Central America
Mitch, Foreign Debt, Disasters, Emigrants And Remittances in Central America
US President William Clinton visited Central America, including Nicaragua, between March 8 and 11. In addition to humanitarian aid, how will the United States support the reconstruction of our countries? The following are excerpts from a document whose analysis and proposals have had a great influence on current US policy in the region.
INCAE-SICA, HIID-AVINA
The design of Central America's reconstruction is almost a foregone conclusion. So what kind of reconstruction is being proposed? “The Strategy for the Reconstruction and Transformation of Central America after Mitch” is one of the proposals presented to the Consultative Group in Washington in December 1998, and is considered the "initial input" into the upcoming meeting between the Central American governments and the Consultative Group in Stockholm in May 1999.
The document was sponsored by the Latin American Center for Competitiveness and Sustainable Development of the Central American Business Institute (INCAE), the Harvard Institute for International Development (HIID), the General Secretariat of the Central American Integration System (SICA) and the Swiss foundation AVINA. It reflects the ideas of influential US academics of a liberal bent and some of its proposals are already being adopted.
The leading US think tanks believe that the Mitch tragedy can be turned into an "opportunity." They propose that modernizing Central America's business sector is fundamentally important to the reconstruction effort and that three sectors should be given priority: export processing, agroindustry and tourism. Developing these sectors also presupposes modernizing the region's transport infrastructure. At the same time, the business sector should be given the incentive of privileged access to the US market through the extension of the Caribbean Basin Initiative and preferential treatment for textiles manufactured in the region's export processing zones.
This proposal is more successful than other, more conservative proposals in combining business development with projects aimed at "the poor," the so-called social compensation programs. This focus stems from the conviction that no business project is viable if it does not reduce the high levels of poverty and vulnerability affecting most of Central America's population. Several points in the proposal coincide with demands made by the left, and it includes an ecological component.
There is nothing new in any of that. The novelty is that Mitch has provided an unexpected new impetus to the "alternative" proposals of US liberals offered in the document. One example is the question of the foreign debts of Nicaragua and Honduras, two of the poorest and most indebted countries on the continent. While the International Monetary Fund proposes restructuring and pardoning 80% of the debts through the HIPC initiative, US liberals argue for canceling them totally.
Also new is the proposal to modify US immigration law and the idea of taking into account in any analysis of the region's current situation the growing economic weight in our countries of the dollars sent home by Central American emigrants. The regional focus is another novelty. Up to now, World Bank and US proposals have concentrated on solutions for each individual country. US liberals, on the other hand, have clearly opted for regional solutions, and favor capitalizing the Central American Economic Integration Bank (BCIE).
Not surprisingly, the whole proposal is based on US interests and thus emphasizes commercial aspects of the reconstruction process. In contrast, a more European approach would more clearly incorporate the perspective of small and medium producers. The following excerpts from this extensive document cover the characteristics of the hurricane, the concept of vulnerability to disasters, and the chapters dealing with the foreign debts of Nicaragua and Honduras and the migration problem in Central America.
THE HURRICANE'S FURY
Hurricane Mitch lashed Central America with devastating fury from October 21 to 31. Over 18,000 people died or disappeared, 2.3 million people lost their homes and the region suffered over US$5 billion in material damages. Mitch was the deadliest hurricane to strike the Caribbean region in the last 200 years. It was more intense than Hurricane Andrew, which caused a record $26.5 billion in damages in Florida and Louisiana when it hit the southeast coast of the United States in 1992.
Mitch took shape in the southwest Caribbean, some 360 miles from Kingston, Jamaica, on October 21. At first it moved slowly towards the west, gradually gathering strength until it classified as a tropical storm. Then it started moving northeast, near the Nicaraguan coast. By October 24 it had grown strong enough to be classified as a hurricane.
Mitch continued to develop until, on October 26, it was classified as a class 5 hurricane, the highest category on the Saffir-Simpson scale. Only four hurricanes in the region have reached class 5 in this century. Andrew was only class 4. The pressure at the eye of the hurricane reached a minimum of 904 Mb, the fourth lowest reading for an Atlantic hurricane in this century. At the peak of its intensity, the winds reached a sustained velocity of 228 km/hour with gusts of up to 340 km/hour. By that time, Mitch was located just off the northern coast of Honduras.
