Remittances For Economic Development

People from Latin American and Caribbean nations working in the United States send billions of dollars home every year to support their families and communities. Officials in the United States and Latin America are exploring safe and effective options through which this money could be harnessed, without disruption or additional cost, to invest in people, businesses and roads, bridges and other infrastructure.

El Salvador and Honduras are putting this theory to the test through a memorandum of understanding with the United States. The Inter-American Development Bank estimates that in 2009, overseas payments, or remittances, from Hondurans and Salvadorans working and living in the U.S. totaled $2.5 billion and $3.5 billion, respectively. Much, but not all, of this money travels through the formal banking system in Latin America.

The nations want to encourage people who are sending and receiving remittances to use banks rather than money transfer companies to make the banks stronger and more able to leverage investment funds. This is what banks do in the U.S. and other countries: using the money deposited to make loans to credit-worthy borrowers and raise capital for investment, but with funds always on hand for customers to withdraw when they need it.

Under the so-called Building Remittance Investment for Development Growth and Entrepreneurship, or BRIDGE, initiative, the United States will work with El Salvador and Honduras to develop and support partnerships with strong and reliable banks to maximize the development impact of remittance flows without disrupting the payments many Salvadorans and Hondurans depend on.

Similar efforts have worked well in Africa, the Middle East and other parts of Latin America. It is hoped that with U.S. support the approach will make it easier for people, businesses and communities in El Salvador and Honduras to get the financing they need to invest in development.