Envío Digital
Central American University - UCA  
  Number 320 | Marzo 2008


Central America

Remittances Are Far More Than A Development Panacea

What and whom are remittances good for? After being silenced, scorned or utterly ignored, they now occupy a major place among regional analyses. But they are examined and valued from a financial perspective that ignores the social and patriarchal relationships they destroy or build, the family micro-policy they determine and the state reduction they encourage. They need to be examined with less ingenuousness and more responsibility.

José Luis Rocha

Pisto, plata, lapas, tucanes, tejas, tostones, güevo, chichimosca, palos, tucos, fichas, hojas de repollo, barbas, luz verde, reales, búfalos, daimes, meruza, chelines, chambulines, coyoles, chilca, marmaja, morlacos, maracandacas, harina, tablas, bollos, bolas, billuyos, verdes…

In addition to his six official names in Central America (córdoba, quetzal, lempira, dollar, balboa and colon) and his thousands of nicknames like those above and many more in the world as a whole, this powerful gentleman has also acquired a special alias: remittances. The polymorphous monster commonly presented to us in the form of coins and bills, as apparently frozen certificates of deposit, as advances on itself through a credit card, or launched onto the stock exchange trapeze dressed up as bonds or simulating ghostly presences in spurious accounting operations, has now materialized universally with a new moniker: remittances. In common parlance, this is the money sent by international migrants to their families back home.

Why so much interest in remittances?

A Sibylline aura surrounds this new identity of money. Remittances are attributed almost magical virtues, the miracles of a panacea, and, through the catchphrase “productive use of remittances,” are proclaimed with great pomp and circumstance to be the new cornerstone of local and national development. Why not talk about the productive use of bar earnings? Or about the savings of consultants to recycle part of the foreign aid that never trickles down to the poorest? Why not redirect the considerable spending on luxury vehicles and imported beers towards ecotourism?

Nobody even considers giving a special name to income received from selling alcoholic beverages or suggests reinvesting it in community parks. What’s so special about these gifts from relatives abroad that isn’t shared by gifts from relatives living inside the country? Are the US$70, $100 or $200 that a family gets from abroad automatically more productive than the $300 earned by a small-scale coffee farmer? In short, why so much fuss about remittances? It would appear that the money labeled “remittances” is more public, more manipulable, so everyone wants a say about its current or potential uses.

It happens that money transmuted into remittances has two characteristics that incite its special treatment. First, most of the people receiving remittances are poor. They’re probably not the poorest, but their ordinary income is low and they therefore require help from relatives living abroad. As the poor have the bad fortune to be more public than the middle or upper classes, the periscope and precepts of the Inter-American Development Bank (IDB), NGOs and the state all butt into their finances to tell them what to do with their migradollars in much the same way as the TV cameras come barging into their homes to turn their private life into mass entertainment. And second, the volume of money in the form of remittances—its national aggregate tracked through money-transfer companies and the balance of payments—leaves no doubt about their enormous power to jump-start the consumption capacity of a broad sector of inhabitants.

Fast-growing and increasingly important

The remittances sent by Central American migrants to their home country—predominantly from the United States, but often from other countries in the isthmus—amounted to US$12.16 billion in 2007, according to the IDB: $4.1 billion to Guatemala, $3.5 billion to El Salvador, $2.7 billion in Honduras, $990 million in Nicaragua, $590 million in Costa Rica and $320 million in Panama. Whether because the capacity to register them has increased or because their volume really is greater, remittances appear to growing at an astonishing rate. According to the Economic Commission for Latin American and the Caribbean (ECLAC), the remittances received in Latin America as a whole increased from $1.12 billion in 1980 to over $40 billion in 2004. With small fluctuations, they have doubled every five years. The amounts received in Guatemala, Honduras and El Salvador increased over tenfold between 1980 and 1990, rising from $55 million to $649 million, displaying truly amazing productiveness considering that the number of citizens who migrated from those countries to the United States only multiplied fourfold during that decade.

For different reasons, those enormous flows of money went unnoticed. For one thing, remittances move in small amounts of between $100 and $200 a month and circulate outside of the country’s formal financial system—in international money transfer companies like Western Union and others, or in the pockets of the migrants, their relatives or other trusted couriers. In addition, those who generate these flows and those who receive them are poor; people who didn’t count as movers of capital. For many years the International Monetary Fund (IMF), the main body responsible for monitoring financial flows, threw billions of dollars in remittances into the “errors and omissions” column in its accounting books. But the macroeconomic importance of remittances has been so overwhelming that they couldn’t remain invisible for very long.