It was the hurricane's subsequent behavior that caused the greatest devastation. Mitch again changed course and began to move slowly southwest, cutting diagonally through Honduras and reaching as far as El Salvador. For five days, from October 26-31, Mitch generated torrential downpours. Rivers burst their banks and caused extensive flooding in all five of the traditional Central American countries.
It was the rains and the marked vulnerability of the population more than the hurricane's winds that really caused the disaster. Choluteca in Honduras registered 914 mm of rainfall between October 25 and 31, 42 times the normal level for that period of the year. The equivalent of 212 days of rainfall in an average year fell in just five days. Similar levels were recorded in Tela and La Ceiba on Honduras' northern coast.
The extraordinary force of the hurricane, plus decades of exploiting natural resources without taking adequate measures to protect the environment, combined with the high poverty and extreme poverty levels to cause a disaster unprecedented in the region's recent history.
The first and most lamentable direct effect was the loss of human life. The main victims were the poor, whose very poverty increased their vulnerability. In developed societies with better economic and social infrastructure and generally higher living standards, the main losses tend to be material. Even in the event of such a violent natural phenomenon, the loss of life tends to be limited. But in a poor society, it is very significant.
In this particular case, the material losses were proportionally much greater than the relatively small figures suggest. It is estimated that losses from such disasters as a percentage of the GDP are 20 times higher in poor countries than in rich ones. Preliminary estimates put the total damage caused by Mitch at over $5 billion, a figure that could be much higher if based on the costs of replacing what was damaged.
THE CONCEPT OF VULNERABILITY
Faced with the situation in Central America following Hurricane Mitch, understanding the meaning of a disaster and its implications for a country and a region becomes a matter of priority.
Not every physical phenomenon generates a crisis that could be termed a disaster. This depends on the degree of vulnerability of the affected zone. Not all countries suffer the same consequences when affected by similar natural phenomena. There is a very close relationship between the threat that a phenomenon represents to a region, the region's vulnerability and the damages inflicted. For this reason, certain cities and countries are more seriously affected than others by damaging events.
The threat is an external factor, a phenomenon that could occur and thus produce a disaster in any given region. Vulnerability is defined as an internal factor; the conditions in which a region faces the threat. Various different kinds of vulnerability are cited, the most common being structural, social, economic, organizational, cultural, biological, sanitary and environmental.
A region's risk of being affected by a disaster is defined by calculating the potential action of a given threat in the light of the region's particular conditions of vulnerability. The risk will be determined by the extent of the threat to the region and by its vulnerability to that threat. It is the reduction of vulnerability that explains why different countries have different risks when faced by the same threat. The Central American countries have been more vulnerable to natural phenomena than developed countries and this is what we want to change. The region's history has been marked by a high frequency of physical phenomena striking vulnerable countries that have done little to reduce their risk. It is high time to correct this erroneous course.
The cycle of disasters is recurrent. The frequency of the disasters negatively affects economic and social development. In the recovery process, no measures are taken to reduce the risk. Thus the vulnerability of the region continues to increase until it is affected again, as another natural phenomenon creates a new disaster. It is this cycle of disasters that we want to break in Central America.
Human disastersThe patterns of human development that are incompatible with the rhythms and forces of nature lead to what are generally known as "natural disasters." It would be more accurate to define them as human disasters, which occur when extreme natural events create situations that exceed a given society's capacity to absorb and survive the ensuing upheaval. Disasters are fundamentally the result of the incompatibility of human activities with the natural environment in which a society lives.
Poverty, like many other problems in Central America, is one of the factors that govern a region's vulnerability to nature's assaults. Although this factor cannot be immediately resolved, we must attempt to tackle those symptoms of poverty that increase vulnerability to disasters. Only through social investment and the reduction of vulnerability can we avoid the kind of serious setbacks that affect development, as was the case with Hurricane Mitch.
Its geological make-up and climatic characteristics render Central America susceptible to a variety of potential disasters: earthquakes, both seasonal and long-term droughts, landslides, forest fires, flooding and hurricanes. It is important to point out that Central America is also vulnerable to man-made disasters; chemical accidents and oil spills could pose serious risks to population centers and natural resources.
There is a general consensus among experts that the most important sources of vulnerability in Central America are:
* highly vulnerable populations
* lack of social organization to respond to and mitigate disasters
* inadequate natural resource management
* ineffective land use planning
* inadequate infrastructure design and planning
* lack of support for resistant human infrastructure such as organization and emergency planning
* inappropriate design and construction techniques
Although the dividing lines between these categories can blur, the hierarchy is logical. For example, without a well-administered natural resource base, long-term vulnerability cannot successfully be reduced just by adequately planning the infrastructure or supporting the human infrastructure. And a well-constructed building is still vulnerable if it is built on a flood plain or a geological fault line or depends on inadequate infrastructure.
