Remittances to Latin America and the Caribbean in 2015
On February 16th the Inter-American Dialogue hosted a discussion on remittance flows to Latin America and the Caribbean in 2015. The event featured two new Dialogue reports, “The Continued Growth of Family Remittances to Latin America and the Caribbean in 2015” and “The Costs of Sending Money to Latin America and the Caribbean.” Manuel Orozco, Director of the Migration, Remittances and Development Program at the Inter-American Dialogue, presented the main findings of the reports. Paul Dwyer of Viamericas and Daniel Ayala of Wells Fargo Global Remittance Service joined him on the panel to discuss their implications for the remittance industry.
The major findings of “The Continued Growth of Family Remittances to Latin America and the Caribbean in 2015” revealed a 6% increase in remittances as compared to the previous year. In total, remittances to the region reached $68 billion in 2015. This increase represents the largest amount of remittances sent to Latin America in the past 15 years.
Orozco noted that there is no one, single factor that influenced the increase in remittances in 2015. Instead, Orozco emphasized three major dynamics that account for the increase. The first factor affecting remittances is the political instability and violence in receiving countries, which often leads to emigration. Orozco pointed to a correlation between countries with weak governance and high violence, such as Guatemala, Honduras and Haiti, and the largest growth in remittances. The second factor is represented by transnational migration. As more people move to the United States and find a source of income, it is very likely that these migrants will start sending money home. Manuel Orozco remarked that the trend of migration will steadily continue for the years to come, therefore positively impacting remittances. Finally, the third factor is represented by shifts in the global economy, especially with regards to the exchange rates. In Colombia, for example, exchange rates were a factor in the increase in remittances, according to the report released.
Paul Dwyer, Co-Founder and CEO of Viamericas, praised the recently released reports which empirically support a trend he called “intuitive.” Dwyer mentioned that, like any other rational actor, migrants promptly reacted to the incentives of sending money as a result of the exchange rates. Since prices take a while to catch up to the changes in exchange rates, migrants took advantage of opportunity of a higher purchasing power in the receiving country. Dwyer also concurred with Orozco that even when unemployment rates increase, immigrants will find a way to keep sending money home, even if it means finding part-time employment.
Dwyer pointed out that even though there is a widespread perception that sending money is too expensive, there are many costs involved in sending money from point A to point B in matters of minutes. Factors such as compliance, regulatory challenges, and lack of financial institutions can drive prices higher for some corridors. Dwyer also reiterated that the remittance market is now competitively served as opposed to several years ago.
Daniel Ayala, Head of Wells Fargo Global Remittance Services, joined the discussion, pointing out that remittances have finally recovered from the 2008 recession. He also mentioned a trend in migrants using remittances for investment, such as building a retirement home back in their countries. He concluded that remittances will steadily continue not only for investment purposes but also for the sense of satisfaction in being able to take care of those family members left behind.
During the round of questions, it was asked whether there will ever be a total convergence in the prices of sending a remittance. Paul Dwyer responded that each provider faces different operating costs, depending on their business model, which will prevent a complete convergence of prices. There are also “switching costs” for consumers that may prevent them from shopping around for the best offer, at least in the very short term.
Finally, one participant asked about the costs of sending to Haiti, and why this corridor tends to be more expensive. Panelists explained that this is a less competitive corridor, with fewer sending options, as well as fewer paying institutions in Haiti. There are also costs associated with operating in Haiti, including issues related to infrastructure and electricity.
As closing remarks, the moderators agreed that migrants are links to the global economy. The major challenge, Orozco concluded, is including what we know about migration when designing economic and development policy. While migration and remittances are not new to the region, they are often overlooked in terms of what they can mean for economic development.