Combining the IDB estimates with statistics from the Central American central banks we can conclude that in 2006 remittances were worth more than the value of exports in El Salvador and Honduras, and fell just short of it in Nicaragua. They represented half the value of imports in El Salvador and a quarter of the entire gross domestic product (GDP) in Honduras. With the exception of Costa Rica and Panama, the indisputable and growing weight of remittances in the national accounts of Central American countries has given them a place of honor. As the table on the previous page shows, they are worth between 9.4% and 25.5% of the GDP; between 60% and 173.5% of the value of exports; between 30.3% and 51.6% of the value of imports; between 55% and 67.6% of the value of the total trade deficit; and between 88.7% and 153.5% of the trade deficit with the United States.

In Guatemala and El Salvador, remittances respectively account for over six and seven times the amount of foreign direct investment in those countries. In Honduras they triple the value of such investment and in Nicaragua they double it. According to estimates by sociologist Eduardo Baumeister based on the 2001 living standards measurement survey, families that receive remittances in Nicaragua accounted for around 30% of the country’s families, for a total of some 300,000 families and 970,000 people. ECLAC calculates that remittances reach 17% of Salvadoran families and 11% of Guatemalan and Honduran families.

The Salvadoran Ministry of the Economy says that 28% of the country’s adults and 21.4% of its households receive remittances. The salary mass corresponding to Salvadorans residing in the United States was valued at 127% of El Salvador’s GDP in 2004. Salvadoran labor paid abroad generates a per-capita income that is six times higher than the per-capita GDP of those paid back home, while their poverty rate is almost half the rate of their compatriots in El Salvador. Transmuted into remittances, their savings reach over 30% of the households in the departments of La Unión, Cabañas, Morazán and San Miguel. In La Unión, remittances reach 63% of the households in the municipality of Concepción de Oriente and 61% in the municipalities of Anamorós and Meanguera del Golfo. These savings entered almost 358,000 households, representing 34% of their income.

El Salvador is the remittance pioneer

The Central American nations are starting to behave more and more like many of remittance-receiving households: waiting for that hard-earned manna to drop from heaven; beholden to those relatives who went off to seek their fortune; and praying to their patron saint to bless and keep them in good health.

Such attitudes are most evident in El Salvador, where the state now has a very active lobby with US senators—who are patron saints, if ever there were. This lobbying policy has achieved residency status for many Salvadoran citizens living in the United States and gotten the Temporary Protection Status (TPS) there renewed repeatedly. The veneration of the remittance senders has now been symbolized in the eloquent decision to build a monument to the “Faraway Brother” at the entryway into San Salvador. While this attitude has started to spread—sometimes very lazily—to other Central American countries, El Salvador is the pioneer blazing the trail.

The fact is that in this chapter of Central American history—which we could title “Central America Remit-tanced”—El Salvador’s elites are cleverer than those of other Central American countries at recognizing then riding the wave of certain structural opportunities; they took the lead in the remittance market just as they did in the Central American Common Market of the sixties. The tertiary service sector also has a greater weight in El Salvador’s economy than in the other countries that also receive remittances, accounting for almost 60% of the working population in 2005 and 64.8% of economic growth in 1990-2004. Moreover, the urban population growth (from 44% to 55% between 1980 and 2000) is only bettered by Honduras, with the difference that El Salvador already had a very high urbanization rate in the eighties. In fact, agricultural work in rural areas there is even being displaced, dropping from 61% to 44% of total employment between 1980 and 2004.

In the absence of a strong and competitive export sector and of substantial productivity and profitability increases, El Salvador’s tertiarization-urbanization miracle is only possible thanks to the maquiladora operations (free trade assembly plants for re-export) and, to a far greater extent, to the ever-growing flow of remittances. The tiny but populous country known as the Thumbelina of the Americas appears to be again showing the way for various countries in the region, with some lagging ever further behind and others striding ahead more purposefully.

Salvadoran emigrants are more profitable for their country than any others in Central America, and have been for some time. ECLAC figures show that the number of Salvadoran emigrants increased by 306% between 1980 and 1989, while the amount of remittances they sent home increased by three times more in that same period, a situation unparalleled in other countries in the region. In 1989, Salvadoran emigrants sent home an average $92 from their monthly savings, Guatemalans an average $41 and Nicaraguans $20. In 2005, the World Bank calculated that Salvadoran remittances contributed $411 per capita to their compatriots in El Salvador. The per-capita contribution is $245 in Honduras, $238 in Guatemala, $155 in Nicaragua, $92 in Costa Rica and $62 in Panama.

Segundo Montes’ groundbreaking study

This growing relative weight of remittances—the economic power of the poor—has brought them to the attention of journalists, bankers, social scientists and public policy makers. In Silk, Alessandro Baricco describes “Baldabiou” as “the man who, twenty years earlier, had come to town, headed straight for the mayor’s office, entered without being announced, placed on the desk a silk scarf the colour of sunset, and asked him ‘Do you know what this is?’ ‘Women’s stuff.’ ‘Wrong. Men’s stuff: money.’”