Strategic investments in all these areas will reduce vulnerability and the risk to life and property as a result of natural disasters. They will also produce tangible benefits in the long run and bring about more sustainable development by incorporating several essential elements: planning that is aware of risks and aimed at development; improvements to the quality and productivity of natural resources; construction of more resistant infrastructure; and guarantees of greater financial and social resistance to extraordinary events.
EMERGENCY, REHABILITATION AND RECONSTRUCTION
There are different stages to a disaster. Although they are interrelated and continuous, they can be differentiated in terms of needs, reaction time and the type of organization and amount of funds required. In the first stage of immediate emergency attention, problems of extreme urgency must be resolved: people must be rescued and basic medical attention provided along with food and drinking water. In the second stage of rehabilitation, basic infrastructure, communications and drinking water systems are reestablished. The third stage of reconstruction looks at longer-term problems: housing, agricultural and forestry production, job creation and local development.
The first two stages, which may last 12 months, require the rapid availability of fresh resources to minimize any subsequent effects that could further aggravate the situation, and the capacity to organize and administer resources in an optimum, transparent way. During these first two stages, direct aid to attend to the affected population's basic needs, the reestablishment of basic services and the reactivation of productive systems in order to provide work, reactivate production and generate income are all of vital importance.
Organization at each stageEach of these stages following the disaster requires a different form of organization. During the immediate response, the main problems are related to communications and logistics. At the other end of the spectrum, the reconstruction stage calls for a very different form of organization, one that can guarantee that the aid really reaches those affected in a transparent, effective way.
Designing a reconstruction program requires starting with a detailed evaluation of the damages and immediate needs in terms of drinking water, basic sanitation and housing. It is also requires designing specific aid mechanisms, determining whether the aid should be given in the form of donations or loans. In most cases it is necessary to establish an appropriate mix of donations with credit for productive activities.
Generally speaking, aid programs are structured in a top-down way, but there is a growing feeling that the beneficiaries themselves should be involved in the reconstruction schemes, through bottom-up programs. One fundamental problem is how to integrate those affected so that they can be actors in their own development. It is generally necessary to involve local-level organizations that can effectively carry out consultations and make decisions. It is also important to involve the affected population and civil society in the control of aid delivery and in the housing and productive reconstruction programs.
The potential lack of transparency in the delivery of humanitarian aid is receiving increasing international attention. There was genuine concern over how to prevent such problems right from the start of the Mitch emergency. It is vital to design control and auditing mechanisms for the administration of this aid. Central America could become a pioneer for other regions to follow by collaborating with the international community to design a mechanism that quickly and effectively responds to the complaints of those affected or to accusations made by civil society.
THE HONDURAN AND NICARAGUAN FOREIGN DEBTS
Even before Hurricane Mitch hit Central America, there was clear evidence that Honduras and Nicaragua needed their foreign debt burdens significantly reduced to be able to produce satisfactory and sustainable economic growth rates over a prolonged period. Per-capita income in Nicaragua and Honduras is a quarter of that in Panama and Costa Rica, which in turn is a quarter of that in the United States. Under the conservative supposition that the Honduran and Nicaraguan populations will increase by around 2.5% a year, the GDP of these two countries would have to grow at a constant rate of around 6% annually for 40 years just to reach the per-capita income level enjoyed by middle-income Latin American countries.
In both Honduras and Nicaragua, the foreign debt had already reached unsustainable levels and essential resources were being diverted from social areas such as education, health care and infrastructure in order to service it. The destructive force of Hurricane Mitch further complicated matters, making the need to substantially reduce the two countries' debts even more evident and urgent.
Paul Krugman (1998) and Jeffrey Sachs (1989) have argued that an excessive foreign debt burden acts like a high marginal tax rate, negatively effecting investment and economic adjustment. This argument, known as the Laffer foreign debt curve, suggests that reducing the debt could be in the interests of both creditors and debtors given that a large foreign debt imposes tight restrictions on the development of debtor countries, limiting their capacity to service the debt. Significantly reducing the debt is consequently a prerequisite to embarking on a sustained economic development process.
