as WesternUnionand
ATMs,
sub-
stantial amounts ofremittances continue toflow
through
informal
(and
sometimes
underground)
chan-
nels,
outside the
purview
of
governmentsupervision
and
regulation.
These transfermechanisms-known
as Informal Value Transfer
S ystems
(IVTS )--go
back
centuries, particularly
inAsia. S ome
examples
are
knownas hawala
(Middle East, Afghanistan,
Pak-
istan),
hundi
(India), fei
ch'ien
(China), phoe
kuan
(Thailand),
hui(Vietnam),
and encomenderos and
"Black MarketPeso
Exchange" (S outh America).
Relying
on
rudimentary,
low-cost
technologies,
these
networks
may
transfertens ofbillions ofdollars or
more around the world each
year, offeringspeed,
easyaccess,
low
costs,
and
anonymity.
Anestimated
$200 to$500 millionwas sentback home toS oma-
liain2000
through
IvTs
(compared
to$60 millionin
foreignaid). Basically,
the sender
gives money
toan
IVTS agent(usually
inanethnic
neighborhood),
who
calls orfaxes instructions tohis
counterpart
inthe
region
where the
money
is tobe sent. The
counterpart
makes the
payment
withinafew hours. S ettlements are
made eitherwith atransferinthe
opposite direction,
byprivate couriers,
or
through periodic
wire transfers.
Anothermethod of
balancing
the books is tounder-
invoice
goods shipped abroad,
sothatthe receivercan
resell the
products
ata
higher
market
price.
Following
the terroristattacks on
S eptember11,
2001,
Western
governments
and the media
portrayed
these informal transfermechanisms as
shadowy
net-
works for
funding
terrorism. Tobe
sure,
these servic-
es are sometimes associated with all sorts ofcriminal
activities
includingbribery, drugtrafficking,
tax
evasion,
payments
for
smugglingillegal migrants,
and the black
markettrade inhuman
organs. But,
as a
study
con-
ducted forthe Dutch
Ministry
of
Justice concluded,
"IVTS
are
by
nomeans infested orcontrolled
by
crim-
inals...[many]
resorttoIVTS
simply
totransfer
money
totheirrelatives because
they
follow cultural traditions
orservices are
faster,
cheaper,
less bureaucratic, and
more convenientthan
any
otheralternative."
And the
perpetrators
ofthe
S eptember
11 terror-
istattacks? The
hijackers
received mostoftheirfunds
through
formal networks such as creditcards, ATMs,
and wire transfers.
-D.K. and
J.M.
about$2 billioninannual
revenue,
which allows cus-
tomers towire
money
to
any
affiliated office. In
1996,
the
company
had
35,000 agent
locations
worldwide,
with
just10,000
outside ofNorth Amer-
ica.
By2002,
customers could transfer
money
to
151,000 agentlocations, 95,000
ofwhich were locat-
ed outside ofNorth America.
Transferringmoney
is
expensive.
For
instance,
sending
$200 from the United S tates tothe
Philip-
pines
costs an
average
of
$17, plus
additional
charges,
through
a
money
transfer
organization
like Western
Union,
and mostbanks
charge
similarfees. The exor-
bitantcosts ofremittances
(about
12
percent
ofthe
estimated $25 billiontransferred from the United
S tates)
and the
promise
of
large profits
have drawn
innew
players. Recently
the World Council ofCred-
it
Unions,
an
organizationrepresenting
more than
40,000 regional
and national creditunions with
members and affiliates in79
countries,
launched the
International Remittance Network
(IRNet)
tofacili-
tate transfers from the United S tates. IRNetdoes not
charge any
fees and offers better
exchange rates,
but
as of
yet,
its services are confined toits members. The
IDB
is
helping
tocreate acommonelectronic
platform
throughout
LatinAmericaand the Caribbeantoset-
tle transactions
among
various financial intermedi-
aries thathandle remittances.
Major
commercial banks are also
prospecting
for
remittance
gold. Portuguese
banks were
earlyadapters
whosaw
opportunities
atthe
beginning
ofthe 1980s
tobenefitfrom the
large
flows ofremittances sent
by
Portuguese
workers abroad.
They
established branch-
es incountries with concentrations of
Portuguese
emigrants,
such as
France,
and offered free transfer
services and made
arrangements
with local
agents
to
deliver
money
tofamilies back home.
