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EYE ON THE PIE: Immigrants need better financial options

May 28, 2007

Jorge Tortellini meets me at Goldberg's International Deli. He orders borscht and a hot pastrami on rye. I go for the sweet-and-sour soup with a vindaloo chicken burrito.

"We're destroying ourselves," Jorge tells me. I give a quizzical look, my mouth burning from my luncheon choices. He is studying his notebook.

"Do you know how much immigrants are sending back home each year?" he asks. "The Inter-American Development Bank estimates that last year remittances from the United States to Latin America and the Caribbean totaled $45 billion. Every penny of that is money not invested in America."

"Remittances?" I can barely get the word out.

"Yes," Jorge says. "It's money sent back home, part of the obligation to help the family left behind. The big question is not how many dollars are sent to Mexico or El Salvador, but how those dollars are used."

I shrug my shoulders while contending with the flames in my mouth.

"Are the folks back home investing those funds so that they can have better lives?" Jorge asks rhetorically. "Or are they using the funds mainly for current consumption? Is the major reason for immigrants to send money home guilt about today's living standards or the dream of better lives for future generations in the villages of their loved ones?

"There's an article published by the International Monetary Fund that doubts whether 'immigrant remittances play the same role in economic development as foreign direct investment and other capital flows.' The authors suggest that 'remittances are not profit-driven, but are compensatory transfers, and should have a negative correlation with GDP growth.'"

"Fascinating," I say, feeling the roof of my mouth peeling.

"I'd like to see immigrants investing in this country," he continues. "If they could pool part of those remittances, they could open banks or credit unions to lend money to their own entrepreneurs to help build businesses. They could finance cars and homes at lower rates than now available to immigrants."

I take a long swallow of iced green tea.

"Is that any of our business?" I ask. "When people earn money, isn't it their business what they do with it? If they want to send it home to help pay for today's family needs, that's their choice. Who gave you the right to moralize about how other people spend their money?"

"If immigrants to this country stay poor because they are sending money abroad and then they cannot afford to sustain their needs in this country, I have an interest in their choices," Jorge answers.

"I've seen articles," he says, "encouraging banks to get in on the remittance market as a way of building fee income. But those articles talk little about lending money to immigrants. Then there are Americans who want to tax remittances to pay for health and other services consumed by immigrants. I see that as punitive.

"I'd rather follow the advice published by the Federal Reserve Bank of Boston: 'Create investment pools for U.S. community development and immigrant wealth creation. Portions of remittance flows can be pooled with philanthropic monies and invested in economic development and asset-building programs benefiting immigrant communities in the United States.'"

"It would take a lot of changes to do that," I say, my voice recovering.

"Yes," Jorge agrees. "IADB says, 'Ten million immigrants living in the United States send money home on average 12.6 times a year, generally a few hundred dollars at a time.' They also claim that 35 percent of Ecuadorians, 64 percent of Salvadorans and 75 percent of Mexican immigrants do not have a bank."

"That does seem to be an opportunity for community banks," I say.

"Yes," he answers, "but it's mainly an opportunity for new community banks serving specific and highly differentiated populations."

"Anyone doing that?" I ask.

"Probably," Jorge says. "After all, since the Reuben sandwich, has there been anything new?"



Marcus taught economics for more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. To comment on this column, send e-mail to mortonjmarcus@yahoo.com.
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