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Last Updated: Monday, 28 March 2005, 08:30 GMT 09:30 UK
Migrant workers aid growth at home
By Alberto Souviron
BBC News business reporter

Three years after arriving in Los Angeles, Mexican labourer Antonio Villalobos is still keeping a close eye on his home town of Nochistlan.

Mexicans in the US
Every year, millions of Mexicans travel to the US to work

That is where his family is, and they still rely heavily on the $150 he sends them each week.

"They use this money for their daily consumption, for their necessities," Mr Villalobos says.

Money sent home by Mexicans working abroad has become an efficient weapon in the country's war against poverty, and not only at grassroots level.

Development projects in Mr Villalobos' home state of Zacatecas receive support from the Mexican migrant association he is a member of - the Zacatecan Federation of Southern California.

In fact, remittances have become a vital source of income for the Mexican economy as a whole.

Last year, Mexicans abroad sent back $16.6bn (8.9bn), making it the second largest source of income after oil.

That is up on $13.3bn a year earlier, confirming an upward trend seen across the developing world, where the importance of remittances is growing every year, and not only from rich to poor countries.

"Remittances is not only a phenomena of fund flows from the developed countries into the underdeveloped ones, although this is what has been mostly described and documented," points out Bolivian academic Maria del Pilar Ramirez.

Government money

Mexico's government is keen to channel the cash into public projects, such as improving the country's infrastructure, or to support health and education projects.

To do so, the government is backing the so-called 3x1 initiative, under which every $1 injected by migrants is matched by a further $3 by local, state and federal governments.

Several financial institutions have responded well

The government hopes the initiative, which was originally conceived by returning migrants, will aid impoverished states, in particular Zacatecas, Jalisco and Michoacan.

But according to the World Bank there are problems.

Much of the money sent back ends up in the coffers of fee-charging financiers; then once it arrives it is spent in inefficient ways.

To alleviate this, the World Bank has established a remittances programme that works with financial institutions to reduce the cost of sending money for migrants.

"It is important to bring the local financial system closer to the people who receive the money abroad," explains Pedro de Vasconcelos, remittances coordinator, Inter-American Development Bank.

Commercial banks, eager to attract the migrant workers as customers, have responded well.

In January, Bank of America said it would eliminate the fees for some customers who send money to Mexico, while in June last year Citigroup created a bi-national credit card that could be used by Mexican migrants and their families or friends in Mexico.

Clever spending

The World Bank is also keen to ensure recipients take better advantage of the cash once they have received it.

"We don't tell them where or how to invest the money they receive, but it is desirable that they have more options," says Mr de Vasconcelos.

One way to make better use of the money would be to find a way of defining it as a safe monthly income which could help improve the credit rating of the recipients and thus aid the development of small businesses.

Money laundering

But while pushing costs down and removing red tape might be a force for development, it has also raised concerns that the system can be abused by criminals.

Zacatecas (Photo: the Zacatecan Federation of Southern California)
Money from abroad help develop many Mexican communities

The US State Department insists an identification card issued by the Mexican consular offices for their citizens in the US, known as a matricula consular, is all it takes to carry out a money transfer.

"The rapid movement of such vast sums of money by persons of questionable identity leaves the new money transfer systems open to potential money laundering and exploitation by organised crime groups," according to the US State Department.

Moreover, "reliance on remittances from the US is not a viable economic policy because this only increases dependence on the US and delays Mexico's full participation in the global economy", according to the US Ambassador to Mexico, Tony Garza.

Mexican emigrants send $16bn home
01 Feb 05 |  Business
Getting the money back home
19 Mar 04 |  Business
The remittance lifeline
18 Mar 04 |  Business

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