Identifier
Created
Classification
Origin
06KINGSTON1280
2006-06-28 19:33:00
UNCLASSIFIED
Embassy Kingston
Cable title:  

REMITTANCES SURGE, BUT FACE SCRUTINY

Tags:  ECON EFIN JM 
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VZCZCXRO3814
RR RUEHGR
DE RUEHKG #1280/01 1791933
ZNR UUUUU ZZH
R 281933Z JUN 06
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 3114
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEHSJ/AMEMBASSY SAN JOSE 1826
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 02 KINGSTON 001280 

SIPDIS

SIPDIS

STATE FOR WHA/CAR (WBENT),WHA/EPSC (JSLATTERY)

SANTO DOMINGO FOR FCS AND FAS

E.O. 12958: N/A
TAGS: ECON EFIN JM
SUBJECT: REMITTANCES SURGE, BUT FACE SCRUTINY


UNCLAS SECTION 01 OF 02 KINGSTON 001280

SIPDIS

SIPDIS

STATE FOR WHA/CAR (WBENT),WHA/EPSC (JSLATTERY)

SANTO DOMINGO FOR FCS AND FAS

E.O. 12958: N/A
TAGS: ECON EFIN JM
SUBJECT: REMITTANCES SURGE, BUT FACE SCRUTINY



1. Summary: Remittances solidified their position as the leading
foreign exchange earner in Jamaica, rising 12.6 percent to USD 1.65
billion at the end of 2005. At this level, Jamaica has the largest
per capita level of remittances in the region, with inflows
accounting for almost 18 percent of GDP. The continued buoyancy was
underpinned by increased labor migration and declining costs. While
most of the funds were used for consumption, signs suggest a rising
share is being channeled into productive assets. Despite positive
developments, however, remittances have come under greater scrutiny
in recent times, with the World Bank and the IMF highlighting some
negative aspects. The GOJ has also been expressing concern about
the possible misuse of the funds and is examining increased
regulation and study of the industry. Negatives aside, remittances
should maintain the growth momentum observed during the last ten
years. As this growth continues more funds could be diverted from
consumption to production, aiding growth and development. End
summary.

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Remittances Remain Bullish
--------------


2. Remittances to Jamaica climbed by 12.6 percent in 2005 to USD
1.65 billion or 18 percent of GDP. At this level, remittances
continued to grow on average by 16 percent since 2000 and solidified
its position as the island's single largest source of foreign
exchange and the mainstay of the external economy. Remittances for
2005 outstripped tourism receipts of USD 1.5 billion and were 137
percent of merchandise exports and almost three times greater than
foreign direct investment. Jamaica also remained the highest per
capita recipient of remittances in the region in 2005, with a per
capita figure of USD 623 per year. This is not surprising given
that a 2006 Jamaica Chamber of Commerce (JCC) survey showed that
over one-third of all households receive money from abroad, with
half reporting that their average receipt has been increasing in
recent years. The upward trend is attributable to three main
factors: increased labor migration to major source countries such as
the U.S. and Canada; improved accessibility and convenience, with
the channels for sending money expanding; and the continued

improvement in technology and increased competition, making it much
cheaper and safer to remit funds. Remittances have also surged in
response to the sluggish economic conditions prevailing in Jamaica.


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Remittances Slowly Shifting To Development
--------------


3. While remittances continue to be primarily used for consumption,
emergent signs suggest an increasing share of the flow is being
leveraged for development. The clearest indication of this yet was
provided by Manager of International Markets for Grace Kennedy
Remittance Services (GKRS),Noel Greenland. (Note: GKRS is the
local agent for Western Union and accounts for 65 percent of the
market. End note.). Greenland told emboffs that: "Whatever is good
for Jamaica is good for us", adding that his company would be
allowing the recipients of remittances to have funds deposited
directly to their savings account, a service already offered by at
least one other company. These direct deposits will allow
recipients to gain interest on their funds and possibly use the
savings to leverage additional funds in the form of loans to start
small businesses. Greenland also disclosed that GKRS was exploring
the idea of identifying a separate pool of funds to lend small
businesses.


