NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, November 1, 2006

The World Bank will on Tuesday urge policymakers to take a more cautious approach towards the development potential of remittances, the multi-billion dollar financial flows sent home by migrant workers in North America, Europe and Asia.

In a report analysing their significance in Latin America and the Caribbean, bank economists argue that remittances are not ?manna from heaven?, that the benefits have been ?overestimated? and that associated social and economic costs in developing countries have not been taken into account.

?Remittances are an engine for development but they are not a substitute for sound national policies in the countries,? said Humberto L?pez, World Bank senior economist for Latin America and the Caribbean, and co-author of the report. ?Although positive, the impact of remittances on poverty and inequality is in most cases quite modest.?

Remittances have risen sharply in recent years, reaching $167bn (?131bn, ?88bn) worldwide in 2005 and accounting for roughly a third of all financial flows to developing countries. They help poor families meet basic food, education and health needs. In Latin America ? one of the regions most benefiting from the trend ? there has been growing interest in their potential as a source of investment capital. A report published this month by the Inter-American Development Bank showed that a growing number of recipient families were using remittances to invest in homes and small businesses.

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