Something similar happened with remittances. When in 1989 Jesuit martyr Segundo Montes became the first person to study Salvadorans’ remittances with a team of researchers from El Salvador’s Central American University, they were “women’s stuff”; women—the migrants’ wives and mothers—were the main receivers. While more women have since joined the migratory stream, it is still predomin-antly masculine. At the time of Montes’ study, those apparently miniscule and pedestrian amounts of money were light years away from becoming a field of interest to the great analysts.

Just after he had finished writing up his significant pioneering contribution, Montes, five brother Jesuits and two cherished women were assassinated on November 16, 1989, by a squadron of the US-financed Salvadoran Army. A tragic ending to the first—and little known—chapter of the study of remittances in Central America.

Poor people go, poordollars come

Another Jesuit, Javier Ibisate, an economist trained in Lovaina, then took up the torch and in his macroeconomics courses in the early the nineties nicknamed remittances “poordollars” to highlight their powerful function as determinant monetary flows in the postwar economy. He insisted that his students correctly interpret the soporific national accounts in which remittances were camouflaged as transfers and omissions, submerged in an ignominious anonymity that did not do justice to their unrivalled expansion of the consumption capacity. Although the total amount of remittances in El Salvador in 1990 only totaled $322.7 million—6.7% of the GDP—Ibisate had the vision to notice that they were feeding the construction boom and the unbridled purchase of electrical appliances.

In 1991, Jesuit Peter Marchetti was one of the first to mention Central Americans’ in-kind remittances and pioneered in highlighting the reciprocal nature of that exchange, perceptible in the double channeling of the dispatches: “On the one hand the emigrants send money and goods, and on the other the national residents send products abroad, generally handicrafts.” ECLAC sponsored the studies of both Montes and Marchetti. Then came an avalanche of studies, and now remittances are “men’s stuff” as well as the subject of lofty analysts.

There is still a gender division in the academic coverage of migratory issues: remittances are predominantly studied by men, while family disintegration is the concern of women researchers. It’s a case of pure, hard capital versus social capital, one with its male scholars and the other with its female scholars, in a thematic monosexuality in which few cross the gender-based divide.

The financial approach takes the lead

Some scholars charged early on that remittances helped sustain socially unviable economic models. Others have sounded the alarm about the dependent attitude they spread and the inversely proportional relationship between the size of remittances and benevolent migratory policies. But the enthusiastic apologists have proved more numerous and loquacious. They sustain that the interrelation between remittances and development contains a potential as yet unexplored. The IDB emphatically advocates channeling remittances toward the creation of small and medium businesses, and the IMF agrees. They extol the role of remittances in substituting for institutional credit systems and view them as financial fuel with a vast potential to activate development, on the condition that they are “bankized.” They have great esteem for the impact remittances would have if they entered the financial system.

Private business and the state are invited to design the appropriate incentives, reformulate financial regulatory frameworks, reduce transfer costs, train credit cooperatives, improve transparency, promote free compe-tition, extend financial services and stimulate the adoption of new technologies among the poor. Those strategies would smooth the way toward the productive use of remittances and turn them into a development instrument.

This predominantly monetarizing and instrumental-izing bias has had an impact on the production of knowledge about remittances, concentrating the research agenda both within and outside of academia on purely financial aspects linked to development proposals that don’t clearly state their budget or course of action. They also sidestep any mention of the political and socioeconomic conflicts of the societies where the remittances end up.

Exceptions to the irresponsible optimism

Certain issues have become predominant, delimiting what is legitimate to analyze, how and for what reason. In Central America, a decade of addressing the issue has not led to any noticeable enrichment of the perspective. In Nicaragua’s case, from Edward Funkhouser’s work in 1995 to that of Allen Jennings and Matthew Clarke in 2005, attention has focused on the amount, macroeconomic weight and profile of the senders and receivers. Those studies display an irresponsible optimism crystallized in statements that are debatable to say the very least.

The UNDP’s 2005 Human Development Report on El Salvador, which cast a more comprehensive look, is one of the most sophisticated and complete studies on the issue. But urged by the requirements of its format, even it did not examine many aspects in depth or highlight their numerous interrelations.

Some academics have widened the perspective, looking at the links among remittances, power and the gender problem. Diana Santillán and María Eugenia Ulfe even used in-depth interviews, which provided them detailed and graphic information on the crossover between receivers of remittances and the exercise of power. Guatemalan Jesuit anthropologist Ricardo Falla monitored the management of remittances in a Honduran village for seven years. While his valuable findings have not yet been fully developed, they do offer ideas for a research agenda that could break the straightjacketing financial approach. These studies have been the exceptions. The predominant trend distills remittances to their most ethereal quintessence, abstracting them from the socio-cultural interrelations in which they are generated, transferred and consumed.