By
the late
1990s, deposits
from
emigrants represented
about
20
percent
ofthe total
deposits
in
Portugal's banking
system. During
the
mid-1990s,
Mexico
opened
its
banking
sectorto
foreign
investment. As
majorS pan-
ish and U.S . banks
beganbuying
Mexicanbanks,
they
realized that
migrant
workers could be drawnin
tobecome full
bankingcustomers, spearheading
a
large expansion
ofretail
banking
onboth sides ofthe
U.S .-Mexicanborder. The transferbusiness is already
paying
dividends. Bank ofAmericahas found that33
percent
ofits U.S .-Mexicanremittance customers
have
opened
anaccount.
New
products, underpinned by
new technolo-
gies,
have also
given
remittances aboost. Banks
have introduced debitcards for
migrants
inthe
United S tates tosend
money
home totheirrelatives
52 FOREIGN POLICY
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in
Mexico,
eveniftheirfamilies donothave
abank account.
Migrant
workers make
pay-
ments intothe debitcard accountinthe same
waythey
would make
deposits
intoacheck-
ing
account. Theirfamilies cantheneither
withdraw
money
from automated teller
machines
(ATMs)
oruse the card to
pay
for
goods
at
large
retailers.
ATMs themselves,
which held aminiscule 0.2
percent
share of
the remittance marketin
2002,
are
expected
to
capture
11
percentby
2006.
Competition
from such
banking
services caused the costs
ofwire transfers to
drop by
more thanhalf
inthe lastfew
years.
An
unanticipated longer-term
effect
appears
tobe a
strengthening
ofthe weak
retail
bankingsystem
inMexico.
Only
about
one infive Mexicans has abank accountand
much ofcentral
Mexico,
which sends the most
migrant
laborers tothe United
S tates,
lacks
bank branches. The lack offormal creditin
Mexicohas
especially
hurt
microenterprises
in
small
towns,
as these
companies
could not
rely
onbanks tofund their
operations.
The
growth
ofa
strongretail-banking
network
builtona
strong
base of
remittances,
inhith-
erto
poorly
served
regions, might
well
prove
to
be a
verypositive
institutional
payoff.
TRICKLE-UPECONOMICS
Whereas
foreign
aid to
developing
countries flows
through
bureaucratic
agencies
and
nongovernmental
organizations,
remittances
godirectly
tohouseholds.
Afterbasic needs such as
clothing, food,
and health-
care are
met,
remittances are oftenalsoinvested in
land,
farm
tools, livestock,
oreventravel
expenses
to
send another
family
memberabroad towork.
More
recently, immigrant
communities have
sought
to
pool
remittances and channel them for
public purposes.
Mexican
immigrants
across the
United S tates have
organized
themselves inthe last
decade intohometownassociations thatfinance
pub-
lic works
projects
and small businesses inthe towns
from which
they
have
migrated. Matchinggrants
from the Mexican
government
have
leveraged
these
remittances. Towhat
degree
these initiatives create
jobs
and make
immigration
less
necessary
is unclear.
Perhaps
the
biggest
benefitis thatthese associations
help migrants
maintaintheir
personal
ties totheir
hometowns,
aconnectionthatbecomes
increasing-
lyimportant
as
migrant
families entertheir
second,
0-
0
LaI
m
cz
Tam.,
Rp_
;": ~-59
lajQ
-~
acM
V Z~
;,cv smum
qZr
Power tothe
migrants: Filipino
activists
urge
overseas workers to
stop sending
remittances home as a
protest against
President
Joseph
Estrada inNovember 2000.
eventhird
generations.
The childrenof
migrant
work-
ers who
grew up feelingdeprived, seeingpart
of
their
parents' wages
sent
abroad, might
otherwise be
less inclined toshare theirown
personal
wealth.
The
types
ofcommunities thatbenefitfrom remit-
tances can
vary
from
country
to
country.
InMexico
and Central
America,
remittances
largelygo
to
poor
rural households. Inother
countries,
such as the
Philippines, Vietnam,
and
Pakistan, relatively
better-
offfamilies
get
the
larger
share. In
part,
this
discrep-
ancy
is a
product
of
geography. Regions
thatborder
wealthy
countries
(as
Central Americais close tothe
United S tates and North Africais nearWestern
Europe)
favor
poormigrants,
since the travel
expens-
es are much lower.
Bycontrast, impoverished
families
living
insub-S aharanAfricahave fewer
options,
since
neighboring
countries are
just
as
likely
as
they
are to
sufferfrom civil strife and economic malaise. A decent
payingjob
abroad canbe a
hefty
investment. In
S omaliland,
the costofairfare and an
employment
visato
go
work inthe PersianGulfis about
$3,000.
