REMITTANCES IN THE PACIFIC ISLANDS

UNCLAS SECTION 01 OF 03 SUVA 000503

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON ELAB EFIN XV FJ TN
SUBJECT: REMITTANCES IN THE PACIFIC ISLANDS



1. Summary: Remittances play an often unacknowledged yet crucially
important economic and social role in the South Pacific. In the face
of domestic turmoil, rising unemployment, and limited labor
mobility, remittances have become a near irreplaceable source of
funds for large portions of the population, particularly the poor
and vulnerable. The sources and mechanisms of remittances vary
significantly. Half of all Tongans live and work aboard in
well-established communities; Kiribati and Tuvalu each are home to
more than a thousand trained seafarers who man ships across the
globe; and Fiji has seen significant numbers of skilled laborers
leave in the wake of a series of coups to seek greener pastures
abroad. The long-term sustainability of remittances as a social and
economic buffer is unclear, as family ties weaken and immigration
opportunities shrink. End summary.

Forms of Remittance
--------------


2. The most common means of making remittances is through cash,
postal orders, and checks. In years past, remittances often took the
form of goods either unavailable in the home country or only at
prices substantially higher than abroad. The shift to cash has made
documenting remittance flows more difficult as informal channels
have developed and flourished. One source estimates that
undocumented cash remittances to Tonga add another 34%-40% to the
official figures. Undocumented remittances usually take the form of
family and friends hand-carrying cash into the country, particularly
during holidays. According to USP economist Prof. Mahendra Reddy,
these routes are common and highly used, with some reports pegging
the use of informal channels in Fiji to be around 33%.


3. Despite the relatively recent arrival of non-bank financial
institutions such as Western Union in the region, they are
increasing popular as a conduit for remittances. A World Bank study
found that 50% of Fiji households and 69% of those in Tonga use such
channels. By comparison, banks handle just 39% of documented
remittances in Fiji and 58% in Tonga. One of the newest and lowest
cost means are ATMs. Remitters abroad send recipients a card and
PIN number to access off-shore accounts. According to the World
Bank, this method, at only 0.8% in Fiji and 4.5% in Tonga, is still
underutilized.

Who are the Remitters?
--------------


4. Generations of Pacific Islanders have left home in search of
social and economic opportunity. Once abroad, these supposed
"temporary" migrant workers have tended to become permanent.
Although hundreds of thousands have gone abroad, only six percent of
households in Fiji and 13.5% in Tonga include a returned migrant.
Despite the permanent character of much of this migration, a high
percentage of such workers retain their commitments to family and
communities in their countries of origin. Indeed, Pacific migrants
often aim to benefit and support the family at home. This is in
contrast to the rest of Asia, where remittances are saved or
invested with an eye to the eventual return home of the migrant.
Currently, a large portion of remittances in the Pacific is used for
consumption. Investment is occurring, but primarily for education
and human capital development, such as creating opportunities for
others to migrate.

Tonga: a Transnational Family
--------------


5. Remittances have grown into an overwhelmingly important element
of the Tongan economy. According to IMF data estimates that Tonga's
remittance receipts total USD 90 million per year, equivalent to 40%
of its GDP. This enormous inflow reflects the large number of
historically well established Tongan migrant communities overseas,
particularly in Australia, New Zealand, and the United States. These
communities maintain close ties with the homeland, forming what one
Asia Development Bank (ADB) report calls a "transnational
corporation of kin" that helps perpetuate a strong and secure
migrant-homeland relationship. In this context, remittances are not
seen as handouts to needy family members at home but more as a
collective, cultural, family investment in human capital. This is
the basis for the longevity of remittances with respect to migrants'
time spent out of country, and the ADB finding that distance does
not degrade remittance amounts.


6. Studies estimate that 60% of all Tongan households have at least
one migrant worker abroad, 90% or more of all households receive

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remittances in many villages. The ratio of remittances to GDP in
Tonga has increased dramatically in the past decade. In 1997 it was
about 23%, in contrast with today's 40%. By comparison, Samoa
started at 17% in 1997 and is now around 25%. The difference in
growth rates can be accounted for, in part, by domestic growth rates
and the availability of employment. Samoa has had relatively
successful economic reforms in the interim, while Tonga's economy
has lagged behind.

Fiji: the Political Root
--------------


7. In absolute terms, Fiji receives the most remittances in the
region. Growth in remittances in the past decade has gone up
significantly. In 1997, an estimated USD 41.4 million, equivalent to
2% of GDP, was remitted to Fiji according to Fiji Government and IMF
data. The 2000 coup, however, spurred a renewed exodus of trained,
educated, and skilled workers, primarily Indo-Fijians, resulting in
a dramatic jump in remittances. In 2000, USD 43.9 million was
remitted, growing to USD 82.5 million in 2001, and exploding to USD
183.9 million in 2005, the equivalent of almost 7% of GDP. The
domestic turmoil of the current coup has continued the trend of
skilled workers looking for greener employment pastures.


8. Another contributing factor to the rapid growth in Fiji
remittances has been the surge in UN peacekeeping assignments,
security force hiring, and British military recruitment,
predominantly taken up by ethnic Fijians. A recent study estimates
that one third of all households have one migrant worker overseas,
and 43% of all households receive remittances, a definitive shift
from a decade ago. These surges in migration and resulting
remittances are significantly different from the patterns in other
countries like Tonga, which have had steady, constant remittance
patterns for as much as four decades.


Kiribati and Tuvalu: Shipping Out
--------------


9. The isolation and very limited domestic economies of Kiribati and
Tuvalu make the importance of remittances to their populations
particularly significant. The Kiribati Maritime Training Institute
was established in 1973; the Tuvalu Maritime Training Institute in

1979. Through their graduates, both have secured steady streams of
remittances for their respective island communities. Well trained,
IMO-certified seafarers man merchant ships throughout the world,
typically serving one-year renewable contracts and accounting for
the majority of their nations' remittance totals. In Kiribati, these
seafarers annually remit USD 11.5 million, according to IMF
statistics the equivalent of some 14% of the country's GDP. On
average, these amounts have remained fairly constant over the past
decade. They represent unique and irreplaceable contributions to
the well being of thousands of island families.

The Impact of Remittances
--------------


10. The 2006 World Bank report "At Home and Away" finds that
remittances contribute positively to social stability and economic
development of the Pacific Island nations, particularly in helping
reduce overall poverty. In Fiji, the average income of the poorest
20 percent of the population increases 82% when remittances are
added in according to the World Bank reports. In Tonga, the effect
is even more dramatic, with a 639% increase. Other studies have also
found a positive effect on households with access to remittances,
particularly in areas of education, health, small business
engagement, and savings. Some negative effects have also been noted,
however. Most prominent is the contributing effect to brain drain.


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


11. For the current pattern of remittances in the Pacific to go on
providing relief, there needs to be continual and new migration, but
unskilled labor opportunities in countries such as Australia, New
Zealand and the United States have declined in recent years.
Greater demand for skilled labor and tightened immigration rules are
expected to further suppress already relatively low labor mobility
for the PICs. The World Bank argues that this needs to be addressed,
as unskilled labor mobility directly reduces poverty, even in
greater proportion than trade liberalization. To the degree that

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opportunities for island labor can be found in receiving countries,
remittances can remain a fundamental underpinning of the PIC
economies for the foreseeable future, as efforts are made to expand
the PIC's economic base and link them better into the global trading
system.

DINGER