Weak calculations

In his book El mito del desarrollo [The Development Myth], former Peruvian ambassador to the United Nations and the World Trade Organization Oswaldo de Rivero states that the gurus of that myth, who fanatically measure almost everything, have a virtually quantitative view of the world and fail to examine the qualitative cultural and historical processes, society’s non-linear progress and the ethical vision. The obsession with figures has turned into a kind of idolatry and a desire to reduce the whole dynamic of remittances to ups and downs in their volume and changes in the profile of the senders and receivers. It amounts to an adoration of clay-footed gods, because the diverse nature of remittance data is based on limited investigation.

First of all, there’s the problem of the varying forms of calculation. Different methods—and sometimes even a single method—can throw up very different figures. In 2004, the IDB estimated that Nicaragua had received a total of $850 million in remittances, while the Nicaraguan Central Bank put the figure at $519 million. Using the IDB’s method, the World Bank came up with $600 million the following year. The IDB and World Bank base their calculations on gathering information almost exclusively through surveys, applied in Nicaragua to get an average remittance, then multiplying that by the number of Nicaraguans living abroad. The problem is that not all migrants send remittances, because some have only just arrived and others have already broken their connections with the country and family they left behind.

Even the calculation of the number of Nicaraguan migrants on which the central banks, IDB and the Inter-American Dialogue studies base their figures are built on quicksand. There’s a difference of hundreds of thousands between the estimates of the US national census and those of the Pew Hispanic Center. And in the country of origin, the Nicaraguan national censuses only ask about emigrants who have left existing households, so there’s no record of entire households that emigrated leaving no one behind to tell of those who left.

The Nicaraguan Central Bank, whose method is given very little credibility by the IDB, bases 80% of its own estimate of the total value of remittances on formal financial intermediaries, such as banks and money transfer companies. The remaining 20% comes from two factors: the total number of households receiving remittances and the figure obtained by calculating the average amount each household receives.

Both methods are fallible and suffer from serious conceptual imprecisions, which underestimate the poly-faceted nature of remittances. Remittances can come both in currency and in kind. Should only the hard cash be measured, as the IDB, World Bank and Nicaraguan Central Bank do?

Cash remittances are also very diverse. They might come in monthly installments of $150, which is the kind the surveys ask after. But migrants who spent four years in the United States can also come back with $17,000 in their pockets to build a house in San Vicente, Santa María Chiquimula, Tocoa or Managua. Or they can come back in packets of $700 with the migrants who go to Costa Rica for three months for the coffee or melon harvests, then return to take a “vacation” in Posoltega, El Arenal or Santa Rosa del Peñón, where there’s little or no work.

So what should we define as a remittance? The savings that migrants generate abroad and either send or bring back with them, or just the money sent home from abroad through certain channels? Even if the surveys on remittances overcame the conceptual imprecision and were more inclusive—or at least less explicitly exclusionary—in their calculations, they would still run up against the modesty or caution that imposes secrecy around income, and perhaps a tendency to declare less income than is really coming in. This is either not mentioned or is only whispered about, but it does demonstrate the unadmitted fragilities undermining the credibility of any calculations or statements.

A fetish of magical results

The predilection for cash remittances alerts us to one characteristic of the dominant studies on remittances: a fetishism that establishes money as a pure form of universal wealth, abstracted from its context and mutilated of its nature as an intersection of social relations. Fetishism implies ignoring the underlying social relations to attribute supposedly intrinsic properties to money.

In Grundrisse, Marx points out that the same financial necromancy that threw men and commodities into the alchemistical still to make gold, at the same time evaporated all of the relations and illusions that were holding back the bourgeois mode of production, leaving a precipitate of simple monetary relations based on exchange value.

The same occurs with that form of money—and not only money—known as remittances. The figure on the overall volume of remittances—even with its dubious history—exercises a hypnotic power. The result is the simple equation that more remittances equal more development oppor-tunities and more possibilities for productive investment. The fetishism of numerous studies consists of taking remittances to be some kind of magical object whose amounts in themselves generate a beneficial effect on those who receive them. Thus, as Marx commented, rather than being a unit of measure, money—in this case monetary remittances—represents itself, becoming the price realized in it and therefore also the material representative of universal wealth.

The height of fetishism is interest-bearing capital. In his description of how it works, Marx takes his sarcasm to the extreme, arguing that “capital appears as a mysterious and self-creating source of interest—the source of its own increase.... In interest-bearing capital, therefore, this automatic fetish, self-expanding value, money generating money are brought out in their pure state and in this form it no longer bears the birthmarks of its origin. The social relation is consummated in the relation of a thing, of money, to itself.... Money as money is potentially self-expanding value and is loaned out as such — which is the form of sale for this singular commodity. It becomes a property of money to generate value and yield interest, much as it is an attribute of pear trees to bear pears.”

