The globalization of remittances

By Richard Reeves Published:

By Richard Reeves

SAG HARBOR, N.Y. -- On Saturday mornings in the summer, the post office here is sometimes crowded with farm workers, construction workers, busboys and nannies speaking Spanish and a couple of other languages to each other. Thats the day they buy money orders to send cash back home to Mexico or El Salvador, the Philippines, even to Pakistan. One of the newer businesses in the village, in fact, is a small storefront that advertises in Spanish and sends small amounts of money around the world.

Those workers and others like them, legal or illegal, are distributing a lot more foreign aid from the United States than the government ever does. And since the money -- remittances, to be more precise -- goes directly to their families, it may do more good than money and credits that pass through the larcenous hands of some foreign governments.

There are arguments about how big the remittance economy, or economies, really is. But there is no argument about this: The amount of remittances is increasing year by year, and it is an important if relatively quiet part of the debates about immigration and globalization.

The statistics of remittances are obviously fuzzy math because the money being made in the fields of California or the kitchens of Long Island goes around both banks and the bean-counters of governments. But here are some estimates:

The World Bank projected that the remittance economy last year accounted for the transfer of more than $223 billion from rich countries to poor. In at least 36 countries, remittances add up to more than foreign aid and direct foreign investment combined. Twenty years ago, the bank calculated that figure at $43 million.

An estimated 10 percent of the gross domestic product of six Latin American and Caribbean countries is remittances from citizens working in other countries. Thats more than all the foreign aid and foreign private investment in those countries. In El Salvador, where between 10 and 40 percent of the population is believed to be living abroad, remittances amount to at least six times the foreign investment in the country and add up to 90 percent of the countrys budget.

In black Africa, the International Monetary Fund (IMF) estimates remittances amount to just under $20 billion, more than all the foreign investment in those countries.

More than 20 million Latin American and Caribbean citizens living abroad sent home an average of $2,500 each last year, according to Business Week magazine. The total sent was $52 billion, an increase of almost 10 percent over 2004.

This is how it works, according to Geri Smith of that magazine, who chronicled the life of a young Mexican husband and wife who left $4.25-an-hour work in the fields of California to work in a pork-packaging plant in Iowa: They each earn $12 an hour now, and after income taxes and Social Security are withheld -- yes, they do pay U.S. taxes -- they clear about $3,500 a month. Thats nearly 10 times what they could earn in Mexico, and its enough to buy a used two-bedroom trailer and a 1998 pickup truck to cart their two preschool children around town. Once a month, he wires $250 to his 50-year-old mother in Mexico City.

A former Washington Post reporter, Robert Suro, added this in a foundation-funded study a few years ago: During the course of the summer in Los Angeles, Esteban did everything, including painting, landscaping, loading and unloading trucks at garment district warehouses. The pay was always close to the minimum wage and always in cash. Esteban figured that he wired home (to Mexico) between $150 and $250 a week. Housing was a blanket on the floor of a church-run shelter. All his belongings fit into a small gym bag. On Saturday, he said, I send back whatever I have and keep $5 for myself.

Officials of the IMF and many government economists argue that private consumption is less efficient than planned development. Maybe, but private consumption is the American way, and is also a way to make America more secure. Without remittances, the world, and particularly North America, would be a more dangerous place. It is not in the interest of a rich country such as the United States to have even more poor and desperate people living just across its southern border. Legal or illegal, those remittances make Mexico and Central America more stable and the United States more safe.

2006 Universal Press Syndicate

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