Do remittances help or hurt El Salvador?
El Salvador recently became the 11th country to sign a compact with the US Millennium Challenge Corporation. Marcela Sanchez at the Washington Post considers whether the $461 million agreement will reduce Salvadoran dependency on an annual diet of $2.8 billion in remittances. From her article over the weekend:
Carlos Castro, a Salvadoran community leader and owner of a Hispanic specialty supermarket in Northern Virginia, is dismayed that El Salvador now has to import workers from other Central American countries because some Salvadorans don't see a need to work and rely instead on monthly checks from relatives abroad. He further laments the consumerism that has Salvadoran immigrants working hard at tough jobs to pay for "a pair of the latest name-brand shoes" demanded by their kids back in El Salvador.
A World Bank remittances expert, Pablo Fajnzylber, had this to say in an online chat last month:
In fact, we find that poor families in most of the Latin American countries for which we have data, when they receive remittances, they spend a higher percentage of their income in human development, that is, in education and health--than families with similar levels of income and demographic characteristics that don't receive remittances. So, in practice, remittances are used for human development, and we find kids from families that receive remittances stay a longer number of years in school, and their families also have access to better quality health services, so there is, in practice, naturally a positive effect on human development.
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This issue of remittances certainly is controversial, especially depending on how you approach it.
Everybody talks about remittances as if they are there to do something else with them. As if what the reciptors DON'T know how to spend their money. This approach originates on the fact that these people are poor.
Remittances are not for any economist or policy maker to decide what to do with or even to critize how the receptor of them spens them. They are the product of a voluntary, at least in the cases of LatAm, initiative a migrant to support his/her family. If within a country, there were jobs that generated the income they need they would not need to depart from the country to a different country/labor market.
So migrants are to be left alone with how they use their money/remittances.
Posted by: Sal | Dec 12, 2006 3:47:30 PM
I am struck that commentators who worry about dutch disease which allegedly results from aid flows are rarely as worried about the effect on the exchange rate of remittance inflows.
Posted by: Owen Barder | Dec 12, 2006 4:48:20 PM
On Sal's comment: Yes, to a good extent, families of migrant workers have the right to choose the manner by which remittances are spent, but dependence on remittances in the long run can propagate the very poverty that spawned this mass migration. Certainly economists are not the decision-makers in terms of how remittances are used, but it would certainly help if families of migrant workers saw the bigger picture and realized the benefits of investing more of the income on human development. In this way, their children and grandchildren will not be faced later on with such economic unfreedom as having to leave their country and their family in order to earn a living.
Posted by: Wiko Kabiling | Dec 12, 2006 8:48:15 PM
America, please allow for the use of chaperones at the borders
So much has been spoken and written about the “brain drain” in relation to migration, and so little about the much more serious and final “heart drain” that occurs when the homeland is forgotten (and remittances dry up). Currently millions of illegal immigrants are de facto imprisoned in the United States since they do not dare to go back to their homelands. Of course, they can always go home legally, but they cannot afford to lose their option of returning here, once they leave. This is the source of millions of human tragedies when they cannot visit a grandmother who is ill, a father on his sixtieth birthday, a sister’s wedding, and perhaps even a daughter’s First Communion. And all this happens, in fact, for absolutely no good reason at all. While America makes up its mind about what to do with all the illegal migrants, could it not at least show some of its well renowned kindness? Could it not, for instance, authorize respectable American citizens, churches, or recognized NGOs to operate as official chaperones and to make themselves responsible for accompanying an immigrant to his homeland, for a week or so, to help him warm up his heart, and then returning him here, with no one at the borders objecting or making a record of it?
Posted by: Per Kurowski | Dec 15, 2006 7:36:00 AM
In the discussions a while ago I said “so much is written about the issue of “brain drain” although this could be a minor problem when compared to the “heart drain” that leads to a national to separate himself completely from the country and stop the remittances. Why is there no reference to this? and Pablo Fajnzylber answered me “We do not get into this because we concentrate on economic issues”. Well as I see it this is really an economic issue especially since a recent survey Latino National Survey 2006 shows that remittances and other contacts with homeland might diminish much faster than what previously estimated.
Posted by: Per Kurowski | Dec 19, 2006 6:12:40 PM