What the fetishism omits

Marx denounced the deceit of this dramatization that presents capital as capable of self-expanding value independent of reproduction, a trick that in his judgment constituted capitalist mystification in its most brazen form. The source of profit and the whole production process are hidden and capital takes on an independent existence; in other words, it dresses up in its purest fetishistic form.

Hence the appearance of money that is “impersonal” property and not locally determined. It is impersonal because it is universal social power and universal social link. It doesn’t matter who has it, in what conditions they obtained it or how they spend it. And it’s not locally determined because all of the particular characteristics of the relations that determine it—the political, social, patriarchal conditions, etc—are extinguished. The social beings with their products and idiosyncrasies apparently stop confronting each other and let their money do the confronting. Relationships remain hidden because the formulation by the great analysts makes them adopt that undifferentiated/average form called money. But money is neither universal nor undifferentiated: it is affected by the lurches of different accumulation strategies, including the global casino, among others.

Unfortunately, that fetishistic form—in this case of remittances as average volume, as universal undifferentiated wealth with magical powers—impregnates the insipid discourse of the IDB and World Bank, which is interested in hiding the dominant groups’ financial and political strategies. The fetishistic simplification dodges the effort involved in conceiving people as a sum of social transactions. The characterization of the households that receive and send remittances has focused on the volume of income; geographical distribution; the sex of those involved; economic activities; how long the migrant has been away; the level of schooling; the rates of irregular migratory status; the frequency, means and costs involved in sending remittances; the degree of kinship between receivers and senders; their position in the national distribution of income; their relationship with the banks and their financial knowledge.

The findings mention whether there was investment in the house, but not what that investment specifically consisted of or what it meant for those people. They don’t tell us about how the remittances were administrated, the interpersonal tensions their flows generate or the political role they play in a given conception of the social contract and the welfare state. Nor do the findings speak of the role of remittances in the processes of world accumulation or of the remittances that come in the form of objects. And they certainly don’t examine their meaning in today’s cultural context.

Cornerstone of the Liberal project

Studies that contemplate the contribution of remittances—expressed merely in monetary volumes—contribute to a mystification of remittances similar to the mystification of commodities described by Marx, who presented them as endowed with a social quality as if the social relationship that mediates between producers and society’s collective work were a social relationship established among the objects themselves, removed from their producers. The proposals to “bankize” remittances don’t take into account their meaning, as if money’s meaning were entirely detached from how it circulates, how the social setting demands given forms of consumption, the social position occupied by those who receive it, the political-economic setting and the power relations between those who receive them and those who send them. The phenomena conceived of as “purely economic” are presented as being closer to technical solutions than “dirty politics.” That non-conflictive vision is a cornerstone of the ideology that perpetuates the system. Fetishism is at the service of the Liberal project of gradual changes and reforms.

At least four conceptual reductionisms are at work in these simplifications: the concept of money/remittance as a monetary volume rather than an expression of interrelations; remittances as money alone; the exchange of goods as an activity that only occurs within the market, and the sending-receiving flow as a unidirectional dynamic (the migrant sends remittances out of altruism and egoism and the family member in the country of origin receives them passively). Like merchandise, work and consumption, remittances are presented abstracted from the overall social scheme.

The ideological trap of hiding the conflict

These reductionisms lead to a candid, non-conflictive vision of society that attributes a messianic role to remittances. Jennings and Clarke wind up an article in Development in practice with the joyful conclusion that emigration and remittances, or better still, the “free flow” of Nicaraguan workers, must be considered a powerful catalyst of economic development and perhaps one of the rare human faces of globalization. Exactly what kind of development are these authors talking about? Where is the freedom they attribute to the flow of migrants?

Their article is an example of the kind of thinking that presents remittances as capable of creating their own value and assuming a redeeming mission, offering a non-conflictive vision of society. That article could quite easily be included in an issue of the Central American business magazine Estrategia & Negocios, alongside the following declarations by Ricardo Poma, the leader of Metrocentro y Multiplaza Escazú, better known as the Poma group, which also owns vehicle dealerships, hotels, banks, factories and urban housing developments:

“For us, it has been essential to operate in a framework based on values that have been transmitted from generation to generation: integrity, the ongoing search for excellence, love of work, perpetual renewal, respect for people, solidarity and service. I’ve always said that people are the most important thing. People are the raison d’être of our business and social work; they’re the ones who build, who turn ideas into reality.” These words also sound like one of the rare human faces of globalization and could be inserted into a Sunday sermon by any priest or archbishop, or uttered by university officials, rectors, ministers, analysts and the whole cohort of cloying people who talk about—and live in—the promised, conflict-free land.

In his forthcoming book Post-Marxism and Liberation Theology: An ethical humanist perspective for social change (an envío publication), Andrés Pérez Baltodano insists on the need to “avoid the theoretical trap represented by the non-conflictive vision of politics, because it leads to paralysis and acceptance of the hegemony of capital as the natural framework within which order and social peace should be sought.”

