GOVERNMENT PROGRAMS TO HARNESS REMITTANCESS HAVING MIXED

UNCLAS SECTION 01 OF 02 GUADALAJARA 000365

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN MX
SUBJECT: GOVERNMENT PROGRAMS TO HARNESS REMITTANCESS HAVING MIXED
RESULTS IN RURAL JALISCO

REF: GUADALAJARA 327

GUADALAJAR 00000365 001.2 OF 002


Summary


1. In the last seven years the GOM has attempted to harness the
power of the billions of dollars remitted from migrants in the
U.S. via socioeconomic development programs. Two specific
programs are Tres Por Uno (Three for One) and Proyectos
Productivos (Productive Projects),formed by migrant clubs in
the U.S. For every peso remitted, the federal, state and local
governments each add an additional peso, turning one peso in Los
Angeles into four pesos on the ground in Mexico. In rural
Jalisco state the programs have seen both success and failure.
Tres Por Uno, which focuses on funding infrastructure, appears
to have less impact on the root cause of migration-lack of
economic opportunity. The newer Proyectos Productivos appears
to have potential to generate economic opportunity for those
most apt to migrate north. The programs also have ancillary
economic results, as businesses sprout up to support phases of
the projects. While the programs are intended to better the
lives of Mexicans, they appear to have little effect on the
flood of migrants rushing north.

Migrants go north, cash goes south


2. Mexico received an estimated $23 billion in remittances in

2006. That's a 15% increase from 2005, making remittances
Mexico's second largest source of external finance behind
petroleum. Approximately 1.7 million Mexicans with Jalisco
roots live in the US. In turn rural Jalisco is particularly
affected by the flow of migrants north and the flow of cash
south. (reftel)

Tres Por Uno


3. The Tres Por Uno program began in Jalisco in 2001 as a way of
capturing remittances for infrastructure projects in rural
Jalisco. The program depends on migrant clubs in the U.S. to
collect funds. The program was established in the late 1990's
in Zacatecas, one of the highest migrant-sending states in the
country. The program is named "three for one" because for every
peso from a migrant club, the federal, state and municipal
governments each contribute one peso. The GOM uses the money
for infrastructure projects such as an events center in Tonala,
road improvements in Tala and water purification in the
highlands. Decisions as to what programs are to be funded are
made by a committee composed of representatives of each
contributor (club, federal, state and municipal). Priorities
are generally set by the municipalities.

Proyectos Productivos


4. Juan Carlos Lepe, a local official with the Secretary of
Social Development, runs the Tres Por Uno and Proyectos
Productivos programs in Jalisco. He wants to increase economic
opportunity in Mexico in order to stem the flow of migrants
north. Proyectos Productivos focuses on micro-regions, the GOM
term for the most economically isolated regions in the country.
Like Tres Por Uno, for every peso contributed by a club, the
federal, state and municipal governments each contribute
another. Project beneficiaries also contribute a set amount
based on the number in the group. For example a group with one
person must contribute 12,500 pesos, a group of six must
contribute 75,000 pesos. The money functions as a small
business loan which is supposed to be paid back to the
government. Mr. Lepe acknowledged that the GOM does not expect
to get the money back and would rather see projects succeed.
Participants must develop a business plan which is presented to
a committee who decide which projects to fund. In Jalisco alone,
the federal government will contribute up to US$550,000 to
Proyectos Productivos in 2007.

Migration in Capilla de Guadalupe - where have all the young men
gone?


6. Capilla de Guadalupe is a town of 21,000 in northeast
Jalisco. The principal of the local school told econoff that
there are in fact no projects in the town because contributions
go to Tepatitlan, the larger patron city in the region. He
stated that 70% of his high school students are female, compared
to 50% ten years ago. He lamented that young men, starting at
the age of 15, migrate to the U.S. for economic opportunity.

Ancillary economic effects of Tres Por Uno and Proyectos
Productivos


7. Tres Por Uno and Proyectos Productivos have had ancillary
economic effects in the U.S. and Mexican marketplace. Media
reports that in the past seven years, the average cost of
sending a remittance has dropped to 3% of the total remittance.

GUADALAJAR 00000365 002.2 OF 002


Costs vary widely, with rural Jalisco residents paying more as
the funds transit additional agents. While the remittance
market is dominated by small businesses, most large U.S. banks
have begun accepting the Matricula Consular, the ID card issued
by Mexican Consulates in the U.S. This could increase
competition. In addition, the joint USG-GOM program "Directo a
Mexico" has the ability to shift the remittance marketplace by
reducing the cost of remitting. In the program each central
bank charges a fee of US$0.67 per remittance and then the bank
branch charges a small fee. It effectively cuts out the myriad
of middle men involved in a traditional money transfer.
Business plans are required for all Proyectos Productivos. An
isolated but growing number of businesses are sprouting up to
support business plan development. These businesses are focused
on assisting program participants from their raw ideas through
the formative years of the business. The businesses provide
access to accountants, subject matter experts and business
consultants. The Jalisco government foots 50% of the bill for
business plan development in order to cultivate opportunities
for people at the margins of the program in regards to the
initial investment.

Comment


8. Tres Por Uno appears to be a zero sum game for illegal
immigration. A key flaw of the program is that it addresses
infrastructure, creating short-term and unskilled jobs
(construction, etc.). In addition, clean water or a new road,
while necessary, do not motivate young people to stay in their
towns and work when there are no jobs to be had. Proyectos
Productivos appears to have more potential to stem the flow of
illegal immigrants and generate long term economic opportunity.
In Jalisco there appears to be a genuine desire to create
economic opportunity in the most isolated regions. Success will
depend on the federal, state and local governments' ability to
run the program efficiently and equitably over the long term.




MELZOW
RAMOTOWSKI