Remittance News Coverage Missing the Mark
I came in today thinking, “wow, what a range of takes on the new World Bank study (pdf) on Latin American remittances released yesterday.” We reported last week on the IADB remittance report and the reaction from CNN and Lou Dobbs, in which an immigration and values debate provided the frame for a fundamentally fact-based study of remittances volume. The same thing is happening with the World Bank study. Both FT and Wall Street Journal have published articles in the past 24 hours. The Financial Times emphasizes the negative parts of what is essentially a mildly positive study by the World Bank – namely that remittances aren’t ’manna from heaven’ nor a substitute for sound macro- and micro-economic policies in the recipient countries. The Wall Street Journal takes the negative impacts downstream, and with their usual good reporting, talk a lot about economic dependency and crime that, they suggest, are results of remittances.
In my view, these press reports are serving to cloud, not clarify the issues. Remittances are not the cause of economic migration, brain drain, economic dependency, or crime. All these predated remittances, and the press is setting up straw men to knock down. Nobody I know of is claiming that remittances are a panacea or cure-all, only that they exist, they are large, they are important both to the senders and recipients, and they have development potential that is under-explored.When the WSJ writes that “about 85 percent of the money goes to pay daily bills for the people left behind, with little left over for savings and investment”, it is suggesting that 15% devoted to savings and investment is somehow not significant, or necessary. Anybody take a look recently at comparative savings rates of the OECD countries, Japan, and the US? Anyway, reducing economies to one number is dangerous. A high private savings rate in Japan hasn’t been much help in driving that economy, and the household US private savings rate is a negative number these days.
The World Bank is absolutely right to emphasize the need for sound policy, but I note that they go negative on remittances in part because of the Dutch disease syndrome, arguing that remittances tend to drive up the value of the local currency, making the economy less competitive globally. True, but from our perspective, countries are going to be more competitive globally in the long run when they pay more attention to their local markets, and these are BOP markets in most developing economies. A reasonably strong currency may, on balance, be a help when you are trying to deepen your own financial systems and local trading. Also, the authors of the World Bank study may want to talk to their colleague, Dilip Ratha, and together explore the positive impact remittances have on recipient country credit ratings. When you take into account the lower cost of borrowing enabled by remittances, the overall balance sheet may look a lot better than this report suggests.
Let’s hope this airing of issues leads to a positive and serious exploration of the ways we can improve the development impacts of remittances. They’re a fact and here to stay. Seems to me that there are three areas that need more study: first, how can the senders engage in development in their home countries (some work is being done on diasporas now); second, how these large and extremely consistent flows can be leveraged to assist in developing the “sound” policies that all agree are needed; and third, how simultaneously to maximize both the immediate well-being and long-term economic health of the recipients. If these things get attention, the reports will be watersheds.