He goes on to propose that “the Latin American and Nicaraguan Left must avoid falling into the ideological trap hidden beneath the visions of harmony and peace, unity and reconciliation that are offered by the conceptual vocabulary and theoretical explanations promoted by neoliberalism and its institutions. It must recover the spirit of classical sociology, which recognized conflict as a social phenomenon indispensable for reflecting on order.”

Reflecting on this conflict in three areas

Breaking with this vision of the management of remittances implies overcoming the fetishism that consecrates them as an instrument of development and overlooks their socioeconomic, political and cultural incarnation. After all, in order to reflect on development, one has to problematize and, as Bourdieu put it, reach beyond the initial abstraction that consists of dissociating a particular category of practices, or a particular dimension of any given practice, from the social order in which all human practices are immersed. It implies addressing conflict in at least three areas.

The first is the role played by remittances and migratory movements in the great global, regional and national processes of capital accumulation, characterized economically by the alliances between national elites and transna-tional capital and culturally by that ideological artifact of long duration and pernicious influence known as the “ development myth.”

The second is the conception of the state, the welfare state, employment policy and citizenship. There is evidence that remittances are reinforcing the reduction of the state and fostering a society-state relationship in which citizens’ self-conception is above all one of clients.

And the third area is family micro-policy, in which remittances are part of a bidirectional and sometimes multidirectional exchange of goods and services that transcend the market’s jurisdiction.

Penetrating these areas would bring us close to what Marcel Mauss called “total social events,” an approach that allows us to focus on many facets of remittances and the transformations they produce that remain concealed in the fetish-based approaches. Addressing these three areas leads us to question what that movement of money means to the capitalist system of accumulation and its global interrelations. What does it mean for the state-society relationship? And what does it mean locally? Is the money sent home by migrants really just omnipresent merchandise not determined locally? The rest of this article concentrates on the second area, leaving the other two for a later occasion.

Drawing back the veil to understand
the social function of remittances

The hypnotic power of the term “remittances” concentrates on their direct uses and effects: what they are spent on, how much is converted into taxes and how much is saved... But it tends to place a veil over their various social functions. We have to draw back that veil to reveal the faces and metamorphoses of those remittances.

Popular wisdom rechristens money to demonstrate its different functions, origins and social features through the expressive force of metaphors. Coins are called reales (royals) because the crown minted them; plata (silver) because that metal was used as a means and measure for exchange; harina and bollos (flour and rolls) because it’s exchanged for daily bread; fichas (chips) because before the global casino there were national and local casinos where fortune was decided by chance and rigged arrangements; and chambulines because it is earned through chambas, those “jack-of-all-trades” tasks without which the poor would have no money at all. The nickname lapas (macaws) is perhaps linked to money’s volatility. Remittances should also be renamed to tease out the different social functions they perform.

Like money in general, its appearance in the form of remittances has many functions, which are only revealed if we chip away at the plaster of fetishism. There is a need to name these functions and then explain their links with the agreements and disagreements of the social contract that shapes them and tells them what to be and how. Remittances have many simultaneous personalities. They are savings gathered by migrants in the countries where they live that become income/donations in the countries where they are received. They are part of the salary mass of emigrants that without officially being considered taxes are transformed into indemnification against natural disasters, compensation for poverty and insurance against unemployment, old age, disability and death in the countries of destination.

Structural conditioners mean that remittances come with a label defining the function of each portion and their overall origin and destination: taxes, insurance, old age pension, donations, subsidy, health investment, etc. Remittances aren’t what they want to be, but rather what they can be. One of their most applauded facets is their effect on reducing poverty and inequality. The UNDP’s 2005 report on El Salvador highlights that among the households that receive remittances, 74.2% obtained enough income to put them above the poverty line (non-poor); while the percentage of non-poor households among those families that don’t receive remittances was lower (63%). Meanwhile, just 5.7% of households receiving remittances were in extreme poverty, less than half the percentage of families that don’t receive them (14.5%).

Proof that they reduce poverty

Given that remittances represent a third of the income in the homes that receive them, in a hypothetical scenario in which remittances were eliminated, the percentage of receiving households in extreme poverty would leap from 5.7% to 37.3% overall and from 7.6% to 48.5% in the rural sector. Households with remittances report a notable superiority over those without them with respect to housing materials and access to public services (90.2 % versus 76.5% connected to the electricity grid; 65.5% versus 55.8% with piped water inside or outside the house).

As we don’t know the original situation of these households but do know that the poorest don’t migrate because it costs at least US$5,000 to pay the coyote, it’s preferable to have a dynamic vision of the phenomenon. In this sense it’s significant that Baumeister found that 48% of the Nicaraguan households that went from being poor to non-poor between the 1998 and 2001 household living standard surveys received remittances.