Ifthe destinationis
Europe
orNorth
America,
the
price tag
canbe as
high
as
$5,000.
The numberofwell-to-dohouseholds thatsend
family
members abroad is reflected inthe education
NOVEMBER I
DECEMBER 2003 53
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Migration's
New
Payoff
level of
migrant
workers. For
instance,
80
percent
of
Indian
migrants
25
years
and olderinindustrialized
countries have a
universitydegree, compared
to
only
2.5
percent
ofthat
age group
back inIndia.
Higher
edu-
cation, however,
doesn't
guarantee
a
higherpaying
job.
In
HongKong,
61
percent
of
Filipino
workers have
high
school
diplomas
and
nearly
32
percent
have uni-
versitydegrees, yet
more than94
percent
are
employed
in
low-payingjobs,
such as
cleaning
houses.
The
emergence
of
"remittance communities"
creates
symbiotic relationships
between source and destina-
tioncountries,
sometimes with
unpleasant
results.
The
preponderance
ofwell-educated
people
who
work abroad
highlights
the concernthat
developing
countries are
bartering
theirmost
precious
human
cap-
ital in
exchange
forremittances. There
is, however,
no
real
quid proquo
here. The detrimental effects ofthe
"braindrain" for
developing
countries arise from
the
migration
ofthe
veryhighestrung
ofthe
profes-
sional ladder-not
simplyhigh
school and
college
graduates,
but
engineers, physicians,
and
professors
whoare critical forinstitution
building.
This
group
occupies
the
upper
10
percent
ofincome brackets in
developingcountries,
and when
theymigrate,
their
households
generally
donotneed remittances.
The
largerpoint
is thatremittances are
helping
toliftcommunities and insome
cases,
entire coun-
tries,
outof
poverty.
Remittances don't
directly
add toa
government's budgetaryresources,
but
they
raise the level ofnational
savings
and access
to
foreignexchange.
Inthe Dominican
Republic,
high
levels ofremittances inthe late 1990s not
only
contributed tothe
country's rapid
economic
growth (the highest
inthe
region)
butalso
helped
reduce chronic
poverty.
During
afinancial
crisis,
remittances are acriti-
cal
safety
netfor
private consumption.
Inthe late
1990s,
whenEcuador
experienced
its worsteco-
nomic downturninthe
century,
more thana
quar-
terofamillion
people
leftthe
country.
Remittances
jumped
from $643 million
in1997 tomore than$1.4
billionin
2001, accounting
for10
percent
ofGDP.
In
Armenia,
remittances
helped
cushiona
stunning
economic
collapse (percapita
GDPdeclined from
$1,590
in1990 to$173 in
1994) following
the
breakup
ofthe S ovietUnionand the blockade result-
ing
from the
country's
conflictwith
Azerbaijan
over
the
disputed territory
of
Nagorno-Karabakh. Many
well-trained Armenians
migrated
to
Russia,
and
laterinthe
decade,
Armenians were
receiving
as
much from remittances as from salaries for
legitimate
employment
athome.
S imilarly,
Cubawas forced to
take
steps
toattractremittances
(such
as
legalizing
the
possession
ofU.S .
dollars)
whenworld
sugar
prices plummeted
and Moscow cutoffeconomic
aid
following
the
collapse
ofthe
S ovietUnion.
By1995, during
an
acute
foreignexchange
crisis when
aid and
foreign
investmenttoCuba
were
only
about$100 millionand
exports just
$1.1 billion,
remittances
were
approximately
$530 million-
up
from
just
$50 millionin1990.
An
unanticipated
side effectinthat
country
has been
increasingdisparities
ina
political
system
thatdraws its
legitimacy
from its
strong
com-
mitmentto
equality:
Remittances have a
strong
racial
bias,
since the
diaspora
is
predominantlywhite,
while the island's
majority
is black.
DOLLAR DIPLOMACY
The old
political
axiom "follow the
money"
has taken
onnew
significance
as workers'
wages
crisscross the
globe.
From Russiato
India,
the lucre ofremittances
has led
politicians
toalter
radically
their
positions
vis-
i-vis
their
diasporas
from
benignneglect
toactive
courtship.
Presidential candidates inthe Dominican
Republic (where
remittances accountforaround 10
percent
of
GDP)
have
campaigned amongstexpatriate
communities inthe United S tates.
