To curb illegal immigration, the federal government has posted soldiers on the Mexican border, arrested workers at job sites, and talked about making it a felony to enter the U.S. without permission.
But it puts greater hope in a relatively unknown and unlikely strategy: increasing the amount of money immigrants send back to Mexico.
The Bush administration says the billions sent south each year can be used to build the Mexican economy, thereby reducing immigration. For the past five years, the government has worked with Mexico and money senders to reduce the cost of remittances, and increase the volume.
Remittances to Mexico have more than doubled, topping $20 billion in 2005. Only oil exports made more money for the country.
But there is little evidence the inflow of money is reducing the outflow of people.
Critics in both countries say remittances actually encourage immigration by making Mexican families dependent on American jobs.
Even some supporters say the idea will work only if the government can change the way remittances are sent. Instead of transferring cash, senders must be convinced to put the money in a Mexican account, they say. When one person makes a deposit, another can borrow, spurring economic development.
But that’s a tall order. Distrust of banks is widespread in Mexico; most people don’t have accounts. Last year, the U.S. Federal Reserve and the Bank of Mexico launched a system offering low-cost transfers if the recipient opened a bank account.
So far, the service has enlisted only thousands out of potentially millions of users.
Even if more money is directed to economic development, the gap between wages in the two countries suggests the motivation to emigrate would remain strong for a long time.
And the government’s attempt to harness remittances is a political lightning rod. Illegal immigrants are among those sending money. By encouraging remittances, the U.S. is, in effect, trying to make illegal immigration so successful that it will end.
“I’d say that’s about as plausible as unicorns and leprechauns,” said William Gheen, head of Raleigh-based Americans for Legal Immigration, which advocates tighter borders. Other critics see the remittance policy as another example of how the government makes it easy for illegal immigrants to participate in American society.
Congress could resume its debate on the future of America’s estimated 12 million illegal residents when it reconvenes in September. Competing House and Senate bills don’t directly address the remittance industry but would affect its customers.
For all these obstacles, many experts view economic development as the only plausible strategy to deal with immigration—and remittances as one of the most valuable tools for promoting development. A 2004 study by Inter-American Dialogue, a think tank, began simply, “A strong case can be made that remittances are now Latin America’s most important resource.”
Every week, millions of people throughout Latin America walk to the corner store or the local bank to collect a few hundred dollars from relatives working in foreign countries. The numbers add up. Last year, the region received more than $53 billion in remittances, up 17 percent from 2004, according to the Inter-American Development Bank (IDB).Three-fourths is sent from the U.S., and the largest share—38 cents of every dollar—flows to Mexico.
Some immigrants also pool money for development projects. The poster child is the Mexican state of Zacatecas, in an agricultural region on the central plateau. Hundreds of thousands of its residents have emigrated to the United States. Groups of them in cities including Los Angeles and Chicago have sent back millions of dollars to build roads, schools and other infrastructure.
Immigrants from another Mexican state, Michoacán, have banded together to fund 40 scholarships to Mexican universities for students in their hometown of Indaparapeo.
Both efforts receive help from the Mexican government through a program called “Three for One.” When immigrants pool money for projects, each dollar is matched by the federal, state and local governments. Last year, the federal government budgeted about $23 million for its share. Earlier this year, Western Union agreed to match some remittances, as well.
But such efforts remain the exception: 90 percent of the money remitted to Mexico is used to pay for basic needs, such as food and health care, according to Rodolfo Garcia Zamora, an immigration expert at the Universidad Autonoma de Zacatecas.
Zamora is among a growing number of Mexicans who warn the nation is relying too much on remittances and doing too little to promote its own development.
Relying on remittances as an income stream means families must continue to send relatives to work in more prosperous countries. And it does not guarantee future prosperity; if the U.S. tightens immigration controls, the flow of money could dry up.
“The U.S. has become addicted to cheap Mexican labor, and Mexico has become addicted to the remittance,” Zamora said in a speech in April before a United Nations conference on remittances in Mexico City.
Last year, Rep. Tom Tancredo, R-Colo., said Mexico was “hooked” on remittances. He threatened legislation to cut foreign aid by the amount of remittances to offset what he called the strain on U.S. taxpayers. Tancredo spokesman Carlos Espinosa said the legislation was never introduced because it would have been unconstitutional, but the congressman “wanted to raise it as an issue.”
Legislators in North Carolina and other states have similarly proposed taxing remittances.
Jeffrey Humphreys, director of the Selig Center for Economic Growth at the University of Georgia, calls the reasoning behind singling out remittances “bogus.” For the American economy, he says, there is no difference between spending money on an European vacation and sending money to Mexico.
In September 2001, President Bush and Mexican President Vicente Fox announced a “Partnership for Prosperity.” The two countries would promote economic development in the Mexican regions that produced the most migrants “on the premise that no Mexican should feel compelled to leave his home for lack of economic opportunity,” according to their joint statement.
Remittances were named as a major focus of the partnership. The first goal was simply to reduce the cost of sending money. The governments hoped to encourage banks to enter the business, increasing competition.
Banks eager for Hispanic customers have piled in, and prices have dropped. The IDB estimates the cost to consumers on average is about 6 cents to remit a dollar, down from about 15 cents in 2000. And government officials hailed Bank of America Corp.’s announcement last year that it would offer free transfers to Mexico to anyone who opened a checking account.
Persuading recipients to put the money in a bank account has been much harder.
Most remittances are distributed by Mexican banks, but the recipients generally are not customers. The process is the same as getting the money at a corner store. Bank of America and others that require senders to open accounts don’t require recipients to do the same. “We developed our system based on what customers told us was important,” said Marcos Rosenberg, a Bank of America executive.
In 2003, Bush and Fox met again, in San Francisco. This time, they announced they were entering the remittance business. The U.S. Federal Reserve and the Bank of Mexico would start a remittance system that required recipients to open accounts.
The Fed charges a fixed fee of 67 cents, allowing the bank or credit union to charge a fee to customers that can be as low as $2. On larger transfers, the savings can be considerable. To use the service, the sender must have an account in the U.S.—and the recipient must have an account in Mexico.
Remittances have kept a low profile during the congressional debate about immigration. Rep. Eliot Engel, D-N.Y., told the Observer he believes Congress has not fully grasped the significance of the money flow. He said the question of how best to harness remittances should be central to any immigration reform legislation.”When you’re talking about $50 billion it’s staggering; it’s a lot of money,” said Engel, the ranking member of the Western Hemisphere subcommittee of the Committee on International Relations.
Meanwhile, the Fed is working to increase use of Directo a Mexico. Payment volume is up 13 percent since last fall, when it launched a new publicity campaign. As of July, 86 banks in the U.S. offered the service and another 54 had signed up.
It is perhaps a sign of the political times that many of the banks have declined to publicize their participation. Of the six banks signed up in North Carolina, only three have given the Fed permission to disclose their names: Latino Community Credit Union, the State Employees Credit Union and First National Bank of Shelby.
There is no doubt that illegal immigrants use the service. A questionnaire about Directo explains that if a customer is deported, the money in his bank account can still be withdrawn from an ATM in Mexico.
“You don’t have to be a legal resident in the United States to have a bank account,” said the Fed’s McQuerry.
“To us, a payment is a payment is a payment.”