Moving beyond the remittance/transfer dependency

February 11, 2010 by Karl E. Salomon, Special to the Reporter

Karl SalomonSince the 1980s, the level of remittance to Haiti has dramatically increased, and so has Haiti’s dependence on the Diaspora. According to the Inter-American Development Bank, Haitians abroad remitted $1.87 billion (US) to their relatives in Haiti in 2008. This amount is more than a 900 percent increase from the $106 million mark of 1980, based on The World Bank’s data. This astounding amount made up more than 26 percent of the country’s gross domestic product for that year and averaged out to about $5 million per day.

On January 13, this steady flow of cash abated as many banks and transfer agents were left inoperable in Port-au-Prince due to the damaged caused by the calamitous earthquake the day before. Fonkoze, the largest microfinance institution in Haiti, which also provides money transfer services, struggled to stay open the days following the earthquake. Katleen Felix, the Haitian Diaspora liaison for Fonkoze said that one of the major problems for Fonkoze was that the staff had to tend to their family and friends that were affected by the events.

Another major problem was liquidity. “There was a liquidity crisis,” Felix told the Reporter. “There was no cash in the country, and we had no access to get cash from the central bank.”

With the Haitian banks closed until January 21, and transfers continuing to be processed, many recipients, hoping to receive a solacement, were told that they could only get a portion of their money, or even worse, nothing at all.

Fonkoze was determined to get cash into the hands of Haitians when they needed it most. With aggressive action, and help from the United Nations and the U.S Military, Fonkoze had $2 million from their U.S. bank accounts delivered to their branches in Haiti by helicopter on January 23.

Money transfer operators have joined the efforts in helping remittances reach Haiti. Many companies, including Unitransfer, Western Union, C.A.M transfer, and Money Gram, have temporarily removed transfer fees for transfers going to Haiti or have reduced them to a $1. In addition to waiving their fees, Western Union has helped raise more than $1million to support relief efforts in Haiti. When asked about the reliability of transfer services, most Haitians in Boston say that the transfers are as reliable as they were prior to the quake, provided that the money is not sent to Port-au-Prince.

Haitians living in Boston have taken advantage of such promotions to send money back home. Some are sending more money than they have in the past, some are sending to more people , some are sending more frequently, and some are sending for the first time. Katleen Felix said that Fonkoze hasn’t been tracking the numbers yet, but judging from how fast the country’s cash was exhausted, a lot of money has been sent from the Haitian Diaspora during this crisis.

Now that the banks are back on their feet, the flow of remittances will accelerate and steady itself at amounts that may be unprecedented. While this is good news in the near term, Haitians may want to re-evaluate the role of future remittances in Haiti.

Money transfers to Haiti help families provide for their basic needs, supplies, and education. Transfers also provide money for emergencies, savings, and housing and business investment. Consumption goods have always been what most of the money is used for and it’s safe to say that that percentage will go up for the coming months.

One disadvantage of sending billions of dollars to Haiti is that it can cause the prices of goods to inflate, as recipients of remittances compete with other consumers in the Haitian market. Also, the value of the Haitian Gourde diminishes when other currencies, mainly the U.S. dollar, are being circulated in the country.

Moreover, a great portion of the money remitted to Haiti is being used to buy American commodities, returning dollars back to the United States and taking away sales from Haitian producers and merchants. For example, Haitian merchants in Port-au-Prince struggle to sell their goods as they compete with the organizations providing relief aid. “The ti machan can’t sell their rice because they are giving out free rice,” said Felix.

For remittances to truly help Haiti they would have to be directed more toward businesses that promote education and financial independence in their community. Lack of opportunities in Haiti is one of the major reasons for Haitian migration to foreign countries. The Haitian Diaspora should work with their relatives in Haiti to ensure that their outflow of money to Haiti helps create jobs in Haiti and lessen the outflow of Haitians to foreign countries. Devising a plan for a less dependent Haiti ought to be the goal of the Haitian people because running a country on remittances is like applying tape to a broken pipe.

Karl E. Salomon is a financial services professional who lives in the Boston area.