Migrants
from El
S alvador, Guatemala,
and
Nicaraguamayvery
well
determine the outcome of
forthcoming
elections in
Central
America,
as
they
tend tofinance the cam-
paigns
ofmoderate
politicians
as
opposed
tothe likes
offormer
Nicaraguanpresidential
candidate and S an-
dinistaDaniel
Ortega.
And dual
citizenship
inthe
developingworld,
once an
exception,
is
becoming
common. Inthe
Philippines-where
a
staggering
20
percent
ofthe electorate lives overseas and sends home
about$6.4 billion
peryear-legislators
have
passed
a
new bill thatwould
grant
naturalized citizens abroad
the
right
tovote inthe
upcoming
national elections.
One ofthe bill's
sponsors
sees the
legislation
as atool
for
political reform,
since overseas workers "cannotbe
bought, intimidated,
orhoodwinked
byunscrupu-
lous
politicians."
Colombiaevenallows a
representa-
tive from the
diaspora
tobe elected to
congress.
54 FOREIGN POLICY
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Incountries thathost
expatriates,
remittances
have been
reshapingimmigrationpolicies.
Recent-
ly,
the Mexican
governmentbegan
todistribute
per-
sonal identificationdocuments called matriculacon-
sular
(consularregistration)
cards to
migrant
workers
inthe United
S tates, irrespective
oftheir
legal
status.
A numberofU.S . banks now
accept
them as iden-
tificationfor
opening
bank accounts.
Although
matriculas donot
grantlegal
status toundocu-
mented
aliens, they
are
integratingillegal migrants
intoU.S .
society.
More than800
police departments
and 400 cities
recognize
the card as avalid
ID,
and
13 U.S . states
accept
the
matriculas
as sufficient
documentationtoobtainadriver's license.
Remittances are also
influencing
international
politics.
The
emergence
of "remittance communi-
ties" creates
symbiotic relationships
betweensource
and destination
countries,
sometimes with
unpleas-
antresults.
Following
the 1991 Gulf
War,
the Gulf
countries
expelled
workers from
Jordan
and
Yemen,
particularlyPalestinians,
for
supporting
then
Iraqi
PresidentS addam Hussein. India's reluctance to
support
aU.S .-led attack
againstIraq
in2003 was
predicated,
in
part,
onremittances. "Our
special
interestinthe currentcrisis arises from the
presence
ofmillions ofour
expatriates
thatlive and work in
the Gulf
region,"
India's ambassadortothe United
Nations
acknowledged
last
February.
Faced with a
sharp
economic contraction
during
the Asianfinan-
cial
crisis, Malaysia
and Thailand booted Indonesian
workers, exacerbating
Indonesia's economic woes
and
increasingpolitical
tensions
among
the members
ofthe AssociationofS outheastAsianNations.
Controls onremittances as aform ofeconomic
warfare have beenmostevidentinthe Israeli-Pales-
tinianconflict. In
2000,
Israel
drastically
reduced the
numberofwork
permits
forPalestinians because of
security
concerns and instead
imported roughly
a
quarter
ofamillion
foreignworkers, mostly
from
EastAsiaand Africa. Palestinians inthe WestBank and
Gazasaw their
gross
national income
percapita
decline
by
about30
percent
in2001 and 2002 combined. In
contrast,
remittance outflows from Israel
tripled
inthe
1990s,
to
nearly
$3 billionin2001.
The
Money
That Makes the World Go
'Round
S elected Annual Flows ofRemittances in2001
,pan
Dominican
.........
...............
:, ~i Republic :
S
.. !iiil
:
alvador
N:::~.,,Billions
of
2N
S ource Country

~
U.S .
dollars [] Recipient Country
....
..................
.........
"
(2001) aS ource/Recipient
LLJ~
??:,X.
eA
rr :
4111,
CO
rh ia
-1 "
. . . . . .
KX
IF~
.. .......
. .......
..Portugw
-N,
Dominican
Republicx
alvador
S ource Country
Billions of
U.S . dollars MIB Recipient Country
(2001) 1-18 S ource/Recipient
S ource: Authors'
estimates,
based ondatafrom the International
Monetary Fund,
World
Bank,
Inter-American
Dialogue,
Nilson
Report,
U.S .
Agency
forInternational
Development,
and the Consulate General ofIndiain
Jeddah.