Honduras: Unsustainable interest paymentsBy the end of 1996, Honduras' foreign debt had reached $4.5 billion, of which almost 90% was long-term debt and 87% public debt or debt with a public guarantee. The latter grew between 1972 and 1996 at a compound rate of 14.8% a year, measured in current US dollars, as a result of long-term net flows from official creditors.
For most of the period between 1970 and 1996, the debt balance ratios show a marked tendency to increase, even during the 1980s, the most critical period of the debt crisis. By 1990, both indicators appeared to have reached their peak and remained relatively stable until 1996.
In 1996, total annual service payments on Honduras' foreign debt stood at $564 million, equal to 29% of the export of goods and services or 14% of the GDP. The relation between debt servicing and the GDP has remained above the 10% mark throughout the 1990s, and debt servicing has continued to represent an average of around 30% of exports of goods and services. In contrast, the same indicators for all countries classified as "low income and highly indebted" stood at around 4% and 15% respectively.
The net resource transfer (net flows minus interest payments), which indicates the effort a country is making to meet its foreign debt obligations, shows that Honduras received negative net resource transfers from the international financial community during seven of the eleven years between 1986 and 1996. [In other words, it paid out more than it received.]
Nicaragua: Exceptional indicatorsAt the end of 1996, Nicaragua's foreign debt stood at $5.9 billion, of which 86% was long-term debt guaranteed by the state. Its short-term debt was mainly a result of interest payment arrears on the long-term debt. The compound arrears charges on unpaid principal and interest averaged 36% of the total foreign debt between 1988 and 1996.
From 1971 to 1996, the foreign debt in current dollars grew at an annual compound rate of 13.5%. This growth was due in part to non-voluntary long-term flows from official creditors—repayment arrears on the principal rose sharply towards the end of the 1980s—and to the rapid compounding of arrears interest payments. The foreign debt/exports of goods and services ratio stood at 650% at the end of 1990 and the foreign debt/GDP ratio at 355%. Both indicators were drastically reduced after 1990 as a result of the opening up of the economy by the successors to the Sandinista government and the debt-reduction policy they pursued.
Nicaragua has made a significant effort to meet its foreign obligations in recent years, in contrast to most of the 1980s, when debt servicing fell substantially even as the foreign debt balance continued to rise. In 1991, Nicaragua substantially increased its foreign debt service burden in an attempt to normalize its relations with the international financial community, but the volume of the foreign debt had reached such unsustainable levels that the country could not meet its service obligations.
In 1996 foreign debt interest payments represented 25% of total exports and 13% of national production. By the end of that year, the total foreign debt stood at around $6 billion in current terms, 40% less than the previous year. This reduction was mainly due to agreements signed with Russia, Mexico, the Paris Club, the Czech Republic and El Salvador, which resulted in $4.2 billion in pardoned debts and $644 million in reprogrammed debts with concessional terms.
The HIPC initiativeBy mid-1998 Honduras and Nicaragua had met most of the requirements needed to qualify as beneficiaries of the Highly Indebted Poor Countries (HIPC) initiative launched jointly by the International Monetary Fund and the World Bank in 1996. This initiative offers to relieve the multilateral debt burden (debts with the World Bank, the IMF and the IDB) of poor countries that have worked hard on their economic policies and have unsustainable levels of debt even after having taken full advantage of the traditional debt-relief mechanisms. The initiative considers the possibility of writing off the debt altogether.
A detailed analysis done before Hurricane Mitch (Esquivel, Sachs and Larraín, 1998) demonstrated that both Honduras and Nicaragua fit the requirements established to enter the HIPC initiative and receive special treatment as small, open economies. This condition would offer Honduras and Nicaragua an additional debt reduction with respect to the original conditions of the HIPC initiative.
Comparing the key debt indicators of Honduras and Nicaragua with those of the first three countries to benefit from the HIPC initiative (Uganda, Bolivia and Burkina Faso) gives a more accurate idea of their chances of qualifying for the initiative. Nicaragua has the highest figures of all five countries in both the current net debt/exports and debt service/exports ratios. Honduras' results are mixed since, although the current net debt/exports ratio is lower than that of the three countries already benefiting from the initiative, its debt service/exports ratio is higher.
While the traditional debt indicators give a mixed idea of Honduras' foreign debt, a very different and more conclusive picture emerges from the additional debt indicators. The current net debt/GDP and the debt service/GDP ratios are higher for Honduras than for any of the three HIPC countries. Taking all four indicators into account, it is obvious that Honduras is less able to sustain its debt than the three countries currently benefiting from the initiative.
