October 05, 2005

Remittances and Their Impact

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A very interesting study was released by the Multilateral Investment Fund (MIF), which is a part of the Inter-American Bank Group in promoting inclusive economic growth in Latin America. The study, as reported by the Bolivian press, states that Bolivia will receive US$ 860 million in remittances this year. This amout surpasses the reciepts from the sales of natural gas (US$ 796 million) and also it represents 40% of the total amout of exports from 2004. Remittances from Bolivians living and working outside the country have become a very significant item in the government's accounts.

Compared to the 2004 remittances of US$ 422 million and the projected US$ 500 million in 2005, the amount expected this year is a real surprise for MIF and Bolivian officials. There is even speculation that the total sum could even reach US$ 1.000 million because as expressed by the Director of MIF, Donald F. Terry, the calculation is very conservative.

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This study is based on a survey conducted on June and July this year among 1523 Bolivians who periodically receive money their relatives send them. According to the report, there are about 650.000 people receiving money in Bolivia. This number represents 11% of the population. From the nine departments in which the Bolivian territoy is divided, the main receptors of this flow are Santa Cruz (18%), Cochabamba (17%), El Alto (14%) and La Paz (9%).

It is estimated that about 1 million Bolivians have left their home country in search of better opportunities, work and life. The main countries from which Bolivian expatriots send money are the United States, Spain and Argentina. 24% of those Bolivian expats live in the United States, while 62% of the total expats living in Europe make Spain their new home country. Additionally, 47% of those who emigrated within Latin America are living in Argentina with 26% living in Brazil, 15% living in Chile and 8% living in Paraguay.

A specially interesting aspect brought to light by this report was that those expats who emmigrated to the USA and Europe tend to be qualified as middle class (meaning more economic means), while those migrants living in Latin American countries tend to be of lesser economic means and have less education. The result is that out of USA and Europe the average monthly amount received is US$ 210 and from the Latin American region is US$ 120.

Now the MIF is thinking that to take full advantage of that flow of funds, they must be channeled to the Microfinancing sector. This would be a way to put to good use the money that flows into Bolivia every year. The reasoning goes that those funds can be used to estimulate the growth of the micro-economy and thus contribute to the growth of the economy. Channeling those funds to the microcredit industry, which by the way it is one of the most developed in the world, could be one way to do that.

Two negative aspects are important to consider. One is that by trying to encourage a massive transfer of dollars from the world into Bolivia, inflation could be triggered. The other important aspect is for the government not to encourage emmigration. The brain-drain problem in Bolivia is bad enough as it is.

More resources about microfinances in Bolivia:

An English article
A brief history
Government program FONDESIF
MABB August 30 post