Note: Estimated annual remittance inflows forthe Dominican
Republic
are between $1.7 and $1.9 billion;
forNorth
Korea,
between $0.3 and $0.5 billion.
NOVEMBER
I
DECEMBER 2003 55
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Migration's
New
Payoff
The
dynamics
ofremittance flows
changed
dras-
tically
inthe aftermath ofthe
S eptember11,
2001
terroristattacks. For
Pakistan,
a"frontline" state
caught
inthis
vortex,
where remittances were around
$1 billionin
2000,
this event
proved
afinancial
blessing. Many
Pakistanis with
savings
inoffshore
accounts
repatriated
their
funds,
fearful of
being
caught
inU.S .-led
investigations
intoterroristfinanc-
ing;
in
2002,
remittances inPakistanexceeded $3 bil-
lion. Butthe effects of
S eptember
11 were disastrous
for
S omalia,
which had become
increasinglydepend-
entonremittances afterthe
country
fell intoanar-
chyfollowing
the
hastydeparture
of
peacekeepers
in
1994. Absenta
functioning
central
government
and
a
recognized private bankingsystem,
the remittance
trade was dominated
by
a
single firm,
which the
........ .
*Vi
7i
VVI
1
Cashing
out: S omalis relied onthe Barakaat
Group
of
Companies
tosend remittances home,
until the U.S .
government
shutitdownin2001.
United S tates labeled "the
quartermasters
ofter-
ror" and shutdownin
2001, though
the evidence
later
proved
tobe
quite
weak. With remittances
representing
between25 and 40
percent
ofS omalia's
total
GDP,
the humanitarian
impact
onan
already
impoverished economy
was severe.
As the S omalicase
illustrates,
forthe
people
of
failed states like
Congo
and
Afghanistan,
as well as for
stateless
peoples (Palestinians, Kurds,
and
pre-inde-
pendence
Eritreans and East
Timorese),
overseas remit-
tances are the
oxygen
essential not
just
for
family
sur-
vival and household
consumption,
butalsotofinance
militantcauses.
Elsewhere,
in
places
such as Armenia
and
Croatia,
remittances underwrote
long-distance
nationalism,
which boosted hard-line
regimes
and
complicated
efforts toresolve
regional
conflicts.
Typ-
ically,
the remittances came from the
diaspora
settled
inindustrialized countries-be itIrish-Americans mak-
ing
donations tothe Irish
RepublicanArmy
orS ri
Lankans inCanada
sendingmoney
tothe Liberation
Tigers
ofTamil Eelam.
RETURN TO S ENDER?
Remittances are
quietlytransforming
the
world,
most-
ly
forthe better.
Yet, they
risk
becoming
casualties in
the waronterrorism. The United S tates and the Paris-
based Financial ActionTask Force on
Money
Laun-
dering
are
depriving
the
very
countries thatmostneed
remittances
byimposing
blanketsanctions
against
governments
and financial inter-
mediaries
suspected
of
funding
groups
such as al
Qaeda. And,
as
part
ofthe efforttomonitorsus-
picious transactions,
Westerncoun-
tries are
compelling
institutions
thattransfer
money
abroad to
install
expensive
new
compliance
technologies
that
collapsed
states
cannotafford. Ratherthan
utilizing
such
blunt
instruments,
the inter-
national
community
should build
afinancial
architecture,
underthe
aegis
ofamultilateral
organization
such as the United Nations Devel-
opmentProgramme,
thatreduces
the costs of
sendingmoney
and
increases
transparency
toreassure
nervous
governments.
The
expens-
es forsuch anendeavor
would,
in
all
likelihood,
be much less thanthe
higher
costs of
policingmonetary
transfers;
this initiative would alsosave
moneyby
offsetting
the need tosend official
foreign
aid.
Countries inthe
developing
world canalsodo
their
part
tomake the mostofthe remittances
they
receive.
They
canmore
activelyregulate
labormarket
intermediaries,
such as contractors whohire farm
workers,
toensure that
migrant
laborers are not
being
deprived
oftheirfull share of
wages
and otherforms
of
compensation. Governments, however,
should not
try
toincrease remittances
byoffering
various
prefer-
ential
schemes,
such as tax-free
status,
since these
policies inevitablyencourage
tax evasionas residents
take
money
outofthe
country
and
bring
itback inthe
guise
ofremittances.
Instead,
countries can
get
more
o
ew
a.
L
56 FOREIGN POLICY
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bang
forthe remittance buck
byfostering
a
support-
ive economic environment thatwould
encourage
fam-
ilies tochannel theirremittances into
productive
invest-
ments,
ratherthan
simply
basic
consumption.