The mixed conclusions in Honduras' case are caused by a relatively high exports/GDP ratio, especially compared to less open economies such as those of the three HIPC countries. Honduras generates more foreign currency through exports than the other countries and as a result is considered to have a more sustainable debt. This, however, ignores the fact that it has a larger debt burden with respect to its capacity to generate income.
The debt problem in Honduras and Nicaragua is further complicated by the fact that foreign debt servicing represents a substantial drain on public sector resources. While the interest and other payments that had to be made on the public foreign debt in the three countries already selected for the HIPC amounted to less than 20% of central government expenditures in 1995, it accounted for over 50% and 100% in Honduras and Nicaragua, respectively.
Total cancellationHurricane Mitch caused substantial destruction to agricultural production and to the physical and human infrastructure in Honduras and Nicaragua. The most immediate task facing the respective governments is to rebuild their economies and particularly the infrastructure damaged by Mitch. Considering the strong budgetary and balance of payments pressures on their economies in the near future, it is more than obvious that the foreign debt service payments of both countries will need to be immediately suspended.
Despite the relief that a temporary suspension of debt servicing would represent for the Honduran and Nicaraguan governments, however, the extent of the economic disaster in these countries is such that the suspension of debt interest payments alone will not be enough to guarantee full economic recovery. This measure should be accompanied by cancellation of a large proportion of the extra-regional foreign debts that Nicaragua and Honduras owe to high-income countries and multilateral financial institutions.
A conservative estimate of the financial requirements needed to start the economic recovery process in Honduras and Nicaragua suggests that the extra-regional debt should be reduced by between 80% and 100%, depending on the type of creditor. This reduction, which would free up sufficient resources and resolve financial uncertainty, should be applied to the extra-regional, bilateral and multilateral debt.
Reducing the foreign debt is just part of the solution to the problem of development in Honduras and Nicaragua. It is even more important, and more urgent at this particular moment, to secure fresh resources on favorable terms with which to reconstruct and transform both economies. Debt reduction without any such new concessional resources will mean that Honduras and Nicaragua could find themselves saddled with the same kind of debt burden within the next five years.
Based on the above considerations, we propose renegotiating the foreign debts of both Honduras and Nicaragua under the following terms:
* The immediate deferment of all debt service payments, including interest owed to multilateral extra-regional organizations (IMF, World Bank, and IDB).
* The immediate and total cancellation of the Paris Club debt. This should include all existing debts up to mid-1998 for both countries.
* The immediate and total cancellation of the official bilateral debt owed by the two governments to extra-regional governments.
* The IMF, the World Bank and the IDB should immediately announce that Honduras and Nicaragua qualify for the HIPC initiative and proceed with the complete cancellation of their debts.
*The service payments on a reduced debt should be resumed according to the evolution of the respective economies, but not before the year 2001.
These measures should be complemented by:
* Immediate access to fresh resources from multilateral organizations under highly favorable terms.
* A considerable increase in resources from the multilateral organizations' Special Operations Funds with the aim of guaranteeing Honduras and Nicaragua the following, in order of importance: 1) sufficient fresh concessional resources to cover the needs of a reconstruction process that incorporates vulnerability mitigation elements; and 2) resources to successfully complete the cancellation of the entire extra-regional debt for Honduras and Nicaragua.
CENTRAL AMERICAN MIGRATION
The problem of migration is currently one of the more important challenges pending for the Central American governments. It has become a priority issue on the region's new political agenda following the devastating consequences of Hurricane Mitch due to its potential social, economic, political and international repercussions. The situation in the region will demand the adoption of decisions, within a multilateral framework, that express the consensus, solidarity and commitment of all the countries involved, including those that are the traditional destinations of regional migratory flows.
The hurricane's effects further aggravated the variety of factors that determine and explain migratory movements: the widening of development, economic and social gaps; the increase in unemployment, underemployment and poverty levels; and precarious living conditions. All of this, added to the fact that the ecosystems in the affected zones no longer can support the reestablishment of populations and activities, will undoubtedly aggravate and encourage a high level of population mobility, particularly in the countries that suffered the worst damage.