4. Recent studies also suggest that an increasing share of the money
remitted from Jamaicans abroad is being sent directly to building
societies to pay mortgages. This study found that remittances do
not only serve basic welfare needs, as previously assumed, but are
increasingly being used to spur investment in housing, thereby
generating employment and economic growth. Equally important is the
fact that remittances are the only source of external payments going
primarily to the poor. It should be noted that the reduction in
poverty since the late 1990s occurred simultaneously with the surge
in remittances, amidst one of the longest periods of economic
stagnation in Jamaican history. Remittances also continue to play a
positive role in maintaining macro-economic stability as well as
reducing the current account deficit and possibly averting a balance
of payments crisis.

--------------
Remittances Facing Greater Scrutiny
--------------


5. Despite the positive attributes of remittances, the flow has
come under increased scrutiny from the GOJ and international
institutions in recent times. The GOJ has become particularly

KINGSTON 00001280 002 OF 002


concerned about the possible use of remittances for terrorist
financing and money laundering and has suggested a study to
ascertain: (1) how the money is being utilized; (2) the profit
margin of remittance firms; (3) the income group transferring money;
and, (4) the recipients of remittances. To bring some amount of
order to the industry through regulation, the GOJ also initiated
dialogue with players in the remittances industry, a welcome
development for Greenland. This drive to regulate the industry was
largely due to ongoing pressure from GKRS to curb the activities of
some companies. He noted that when the U.S. stepped up regulation
after September 11 it provided an avenue for Western Union to
intensify its lobbying efforts. When asked for his opinion on the
current regulatory environment, Greenland told emboffs that the
framework was taking shape. "The regulatory environment is healthy,
but needs more muscle", Greenland concluded.


6. There are signs that the GOJ understands this need. The Bank of
Jamaica (BOJ) hosted a conference June 12-16 - co-sponsored by the
Department of the Treasury's Office of Technical Assistance (OTA)
and the Caribbean Group of Bank Supervisors - for Caribbean
Regulators of Money Services Bureaus. The Caribbean regulators
requested this assistance from the USG to support ongoing efforts to
develop best practices related to the industry, and to improve their
oversight and regulation.


7. The World Bank and the IMF have also weighed in on the discussion
on remittances, expressing concern about the impact of brain drain
on Jamaica, despite the positive roles of satisfying basic needs and
maintaining macroeconomic stability. An IMF working paper released
in January and titled 'Emigration and Brain Drain: Evidence from the
Caribbean' stated that there is a high level of emigration to OECD
countries from Jamaica. The paper suggests that the migration rate
is particularly high for skilled labor, with calculations showing
that losses due to migration outweigh actual remittances to the
country, a real sign of brain drain. According to the working
paper, the tertiary-educated labor force in Jamaica has been reduced
by 85 percent due to emigration to OECD member countries. "The
magnitude of these migration rates suggests that potentially,
emigration can have large impacts on the local labor markets and on
the welfare of those who stay behind in the Caribbean countries.
Total losses due to skilled migration...outweigh the recorded
remittances for the Caribbean region on average, and for almost all
the individual Caribbean countries", the paper pointed out.



8. Remittances have also come under criticism due to social ills
associated with them. It is a common anecdotal belief that much
anti-social behavior among children and young adults is due to a
lack of proper supervision following the migration of parents. Many
hold that this "free money" facilitates idleness and by extension
deterioration in work ethic among recipients who no longer have an
incentive to engage in productive activities, creating dependence.
According to this view, the very factors - low income and lack of
opportunities -that promote migration also discourage investment, as
the educated human resource is lacking.

--------------
Comment
--------------


9. Remittances are expected to remain buoyant during 2006,
particularly given the sluggish economic conditions in Jamaica and
the continued migration of skilled, educated labor. As growth in
remittances continues, more of the money should find its way into
productive areas, which could spur economic growth and development.
In addition, the increased flow will continue to provide a critical
source of funding for the country's soaring current account deficit.
That said, the negative impact of remittances cannot be
overemphasized, especially as the country grapples with the
consequences of insufficient human resources and growing anti-social
behavior. Labor faces a global market and gravitates toward the
most lucrative offer and the safest environment in which to operate.
Reducing crime, increasing investment in education and training,
and providing sufficient compensation to retain expertise are always
priorities, but ones that are difficult to synchronize with limited
resources. End comment.

JOHNSON