Recent years have seen a surge in official remittance flows to Central America. Money sent home to the region grew by approximately 10% to about US$12.1 billion in 2007.

Although a huge portion of remittance flows to Latin American and the Caribbean still goes to countries outside of Central America, (almost 60% reportedly just to Mexico, Brazil and Colombia) remittance flows to Central America are rising.

Remittances to Guatemala and El Salvador receive almost 64% of total remittance flows to Central America. Remittance growth in Guatemala tripled from 2001 to 2004 and is continuing to grow. Honduras and Nicaragua followed at some distance.

In all but 3 Central American countries, (Costa Rica, Panama and Belize) remittances are equivalent to at least 10% of GDP, suggesting a heavy dependence on remittances as an engine of economic activity.

Except in Costa Rica and Panama, remittances also far outweigh both private capital flows and official development assistance. Particularly remarkable in this regard is Guatemala, where remittances are 21 times greater than foreign direct investment (FDI) and official development assistance (ODA). In Guatemala, El Salvador and Honduras, remittances are far larger than ODA and FDI combined.

Remittances also make up for the shortfall in exports of some traditional products such as coffee in Guatemala, El Salvador and Nicaragua, and bananas in Honduras and Panama.

Dominance of remittance flows over traditional exports signals Central American countries are transitioning away from ‘agro-exporting economies’ towards mainly exporting labor to the United States.

For decades now, the perception has lingered that remittances are used mostly for consumption by individual households and rarely invested in productive enterprises.

Household surveys show that Central Americans who receive remittances mainly use them to cover basic necessities. According to the World Bank, about 77 & of remittances, on average, are believed to be spent on immediate needs such as food.

More recently, however, an increasing number of studies suggest a more positive developmental role for remittances. Contrary to common perception, studies have found, that Guatemalan households receiving remittances actually spend slightly less on consumption—food and consumer goods and durables—than do households receiving no remittances.

Remittances reduce the depth of poverty and are therefore particularly beneficial for the poorest of the poor. Some say that remittances have reduced extreme poverty in Guatemala by almost 22%. A study on child schooling in El Salvador also found that remittances have a large and significant effect on school retention.

The rise in remittances sent to Central American countries can partly be attributed to more choices when it comes to sending money home. Remittances to Honduras and other countries can now be processed over the phone or online less expensively than ever before.

2.5 million Salvadorans, legal and illegal, live in the United States, more than one third the total in El Salvador itself. Therefore, remittances (money that immigrants send to their home country while working abroad) from Salvadorans working in the United States are vital to the Central American country’s economy.

There are 2 types of remittances—family and community. Family remittances are money sent by individual immigrants to family and friends back home. Community remittances are money sent by individual immigrants and by hometown associations to communities in their home country. This money is traditionally used for infrastructure like roads, parks and churches.

In 2007, the Central Bank estimated that remittances to El Salvador totalled $3.7 billion. United Nations Development Programme surveys show that an estimated 22.3% of families in El Salvador receive remittances, more than any other Latin American country.

Remittances sent to El Salvador have increased by more than 6 percent a year for more than a decade. During the first half of 2008 remittances grew 4.9% to US $2.58 billion compared to the same period in 2007, according to central bank statistics. This increase however represents a slowdown in the pace of growth of remittances, which were up 8.2% from January-August 2007 over the same eight-month stretch of 2006.

El Salvador’s principle export is its people. 57% of immigrants from El Salvador send remittances, totalling 18.1% of the country’s GDP. Remittance flows to El Salvador are so large that the country completely dollarized its economy in 2001.

Remittances have succeeded where the Salvadoran government and international community have failed. While they are not a substitute for foreign assistance or sound development policies at home, they are increasingly an important tool through which poorer rural people can pull themselves out of poverty.

Studies have found that families that receive remittances stay a long number of years in school and have access to better quality health services than families with similar levels of income and demographic characteristics that don’t receive remittances.

However, the high cost of sending and receiving money can limit the effectiveness of remittances to El Salvador. In the past 5 years new services have developed that allow migrants to send money by phone or online which has attributed to the continued rise in remittances to El Salvador.

A recently released World Bank report has revealed that remittances are a significant contributor to the Caribbean economy.

The situation is most apparent in Guyana, as increasing numbers of Guyanese have left their home country to live elsewhere. The report notes that the money being sent home is playing a big role in the growing economy.

The number of remittances to Guyana has increased more than eight fold between 2000 and 2007 — from US $27 million to US $218 million. This information is taken from the Migration and Remittances Factbook 2008, which was released this month. It is also noted that the majority of the remittances have come from the United States. This situation is mirrored in Jamaica and the Dominican Republic as well.

Jamaican remittances make up more than 18% of that country’s GDP, which has doubled since 2000, going from US $892 to US $2 billion. In Haiti, remittances mad up almost 22% of Haiti’s GPD in 2006, which has more than doubled since 2000, from US $578 million to US $1,184 million.

In the Dominican Republic, remittances made up more than 10 per cent of the GDP and almost doubled since 2000, going from US $1.8 billion to US $3.2 billion.

Remittances Trinidad and Tobago made up only 0.5 per cent of the GDP, they have also more than doubled since 2000, from US $38 million to US $92 million. The United States was the largest source of the remittances for all four countries.

In 2005, Jamaica and Trinidad and Tobago were in the top five of countries with the largest proportion of their population emigrating. Jamaica, with 39% of its population emigrating, is number one, followed by Trinidad and Tobago, with 28% of its population moving away.

Suriname, Guyana, Jamaica, Haiti, and Trinidad and Tobago correspondingly made up the top five of countries losing large numbers of their tertiary educated citizens to emigration in 2000. Suriname lost 90% of its tertiary educated, Guyana 86 per cent, Jamaica 83%t, Haiti 82%, and Trinidad and Tobago 78%.

The remittance figures are clearly a reflection of a larger trend that increasing numbers of people, particularly the well educated, are emigrating away from these countries. As these workers’ skill levels increase, those migrating to other areas are able to obtain better jobs with higher wages, resulting in the ability to send more money home.

Money transfers or remittances of migrant workers to Ukraine have been a crucial part of financial support for families for many years. These transfers, for the most part, have been ignored and unaccounted for.

As migration has increased and the remittances flowing at a steady pace, more attention is being paid to the growth in remittances. In fact, this has gained the attention of many and the necessity to regulate money transferred to Ukraine more closely.

It is estimated that there are 150 million migrant working abroad worldwide and they have sent an estimated US $300 billion to their families in their native countries. During 2006, migrants sent between US $100 to US $300 home with each transaction, totaling more than US $1.5 billion in financial transactions.

Sending Money to Ukraine

With remittances at a steady flow, the options to send and receive money have also been on the rise. Besides the traditional money transfer services, who normally charge outrageous fees, migrants are seeking other alternate means of sending money home to their families.

Visa Money Transfer recently announced their transfer service in Indonesia, expanding to 14 countries in Europe, the Middle East, and Asia. This service allows cardholders to send funds to another cardholder using their 16-digit account number. Depending on the issuing bank, a person can transfer at a bank branch, online, or at an ATM.

Other Money Transfer Options

Another option is the ATMCASH card. The sender loads money onto a card, which bears the MasterCard logo. The card is sent to the recipient via FedEx. The sender notifies the recipient of the PIN number and when the card arrives, the recipient can use it to make purchases, withdraw cash at a participating ATM, shop online, etc.

One of the advantages of using an ATMCASH card is that the sender can load money onto the card for a low flat-rate fee from the convenience of their home or office using their bank account or credit card.

While banks and other services continue to be used, there are many other options, which offer a secure way to remit funds.