Also from a dynamic perspective it is significant that some authors highlight the fact that poverty dropped from affecting over 50% of Salvadoran households in 1996 to 34.5% in 2004, and that the percentage of people suffering extreme poverty dropped from 26.3% to 15.2%. An analysis of Guatemala by the International Organization for Migrations (IOM) shows that the volume of remittances as a percentage of the GDP rose from 6.8% to 9.5% between 2002 and 2005, a 40% increase leading to the conclusion that the effect of remittances alone helped reduce poverty by 6.4% in just four years.

The UNDP’s 2005 report on El Salvador sustains that the Gini coefficient—the most creditable indicator of inequity on a scale of zero to one—is 0.44% in Salvadoran households with remittances and 0.52% in those without. In a hypothetical scenario in which remittances were eliminated from the total income of households that receive them, the Gini coefficient would increase to 0.61 in those households and from 0.50 to 0.54 on the national level.

Atomized, individual solutions

A pessimistic note needs to be sounded among all the fanfare and dithyrambs, however. These magical effects of remittances occur without a finger being laid on big capital, and therefore with no pressure on the state from a citizenry seeking to reverse inequity through political channels. This occurs in a context in which, according to Le Monde Diplomatique director Ignacio Ramonet, the central characteristics of our societies is the production of inequality; after having had a project of equality, we now have a silent project of inequality.

As a counterweight to this project, thousands of individual and family reactions mitigate the inequity. These thousands of projects dispense with the state as an instrument and resort to the market as liniment. While this is a generalized reaction, it is extremely pronounced among the nations traditionally administered by racketeer and gangster states in the hands of one or various cleptocracies, nations that are collapsing from the inefficiency and weakness of failed states or nations and are turning into “chaotic, ungovernable entities,” to quote Oswaldo de Rivero.

The atomized reactions are multiplying, manifested in vain attempts to tame the chaos: youth gangs govern micro-territories; migrants go off in search of less chaotic scenarios; and those who stay seek a migration of their status and a window of opportunity to obtain the American dream through remittances. None of them seeks to transform the state. Are they even seeking new ways of doing politics?

Although most of the solutions are individual, we can also identify group solutions, but they don’t spark our optimism. In the words of US sociologist Immanuel Wallerstein, if states (and the inter-state system) come to be seen as losing efficacy, who will the people turn to for protection? The answer is already clear: “groups.” The groups can have many labels: ethnic/religious/linguistic, based on gender or sexual preference; in other words “minorities” of diverse characterizations. Again there’s nothing new here, argues Wallerstein. What is new, he goes on to explain, is the degree to which such groups are seen as an alternative to citizenship and participation in a state that by definition harbors many groups, while ordering them in an unequal way.

Following this logic with respect to remittances, some initiatives have awakened an enthusiasm that merits suspicion, such as the associations of Salvadoran migrants negotiating 2-for-1 projects with the central and municipal governments, in which the central government and municipal government put in a dollar each for each dollar sent by the migrants’ association. Analysts from the UCA in San Salvador were quick to applaud this way of doing politics, underestimating the tentacles this sends out to direct the state-society relationship on a path towards more of the same philosophy of “every man for himself,” at the expense of those with very few resources to save themselves and the consequent condemnation of people with no resources to contribute to their own survival.

Contributing to the collapse
of state responsibility

We can see the tendencies of this model in Nicaragua in the following table, which shows a simultaneous increase in the weight of remittances in the GDP and in the number of inhabitants per doctor and relative decreases in public spending on health and in the average real agricultural wage.

Spending on health and education, both per capita and with respect to the GDP, doesn’t necessarily indicate any state political will to invest in health or education, much less real effects in these two sectors. Public investment can increase—as has occurred in the education sector—only to be swallowed up by the mega-salaries of the upper echelons of the parties that win the big prize in the electoral lottery. The limited effect of state investment in education can be seen in the reduced school enrollment and the increases in illiteracy and school desertion. On a scale of zero (inefficient) to one (efficient), the efficiency rates for public spending on education relative to the net enrollment in secondary schools are pitiful throughout the region, running from 0.46 in El Salvador to 0.26 in Honduras.

The coexistence of all of the elements indicated in the table is really a form of parasitism in which some of the elements feed off the others: the depression of real wages encourages migration and the sending of remittances to rescue those who stay behind. The remittances compensate—one might argue, even make possible—the inefficiency and state withdrawal of social investment. In the model assumed since the nineties, remittances have played the part of unemployment benefit, risk mitigator, old-age pension, harvest insurance and education and health funding. According to an estimate of 19% of the total remittances received being invested in education in Nicaragua, those households that receive remittances spent $154 million of them on education in 2004 (using the IDB figure on remittances) or $114 million (using the World Bank figures).

