What remittances tell us about Mi Negra

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One important question in considering Manuel Rosales’ plan to distribute a portion of oil revenues directly to poor families is how much of the money is likely to be invested and how much to be consumed. Some intriguing clues can be found in a recent Inter-American Development Bank report on how Latin American families spend the money their relatives in the US send back.

The research finds that 73% of Latin American immigrants in the US regularly send money back to their families. The average remittance – $300 per month – is actually at the low end of what Rosales proposes to give poor families each month (Bs.600,000/month.) Remarkably, the IADB finds that some 15-20% of the money sent back is invested rather than consumed, most of it on housing.

In some ways, remittances are a good approximation to the likely impact of Mi Negra. Like oil money would be under the Mi Negra plan, remittance money originates from economic activity abroad and is delivered directly to poor families.

The parallel also suggests some caution about the development potential of Mi Negra. In El Salvador – nobody’s idea of an economic powerhouse – 22% of households receive remittances totalling $2.9 billion each year. It’s the country’s biggest source of foreign exchange earnings, and for a country with a population under 7 million, a hefty chunk of cash (17% of GDP, to be precise.) Yet, while remittances have doubtlessly made life much more comfortable for many Salvadoreans with relatives working abroad, there’s little sign that remittance money is leading to the kind of productive transformation of Salvadoran society that could really end poverty there. And, I think, the same goes for Mi Negra-type proposals.

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