Guatemala maintains the upward trend in remittances, which represent 20 percent of the gross domestic product (GDP), similar to the figures of the other countries of the Northern Triangle.
Remittances have an effect on the economy in the short term, but not in the long term, explains Rodrigo Méndez Maddaleno, an economist at the Central American Bank for Economic Integration (CABEI).
Méndez is a Guatemalan economist who conducts research on public finance, migration, competitiveness and labor markets. He also has experience in the implementation of public policies.
This week, the Bank of Guatemala presented the report on Foreign Currency Income from Family Remittances. According to the June report, the country received US$10,271 million for this purpose.
How are remittances trending in the Northern Triangle?
Remittances are a fairly large flow of dollars. In Honduras they represent more than 25 percent of GDP, and in Guatemala, according to the last year, it was 20 percent of GDP, a considerable income compared to what the country produces in a year. It is a very high sum.
This has increased significantly since 2020 and a change in the growth trend of remittances has been noted since then. Now, amounts are reaching historic highs, at least since records have been kept for all countries.
Is the trend expected to continue this year?
At the moment it seems that the rate of remittances is still on the rise, but it will not remain that way forever. It is a matter of time, because it depends a lot on the performance of the US economy, particularly Hispanic employment and unemployment. When the US economy slows down, the growth rate of remittances might tend to decrease.
That is what we are seeing right now, based on what we have seen over the last two years. What we have seen are historic double-digit growth rates, although this has been normalizing somewhat.
What is the impact of remittances?
It is difficult to quantify, but according to the literature and in microeconomic terms it has an impact because a large percentage of remittances are for consumption and very little for other activities such as investment, entrepreneurship and that type of activities.
It also has some effect on the measurement of poverty.
If income inequality were to be measured, it is estimated that it might be slightly lower than it would be if this flow did not exist in the countries. However, at the macroeconomic level, when one looks at the growth of the countries, the effect is more difficult to measure.
¿What mechanisms can be used to promote investment and entrepreneurship?
It must always be taken into account that remittances, in themselves, are a very personal flow. What can be proposed is greater financial inclusion. Here, only the remittance is received; there is no access to a bank account, savings account or other type of financial instrument, which limits the use of remittances from a cash technique. Here, I exchange it and spend it.
This would help to start presenting the option and using a portion for investments or ventures.
Savings would increase. If a small part of the US$20 billion received in remittances in Guatemala is saved, and 10 percent of all consumption is saved, we would be talking regarding US$1 billion. This would give the banking system more liquidity to grant loans, not only so that the recipient of the remittance can eat, but also so that they have the option of obtaining some return.
Are there other mechanisms, such as microcredits, with which there is already experience in other countries?
I think so. I’m not sure what the results have been. It depends on the legislation of the countries, since the idea is generally to use the remittance flow as collateral, because the person who stayed in the country where the remittance is received may not have a credit history.
The idea would be to see and study, in terms of taxation and public policy, how to make this flow of remittances possible to apply for microcredits and double it.
What legislation or public policies would be necessary?
One part is financial inclusion and allowing access to savings, promoting fintech – companies that use technology to improve financial services and processes – and traditional banking. This would ensure that remittances are directed more towards investment.
There is an option that is used in some countries known as diaspora bonds. In the case of Guatemala, El Salvador and Honduras, migrants might buy bonds, which will allow them to have some return. What is done in some countries is that these bonds obtained are directed to investment projects, generally, in their own communities.
The way it has worked in some countries is that the government has an agency that is responsible for managing this issue to international markets. This has been implemented in some African countries and there are also many experiences in India and Israel. The interest rate is defined according to the market.
In addition, in countries like Mexico, programs called “2×1 or 3×1” have been implemented, in which it is decided to invest in migrants and for every dollar that the person invests, the central government and the mayor’s office invest US$2 or US$3 in improvements in the communities.
What role does CABEI play in all this?
What it does is support the policies that these member countries are implementing. It would have to be done with the instruments that exist within the CABEI for investment or assistance loans.
If it were to be implemented in Guatemala, then it is the country that decides. The Government is interested in implementing these policies.
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