Promotinggreatercompetition
inthe financial sector
and
ensuringgreaterpenetration
offormal financial
institutions, especiallybanks,
inareas with
high
lev-
els of
emigrationmay
be the best
way
to
leverage
the
long-term productive impact
ofremittances.
Ultimately,
ifremittances are tobecome the
prin-
cipal
mechanism totransfer
money
to
poorcountries,
industrialized nations will have to
adopt
more liberal
immigrationpolicies. However, governments
inrich
countries, alreadyfacing
adomestic backlash
against
migrants
who
supposedly
steal
jobs
and drive down
wages,
are
unlikely
toembark onsuch abold initia-
tive. Afterthe
S eptember
11 terrorist
attacks,
U.S .
officials informed the Mexican
government
notto
expectimmigration
laws to
change anytime
soon.
Advocates ofmore sensible
immigrationpolicies-
whohave
longargued
that
foreign
workers enhance
ratherthanundermine
productivity-are
now
adding
remittances totheirlistof
talkingpoints, trying
to
make the case that
allowing
more
migrants
tosend
money
abroad is amoral cause akintodebtfor-
giveness. They
deserve creditfor
striving
to
give
poverty
inthe
developing
world ahuman
face,
even
though
industrialized countries are more oftencom-
fortable with
poverty-reduction
schemes that
keep
those humanfaces back home. III
WanttoKnow More?
This article draws onthe authors'
forthcomingmonograph, "S haring
the
S poils:
International Human
Capital
Flows and
Developing
Countries"
(Washington:
CenterforGlobal
Development, 2004).
For
analysis
on
global immigrantflows,
see "International
Migration: Facing
the
Challenge" (Pop-
ulation
Bulletin,
Vol.
57,
No.
1,
March
2002)
and Trends inInternational
Migration(Washington:
Organisation
forEconomic
Co-operation
and
Development,
March
2002).
Demetrios
Papademetri-
ou refutes the claim that
migrants
from the
developing
world
impose
costs ontheirrich hostcoun-
tries in"Think
Again: Migration" (FOREIGN POLICY,
Winter
1997-98).
Dilip
Rathaoffers anextensive overview ofthe
impact
ofremittances inthe
developing
world
in"Workers' Remittances: An
Important
and S table S ource ofExternal
DevelopmentFinance," Chap-
ter7 inGlobal
Development
Finance
(Washington:
World
Bank, 2003).
The Multilateral Investment
Fund,
the
private
sectorarm ofthe Inter-American
DevelopmentBank,
and the Inter-AmericanDia-
logue
have been
examining
trends inremittance flows from the United
S tates, particularly
toLatin
America.
S ee,
for
instance,
"The
Developmental
Role ofRemittances inU.S . LatinoCommunities
and inLatinAmericanCountries"
(Washington:
Inter-American
Dialogue, 2000) by
B.
Lindsay
Low-
ell and Rodolfo
O.
de laGarzaand "WorkerRemittances inanInternational
S cope" (Washington:
Inter-American
Dialogue, 2003) by
Manuel Orozco. S usanEcksteinexamines remittances toCuba
in
"Diasporas
and Dollars: Transnational Ties and the TransformationofCuba"
(Massachusetts
Insti-
tute of
Technology:
Rosemarie
Rogers WorkingPaper#16, 2003).
On
possible
links betweenthe
braindrainand
remittances,
see Richard H. Adams
Jr.'s
"International
Migration,
Remittances and
the BrainDrain: A
S tudy
of24 Labor-Exporting
Countries"
(Washington:
World Bank
Policy
Research
WorkingPaper,
No.
3069, June 2003).
Nikos Passas's 2003
report
"Hawalaand OtherInformal Value Transfer
S ystems:
How to
Reg-
ulate Them?" is available onthe Web site ofthe U.S . S tate
Department. Cindy
Horstand Nick Van
Hear
explore
the
impact
ofcounter-terrorism efforts onremittance flows in
"Counting
the Cost:
Refugees, Remittances,
and the 'War
Against
Terrorism'"
(Forced MigrationReview,
Issue
14, July
2002).
)For
links torelevantWeb
sites,
access tothe FP
Archive,
and a
comprehensive
index ofrelated
FOREIGN POLICY
articles, go
to
www.foreignpolicy.com.
NOVEMBER I DECEMBER 2003 57
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