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New tool increases transparency in remittances

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Washington DC, February 2, 2012 - It is called Envía Centroamérica and it is the first online tool that compares providers, costs and exchange rates to send remittances to Central America and the Dominican Republic.

The tool provides free information on the cost of sending money from the United States to Costa Rica, El Salvador, Nicaragua, Panama, Guatemala, Honduras and the Dominican Republic.

“It helps in making better and cheaper decisions to better match the needs of the money’s sender and recipient”, as reported by the tool’s creators in their website.

Felipe Jaramillo, World Bank Country Director for Central America, explains that remittances account for a larger share of poor households’ incomes in the region. “Any tool which provides these households with information to help them make the best decision on the smoother flow of monies to beneficiaries is a great resource,” said Jaramillo.

The World Bank further supports greater transparency in remittances so that users can be informed about the fees they are charged to transfer money.

 How it works

A cost comparison search to send US$200 from Washington DC to El Salvador made in Envía Centro América results in prices from US$8 to US$33, depending on the company or the selected method to send money.

 Establecimiento de envío de remesas en Washington DCThe final remittance cost can also vary based on the money’s country or city of origin, as well as the destination country and the amount of cash involved.

To collect data, researchers check the web pages of the money transfer services on a daily basis in order to have updated information, especially regarding exchange rates and fees. "Envía Centro América" is part of the project "Increasing transparency and consumer protection in Central American remittance markets".

The following institutions are involved in the project: The World Bank, the Center for Latin American Monetary Studies (CEMLA) and the Multilateral Investment Fund of the Inter-American Development Bank (MIF- IDB.) The website is managed in cooperation with the Central American Council of Consumer Protection (CONCADECO).

Why remittances

Only in 2010, Central Americans and Dominicans who live in the United States sent US$14.9 billion to their home countries, with an annual cost of US$700 million. Remittances are considered an oxygen tank for many Latin American countries. In some cases, they account for 10 percent or more of their gross domestic product (GDP.)

They also provide relief to millions of families either by helping them meet their basic needs or by extending their children’s schooling, among others. However, there seems to be no agreement on the usefulness of remittances for the development of the receiving societies. “People who receive remittances become unproductive and depend on the senders.

The money is often allocated to consumption and not to investments,” maintains Sandra González Aragón in the World Bank’s Facebook page. In the same forum, Gian Luiggi Massa asserts that remittances help in the development of beneficiary countries, “but not as much as the contribution made by migrant workers (in many cases illegal) to developed countries”. They are palliative solutions that end up being misleading indicators".

They support economy, yes; but they definitely don’t support development,” wrote Ricardo Acosta from México. Regulatory Framework There seems to be consensus among development organizations on the positive impacts of remittances on the economy and recipient households of Central America and Dominican Republic, and on their poverty reduction role.

Since remittances and migration go hand in hand, people migrate from countries under economic stress. By sending money back, they are actually helping reduce the economic volatility of their countries of origin.

At the microeconomic level, remittances help beneficiary households to improve savings, spend more on durable goods, invest more on small businesses and provide better health and education to their children.

However, “this positive impact is not as large and is also very uneven among countries”, as recently expressed during a chat on the topic by Humberto López, World Bank Senior Economist.

A current concern is for remittances to have an enduring impact on the development of the countries that receive them. Felipe Jaramillo, World Bank Country Director for Central America, notes that countries are implementing regulatory frameworks that promote the greater use of remittances for investment purposes, although “further improvements can still be made”.  

 




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