Latin America remittances support investments

Latin Americans working in the United States are sending back more money to their families and investing increasing amounts in homes and small businesses, according to a study commissioned by the Inter-American Development Bank.

The study – based on more than 2,500 telephone interviews with migrants and their families in nine countries – found that the average monthly amount sent has risen from $240 to $300 in the past two years. As many as one-third of respondents said they were seeking to invest money, mainly in real estate, up from 5 per cent when a similar study was conducted five years ago.

The report’s findings are likely further to stimulate interest among policymakers in remittances as a source of funds for economic development. “We know that remittances are very good for poverty alleviation and now for the first time we are starting to see their development potential,” said Don Terry, head of the IDB’s Multilateral Investment Fund.

Worldwide migrants sent back more than $167bn in 2005, up by 73 per cent in 2001, according to the World Bank. In Latin America, along with south Asia one of the two regions benefiting most from the trend, remittances are expected to reach more than $60bn this year, an amount that would exceed the combined total of foreign direct investment and official development aid.

The IDB study conducted by Bendixen and Associates found that 73 per cent of Latin American migrants living in the US sent back money to their relatives at home. That compares with a figure of 61 per cent two years ago.

Food, healthcare, utility bills and education are priority uses of the money, but many recipients are spending money on houses and small businesses.

Mr Terry estimated that between 15 and 20 per cent of remittances are being channelled into investments. Money transfer costs have been reduced in Latin America by more than 50 per cent in the past five years, as a result of competition and official pressure on the banks and financial institutions involved.

The report said, however, that banks are missing out on the opportunity to do business on the back of these flows. About 54 per cent of respondents sent money back to their families via banks or credit unions, but relatively few had bank accounts. In most cases the banks operate simply as licensed distribution agents for money transfer organisations.

Legal and regulatory hurdles resulting from security considerations and money-laundering legislation in the US and a lack of appropriate products have inhibited the ability of banks to take advantage. “Most immigrants in the US feel disenfranchised from the banking system,” said the report.

The study also said substantial numbers of migrant workers were no longer limited to traditional US “magnet” states such as California, New York and Florida but were entering labour markets in Colorado, Nevada, Massachusetts, Pennsylvania, Washington and elsewhere. “This provides further confirmation that immigrants are no longer simply moving to . . . communities tied to their countries of origin. Instead workers are migrating to wherever the jobs are.”

Figures for Louisiana, for example, showed remittances increasing from $61m in 2004 to an estimated $208m this year.