More people than ever are migrating worldwide, with millions of people sending home record amounts of cash that fund small businesses in Uganda and feed families from Ecuador to Nepal.
But the remittances also provide critical support to fragile states and autocratic regimes which rely on money earned by their citizens abroad to keep their economies afloat.
In Venezuela, a third of households depend on money transferred home from the more than 7.3 million migrants who fled the country’s economic collapse, according to the Inter-American Dialogue policy group in Washington. In Central Asia, where many former Soviet officials rule, migrants send so much money that the funds cover their nations’ trade deficits, economists say. In Nicaragua, remittances have become so vital to the tax revenue of President Daniel Ortega’s regime that some economists say reducing the flow of the funds would be a form of political resistance.
“If you didn’t have remittances, the national economy would collapse,” said Enrique Sáenz, an exiled Nicaraguan economist. “And in macroeconomic terms, Ortega would be in deep trouble.”
The growing flow of money creates a challenge for reformers seeking to exert economic pressure on autocratic leaders. But limiting remittances would hurt the vulnerable families of migrants who remain back home and reliant on money transfers.
“Remittances are one of the most difficult issues we can deal with,” said Ryan Berg, a political scientist at the Center for Strategic and International Studies in Washington. “Nobody really wants to touch that issue because who would ever, from a policy standpoint, try to interfere with remittances as a point of pressuring dictatorships when we all know people are suffering.”
Since 2010, remittances to the developing world have nearly doubled, rising to a record $647 billion last year, more than foreign direct investments to those countries and more than international development aid, according to the World Bank.
In Nepal, a young and fragile democracy where remittances account for close to a quarter of GDP, inflows from migrant workers have helped keep a lid on bubbling anger at the government over its handling of the pandemic and a recent recession, said Jeevan Baniya, an expert on migration at the Kathmandu-based research institute Social Science Baha.
“Had it not been for the inflow of remittances, we would have likely experienced some kind of social or political upheaval,” Baniya said. “Remittances end up reinforcing the existing power structure.”
In Egypt, money sent by migrants provides three times more revenue than the government takes in from the state-owned Suez Canal, while remittances to Mexico surpassed the dollars generated by international tourism and oil exports.
“Remittances have become a financial lifeline for developing countries,” said Dilip Ratha, a World Bank economist and remittances expert.
The millions of money transfers a year, each one often just a few hundred dollars at a time, are being spurred by soaring migration to the U.S. and Europe since the Covid-19 pandemic. Migrants are arriving in affluent countries that have labor shortages, allowing them to find higher-paying jobs and send more money home.
Some economists say that if remittances become too big, they can hurt longer-term development and create governance problems.
Connel Fullenkamp, a Duke University economist, said remittances can start to become problematic once they go above 5% to 10% of a nation’s gross domestic product. The money can reduce incentives to work for those who receive the funds, he said. They can also curb demands on the government to fix domestic problems that cause migration in the first place.
“If you get remittances, it causes you to care less about what is really going on in your own backyard, because you can always tap your relatives overseas for more transfers,” said Fullenkamp, who has written studies on remittances for the International Monetary Fund. “Politicians are well aware.”
Some of the world’s most remittance-dependent nations are ruled by autocratic regimes where people have few economic opportunities—save for leaving.
“These countries have stronger currencies than they would otherwise have, and they have less inflation than what they would otherwise have,” said Roman Mogilevskii, an economist at the Philippines-based Asian Development Bank.
In the Central Asian nation of Tajikistan, money from migrants mainly working in Russia make up close to half of the country’s GDP, according to the World Bank.
Remittances there have helped authoritarian President Emomali Rahmon maintain his three-decades-old grip on power, according to scholars on the country. Navruz Nekbakhtshoev, a political scientist from Tajikistan who lives in Nebraska, said the remittances calm grievances and demands on officials by feeding families back home. The mass outflow of young people to fund the cash flow also removes people who might otherwise challenge the political status quo.
“It works to stabilize the regime,” he said. “As long as this exit path exists for the people, the autocratic regime can basically stay in power.”
With Russia’s economy struggling because of the war in Ukraine and Western sanctions, migrants could have fewer job opportunities, affecting remittances, economists say.
That is prompting Tajikistan and other Central Asian governments to try to reduce their dependence on Russia by promoting migrant paths to other places such as Turkey and England, said Zachary Witlin, an expert on the region at the Eurasia Group.
In fragile, democratic countries, a large drop in remittances can contribute to unrest. In Sri Lanka, where more money arrives from the diaspora than what is earned from tea exports, remittances fell by nearly half from 2020 to 2022. That contributed to a balance-of-payment crisis that drained the country’s foreign-exchange reserves and left it unable to pay for imports or service its external debt. Amid mass unrest, the president fled the country last year.
Elsewhere, a decline in remittances could just push more people to leave as rulers repress dissent.
Cuba first allowed remittances after the unraveling in the 1990s of its benefactor, the Soviet Union, brought about a sharp economic contraction. The Western Hemisphere’s lone Communist country realized that allowing some people to leave could serve as an important source of hard currency, historians say.
“Remittances can in some ways grease the wheel of a system that doesn’t work,” said Ted Henken, author of books on Cuba and a professor at New York’s Baruch College. “A Cuban in Miami or Madrid might be worth more to the Cuban government just in terms of GDP.”
Then from 2019 to 2021, remittances to Cuba fell more than 70% as a result of the pandemic and tougher U.S. sanctions designed partly to block the Cuban military from profiting from the transfers. The Cuban military was taking a cut of the “well-intentioned, generous funds” that Cuban-Americans sent back to their families, then-Secretary of State Mike Pompeo said in 2020.
With tourism to Cuba also drying up, people took to the streets to demand an end to a regime in power since 1959.
Today, remittances remain far below prepandemic levels and Cuban immigrant families in the U.S. increasingly bankroll the departure of their relatives from the island, said Emilio Morales, president of the Havana Consulting Group, a Miami-based firm that tracks Cuba’s economy.
“THE SITUATION IS SO CHAOTIC THAT PEOPLE PREFER TO INVEST IN GETTING THEIR FAMILY OUT OF CUBA,” HE SAID.
In Venezuela, an economy that has contracted 75% over the past decade, remittances are crucial for the people who have stayed in the country under the autocratic and bankrupt government of President Nicolás Maduro, said Angel Alvarado, a Venezuelan economist at the University of Pennsylvania.
“You can ask, ‘How are people not dying of hunger in Venezuela?’” Alvarado said. “The answer is that they have at least one child living abroad, sending money for food and medicine.”
In Nicaragua, remittances more than doubled from 2018 to 2022 after President Ortega violently put down protests. This year, they are expected to account for about 33% of the country’s GDP, one of the highest rates in Latin America, said Manuel Orozco, a Nicaraguan economist at the Inter-American Dialogue.
Marta Ortega, 45, a Nicaraguan who found work cooking in homes in Costa Rica, said she never considered her transfers could support a regime she opposes. She just wanted to help her mother.
“It wasn’t a lot,” said Ortega. “But it was really important.”
Published on: 6 August 2023 |The Wall Street Journal