Remittances underpin the Caribbean economy
By David Jessop
Remittances continue to play a central role in the lives of many families in the Caribbean.
Although they help support national economies and provide governments in almost all of the region with additional foreign exchange, their fundamental role has been to offset the worst for the poorest, and enable recipients, in most cases, to be able to live a better life.
A recent report published earlier this year by the Multilateral Investment Fund (MIF), a part of the Inter-American Development Bank, makes clear just how important these flows are for the Caribbean and Latin America.
According to the figures, which appear in Remittances to Latin America and the Caribbean in 2012: Differing Behaviour among Sub-regions, remittances to Latin America and the Caribbean (LAC) showed a slight overall increase in 2012 in relation to the previous year, totalling US$61.3bn.
This amount, the IMF reported, represented a 0.6% increase over 2011.
The figure compares with an historic high of nearly US$65bn in 2008, before a 15% drop due to the financial crisis of 2009, but seems to indicate that money transfers to the region are slowly increasing as the international economy recovers.
According to the report, the trends in the flow of remittances varied between the countries of Latin America and the Caribbean.
While remittances to South American countries and Mexico decreased by 1.1% and 1.6% respectively, those to the countries in the Caribbean saw modest growth. Central American nations, in contrast, experienced a significant increase of 6.5% in the total remittances received.
In the case of the Caribbean, the first signs of improvement following the global economic crisis began in 2010, when remittance inflows first began to accelerate with a growth rate of 8.3%.
However, a significant part of this was subsequently attributed to the unusually high volume of transfers received in Haiti, following the earthquake there that year.
Thereafter, in 2011, the growth rate relative to prior years reached 5.9%, a figure similar to the rest of Latin America.
However, quarter-on-quarter fluctuations in 2012 meant that the region’s overall growth rate was just 0.1%, a figure marginally higher than in the previous year.
Although these figures bring together data for all Caribbean nations except Cuba, some nations, most notably the Dominican Republic, experienced a significant growth in remittances, with an overall rate recorded at 4.8%.
What the figures suggest is the flows continue to depend on the economic situation in the countries from which remittances are sent.
Their overall value is also affected by the rate of inflation and the exchange rate of the currencies in the two countries concerned.
Helpfully, the MIF report looks at this.
It suggests that in the Caribbean, average inflation reduced the purchasing power of remittance flows by 4.5% in 2012 and, as a joint product of inflation and exchange rate movements, by minus 2.3% in the case of the region.
The report also shows that in absolute terms, there was a total of US$8.3bn in remittances to the Caribbean last year.
In the case of the Dominican Republic, there was 4.8% growth to a total of US$3.16bn; for Jamaica, a rise of 0.6% to US$2.04bn; and for Haiti, a 3.4% fall to US$2bn.
The report does not address the subject of Cuba, presumably for political reasons, but other figures produced unofficially suggest that remittance transfers there, mainly from the US and Europe, stood at around US$2.06bn.
This means that the total of cash transfers through remittances to friends and family - which is to say nothing of informal goods transfers - stood last year at a staggering total of US$10.1bn - a figure that suggests why, together with the black economy, the Caribbean continues to survive.
The significance of these figures in keeping Caribbean economies afloat is critical and should not be underestimated.
For example, in the case of Haiti, the sums transferred amounted last year to 25% of GDP; in Guyana’s case, around 17%; for Jamaica, close to 14%; and for other nations such as Belize and the Dominican Republic, somewhere between 5% and 10% of GDP.
One consequence of this is that an increasing number of Caribbean countries have been trying to encourage those who remit and receive to consider placing some of the money they send to relatives, or other disposable income, in Government bonds or local investments.
For example, Jamaica has been seeking to appeal to its overseas nationals’ patriotism and has been considering a low-yielding government bond, in part aimed at its Diaspora.
However, this has run into a number of difficulties.
Any such bond would add to the government’s overall debt stock and would require bringing within the scope of the island’s IMF agreement.
Reasons for Diaspora interest
The abiding sentiment is that few in the Diaspora would transfer funds to Jamaica for patriotic reasons, requiring rather a return higher than is available to them through bank savings or deposits held elsewhere.
And it is also far from clear whether the government, a bank, or any other entity would be willing to undertake the development of such a relatively high cost venture or be prepared to manage it.
There are, of course, other options which include, at their most straightforward, the use of Caribbean-owned money transfer services, with offices and agents overseas able to remit sums to a bank account linked to a saving account.
There are also Caribbean mutual funds or commercial options outside of the region that work on the basis of having a portfolio of projects, funds and public-private partnership opportunities that focus on investing in regions that individuals in the Diaspora may come from, or may care about.
For the most part, however, as attractive as the huge sums in remittances that flow to the region are to financial services companies and governments as a new source of productive investment, or for investing in productive enterprise, the reality is, as the MIF report shows, that remittances first and foremost are, and always will be, about enabling the lives of family and friends at home to be lived in a manner that is decent.
David Jessop is the Director of the Caribbean Council and can be contacted at email@example.com
Previous columns can be found at www.caribbean-council.org