High levels of population mobilityHurricane Mitch lashed the poorest countries in Latin America and the Caribbean, those that already had the highest demographic and migration rates. In recent decades Central America has experienced a marked rise in the number of migrants and unprecedented population movements as a result of political convulsions and fierce armed conflicts in El Salvador, Guatemala and Nicaragua.
During the 1970s and 1980s, Central American emigration increased and changed its destination. Of the total number of Central American emigrants (268,000) living within Central America itself and in Mexico, Canada and the United States in 1970, 52% resided in the Central American region. In 1980, approximately 74% of the total (446,000) resided in the United States. And by 1990, the number of Central American emigrants as a whole had nearly tripled to 1,264,335, of which 87% resided in the United States.
Although of far less importance than the United States, Canada has also been a destination of Central American migration, particularly from El Salvador, during this decade. Meanwhile, Mexico is an important destination for Guatemalan emigrants.
Undocumented migrantsIllegal migration, with all of its consequences in terms of social marginalization and the violation of human rights due to discrimination and xenophobia, is one of the region's fundamental migratory problems. A significant part of the Central American migrant population currently resides illegally in the countries of destination, particularly the United States.
Although the very nature of this type of migration makes it difficult to quantify, the US Immigration and Naturalization Service (INS) estimates that 54% of the 5 million undocumented immigrants residing in the United States in October 1996 (around 2,700,000 people) came from Mexico and 13% from Central America. Of the latter, 335,000 were from El Salvador, 165,000 from Guatemala, 90,000 from Honduras and 70,000 from Nicaragua.
The problem of illegal migration is a very important issue in US-Central American relations. Since Hurricane Mitch, this situation has taken on a new political dimension in that the migratory stability of the Central American population, particularly that of the most affected countries, residing in the United States is of much greater concern for the region's governments.
US immigration legislationThe new immigration measures approved in the United States with the sanctioning of the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA) in 1996 together with the Anti-Terrorism and Effective Death Penalty Act of 1996 and the Personal Responsibility and Work Opportunity Reconciliation Act provide a new normative framework. Their repercussions for the Central American countries should be studied and evaluated.
In this context, the 1997 Nicaraguan Adjustment and Central American Relief Act (NACARA) which came into effect on June 22, 1998, and its extension to Salvadoran citizens currently covered by a temporary regulation, represent positive if as yet insufficient steps toward alleviating the situation of Central American immigrants from these two countries. Further work needs to be undertaken to evaluate their coverage and their impact in relation to the particular characteristics of the migrants.
Among the new immigration regulations contained in the IIRIRA that affect Central Americans are the restriction on the eligibility of individuals to qualify for public welfare programs and the ineligibility of people found to have previously entered the US illegally to be granted authorized entry for three to ten years. Another point of particular interest has to do with changes regarding the deportation of unauthorized immigrants.
DeportationsThe problem of the deportation of Central American citizens also has important implications for regional migration. Although no figures are available for the period following the implementation of the IIRIRA, 1996 INS figures show that significant numbers of Guatemalans, Hondurans and Salvadorans were subjected to deportation orders, which demonstrates the illegal nature of the migrant population.
The migratory dynamic is easily explained by the marked difference between the economic and social development of the Central American countries and that of the United States. The region's situation in the wake of Mitch will surely make the United States even more attractive as a destination for Central American emigrants. In this context, the activation of migrant trafficking networks is another foreseeable consequence; such networks are already generating concern among the different governments. They should be investigated and specific policies designed to reduce their use as a mechanism that facilitates illegal migration for a variety of reasons, including the risk they pose to the migrants themselves.
RemittancesAnother central issue that will assume even greater relevance in the region is the fundamental contribution that migration makes to Central America's economic development through the immigrants' savings and remittances back to families in their countries of origin. Now more than ever, these will become important sources of investment and support for families and communities affected by Mitch. The role of family remittances in a number of economic sub-systems suggests their importance in the region's various national economies, particularly those of El Salvador, Guatemala and Honduras.
The contribution of remittances to the survival of poor homes is quite significant in Central America. El Salvador's Home Survey, for example, shows that in 1997 approximately 15% of homes received remittances from family members living abroad and that they represented an annual income of $348 per person. Just over 40% of all households living under the poverty line received remittances from migrants that year. The situation is similar in all of the other countries in the region.
One problem facing the migrants is the cost of the money transfers. In some cases this can be as high as 20% of the amount being sent. The reduction of these costs combined with new strategies to encourage the productive use of the remittances could be one way of helping complement local and community development.
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