Putting Remittances to Work

By Marcela Sánchez (THE WASHINGTON POST, 09/12/06):

El Salvador has become the first lower-middle-income country to secure a grant from the Millennium Challenge Corp., President Bush's foreign aid program designed to assist well-governed developing nations. With the $461 million grant, the agency is set to join Salvadoran immigrants in sending money south.

The grant might seem small relative to the $2.8 billion in remittances sent by immigrants last year, particularly since it will be spread over five years. But that doesn't mean Salvadorans in the United States don't have some suggestions for the Millennium Corp. and a hope that the program can help them change the way remittances affect their country.

Salvadoran immigrants are frustrated that their cash isn't reaping more development rewards back home. Although remittances have proved to be a lifeline for thousands of families in extreme poverty, immigrant Salvadorans fear that the money is creating a culture of dependency in the home country.

Carlos Castro, a Salvadoran community leader and owner of a Hispanic specialty supermarket in Northern Virginia, is dismayed that El Salvador now has to import workers from other Central American countries because some Salvadorans don't see a need to work and rely instead on monthly checks from relatives abroad. He further laments the consumerism that has Salvadoran immigrants working hard at tough jobs to pay for "a pair of the latest name-brand shoes" demanded by their kids back in El Salvador.

Salvadoran officials heard similar complaints of consumerism and dependency in meetings with Salvadorans across the United States as part of the consultation process to gain public support for their Millennium proposal. According to their records, there was a general sense that "it is time to put an end to that paternalistic mentality" and that their support should generate work, not just money to spend.

In other words, remittances are "neither 'manna from heaven' nor a substitute for sound development policies," a recently released World Bank report concluded. In "Close to Home: The Development Impact of Remittances in Latin America," the World Bank found that if aid flows are consumed rather than invested, they have no impact on economic growth. This is certainly true for El Salvador -- it is the largest per capita recipient of remittances in Central America and has had the region's lowest economic growth for at least four years.

To reverse this trend, governments in recipient countries should, according to the World Bank, provide incentives for investment and promote the development of human capital. The Millennium plan for El Salvador appears to follow this model, aiming to increase incomes in El Salvador's lagging northern zone -- the area of origin for most Salvadorans in this country -- through a combination of investments in education, public services, enterprise development and transportation infrastructure.

What's missing in this equation, say some critics, is a direct connection between the new development plan and the current flow of help. This seems to be a serious oversight and opportunity missed. The $461 million grant will have an effect, to be sure, but imagine the impact if the Millennium Corp. could help leverage the billions sent annually from immigrants in the United States.

According to Manuel Orozco, a remittance expert for the Inter-American Dialogue, a Washington-based think tank, the Millennium-sponsored plan might have created investment portfolios for small-scale projects back home that immigrants could contribute to.

To a small degree, this investment has already begun. Such collective or community initiatives, organized through hometown associations, are investing about $3 million annually, mostly in educational and health projects.

Yet some members of hometown associations suspect that Salvadoran officials intentionally locked them out of the Millennium plan. Jaime Peñate of Comunidades, which represents hometown associations formed by Salvadoran immigrants living in the Los Angeles area, said he was among the dozens invited by the Salvadoran government to hear about the Millennium effort. But then he discovered that other Salvadoran officials were meeting in another room with big investors.

Nevertheless, some Salvadorans here aren't giving up on trying to tap Millennium funds. Luis Felipe Romero, executive director of Comunidades Unidas Salvadoreñas, the Washington area's equivalent of Peñate's L.A. group, said he reached out to the Salvadoran Foreign Ministry with a proposal to use some Millennium funding to launch a pilot program and is awaiting an answer. "We are going to continue working for El Salvador," he said. "If they take advantage of the opportunity to work with us we will welcome it."