Do remittances contribute to long term growth?

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Immigrants Slow Rate Of Money Transfers

Remittances Crucial to Poor Nations

By Krissah Williams

Washington Post Staff Writer

Tuesday, May 1, 2007; Page D01

The amount of money Latin American immigrants sent home from the United States grew at a slower rate during the first two months of the year than in the same period a year ago, according to the Inter-American Development Bank. The slowdown puzzled some experts who study such remittances, which contribute significantly to Latin American economies.

Remittances rose in the single digits in January and February after rising as much as 20 percent year-over-year since analysts began tracking the transfers at the beginning of the decade, the Inter-American Development Bank said yesterday.

Many remittance-rich nations would fall into a recession if immigrants began sending home significantly less money, which could encourage more poor Latin Americans to find work in the United States, according to the study and Donald Terry, manager of the Multilateral Investment Fund at the Inter-American Development Bank.

"We don't know if it's a trend or a minor correction," Terry said. "If it becomes a trend as opposed to a moment in time, this would not be good in terms of U.S. interests in Central America."

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Remittances are crucial for small Central American countries, such as El Salvador, home to the Washington region's largest immigrant community. The more than $3.3 billion that immigrants sent to their families last year makes up 18 percent of El Salvador's national income and surpasses foreign aid and investment, the Inter-American Dialogue study said. Most of the money goes to rural areas and helps bring families above the poverty line.

Nearly half of El Salvador's $300 million in national savings comes from remittances, said Orozco, whose research has shown that about 5 percent of remittances are saved. Remittances are also important in neighboring Honduras, where they make up 23 percent of national income, and in Jamaica, where they account for 19 percent of gross domestic product.

Questions are surfacing over whether political and economic changes in the United States may be affecting the way immigrant workers spend their money, Terry said. The bank is conducting a survey of immigrants to determine why they are sending less home. Anecdotal evidence suggests that raids on migrant communities by U.S. law enforcement officers and fear of deportation has prompted some to curb spending, Terry said. Others may be saving money to pay U.S. citizenship fees, wagering that a congressional debate over immigration law would result in allowing them to pay a penalty and legalize their immigration status. A downturn in the U.S. housing industry could also be trickling down to immigrants, who fill the majority of U.S. construction jobs.

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The poor Central American families who receive remittances spend about 80 percent of the money on essentials, such as food, housing and clothes, but the remaining 20 percent could be saved if financial services were more readily available, he said. If that money were in bank accounts, more small-business loans and mortgages would be available to the poor. About 95 percent of remittance money is spent for consumption and services.

Little of the money has been converted to wealth.

Enticing immigrants and their family members back home to put their money in banks has been difficult. A measure of distrust of the financial system exists, said Amy Coughenour, deputy director of the Pan-American Development Foundation, which operates a project that helps Salvadoran immigrants invest money back home.

"You can construct a lot of interesting financial mechanisms, but trust and transparency are really important," Coughenour said. "Just by making a product or service available doesn't mean that the community is going to participate."

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