A 2006 study by the Nicaraguan Civil Society Network for Migrations estimated that another 13% of remittances are earmarked for health. According to the IDB calculations, this amounts to almost $124 million in 2006, which is the equivalent of over 30% of the total health spending and 75% of family health spending. Remittances are thus stopping the coverage of health and education services from dropping even further. In other words, the model is sustained by an expulsion-attraction mechanism: expulsion of migrants, attraction of remittances.

In El Salvador, 4.8% and 6.6% of total remittances were invested in health and education, respectively, in 2004, equivalent to $122 million and $168 million, or almost 50% and 36% of the total invested by the state in these two categories. In Guatemala, 11% and 15.4% were invested in education and health in 2004 and 2005, equivalent to $288 million and nearly $463 million. The nearly $196 million that Guatemalan migrants invested in their compatriots’ education were the equivalent of some 33% of state investment in education, including loans and donations. The situation is even more dramatic in Nicaragua, where in 2006 remittances contributed $124 million and $181 million to national spending on health and education, respectively, which is equal to the total investment by the Education Ministry and 66% of the Health Ministry budget.

Wallerstein insists that states are inundated by demands for security and welfare that politically they can’t fulfill. The result is the gradual privatization of security and welfare, which leads us in a direction we had previously moving away from for five hundred years. Remittances—renamed as investment in health, education, pensions, etc.—reveal the tendency to privatize social welfare, which implies both backtracking along a path that cost a lot of blood and time to leave behind, and depoliticizing through giving up on demanding these services from the state.

At the end of the day, remittances are both symptom and effect of, as well as contribution to, the capitalist withering away of the state. The redistributive effect of remittances is, therefore, a poisoned gift, because they benefit many families, but represent a dislocated, de-ideologized and atomized strategy, making them more likely to be coopted in a strategy of the elites, a consequence I will examine in more detail in the next installment.

Changing countries, not their country

Given that the concentration of wealth creates social problems, remittances also become instruments of redistribution with no cost to state finances or taxpayers’ pockets.

They represent a social safety valve, a renouncing of political redistribution and a depoliticizing of poverty reduction. They also have a perverse effect on the mechanisms of social mobility, because by replacing the welfare state, remittances separate income from employment. One’s position as a worker thus becomes increasingly removed from class position, which reinforces the depoliticization and evasion of conflict: the improved quality of life is rooted in a “great beyond” that may be earthly but is still a “great beyond.” Nothing done in the “here and now” has a positive repercussion on family welfare, except the cultivation of frequent and friendly relations with those who manage to make it to the other side.

Wallerstein remains optimistic that urbanization and increased education and communications the world over have generated a degree of political awareness that facilitates political mobili-zation. That political aware-ness, he argues, is reinforced by the de-legitimization of any irrational source of authority. In short, more people than ever are demanding equalization of remuneration and refusing to tolerate a basic condition of capital accumulation: the low remuneration of work. Remittances contain the systemic antidotes that can extinguish the anti-systemic virulence of these social transformations. The remittances are inserted into an ideological fracture: the migrants’ refusal to seek the development of a given country, be it in a socialist, conservative or liberal framework. That refusal is concretely expressed in their decision to change countries rather than change their country; and in the remittance receivers’ giving up on defending fundamental workers’ conquests.

Remittances don’t build a binational state

Some people talk of a binational state to refer to this transfer from the North to the South and from the relatively solvent South to the unviable South. There is no binational state. The states are being dismantled. There is, however, a virtual binationality that has become an instrument to channel the savings of poor people in the industrialized countries toward the third world. The underdeveloped countries now receive help for atomized development, help that’s shouldered by the poorest, most marginalized sector in the industrialized countries.

There are two ways to transfer donations from the industrialized countries. The first is in small blocks, which are extracted from all tax contributors and pass through the state coffers as binational cooperation—or come from philanthropists and pass through NGOs. These donations represent an insignificant part of the income of both the taxpayers and the philanthropists. The other way is more voluminous and atomized and is extracted only from a select group of contributors—the most marginalized. It represents a significant part of their income and often all of their savings. Both ways help expand the markets that the transnational companies need and exempt the state from what have been its obligations for decades now.

Reversing this growing trend will take a great deal of time, sweat and imagination, because it requires a cultural rebellion against the market’s siren seducers, hard work to demystify the hypnotic power of the ideologies that turn remittances into a fetish and the recovery of political struggle. These tasks are not at all easy in a setting dominated by workers demobilized by unemployment, depressed by low salaries and disappointed by the failures of revolutionary struggles, who have embarked on a search for atomized solutions in the role as clients allotted to them by the market.

José Luis Rocha is a researcher for the Central American Jesuit Service for Migrants (SJM) and a member of the envío editorial council.

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