The New Foreign Aid – Los Angeles Times

In Uncategorized on April 18, 2006 at 10:16 pm

The New Foreign Aid – Los Angeles Times

This is a great series the LA Times is putting out there. I recommend the narrated photo galleries. I’ve been paying attention to this since I moved to the Mission District in San Francisco. I lived there for almost 4 years, and the remittance business is clearly obvious once you’re clued into it. Money Transfer counters are almost everywhere, from more formal Western Union offices to country-specific operations, like Jet Peru. The house at the end of my block on 15th St was full of Mexican and El Salvadoran men working in the urban-chic “Valencia Corridor” nearby. You’d see these young guys coming home from all-night shifts at 6 or 7 in the morning.

Indeed, when I was in Niger, it was surprising to see how many Western Union offices there were. I took advantage of them once – I was wired some money to buy airline tickets home to the US. They charged a fat 5 five-percent fee – the more money you send the more expensive it gets.

This is why I was happy to read the article about remittances to Latin America – part one of the series I’m linking above. Money creates money. If America is good at anything, it’s at creating money like there is no tomorrow. Every dollar I leave in my bank becomes part of a big pot, and that pot of cash gets loaned out to businesses, home-owners, etc and becomes more cash, which gets loaned out again. This is controlled, ultimately, by the Federal Reserve Bank – headed until recently by the famed Alan Greenspan. The Fed, as they are called, sets the interest rates that banks charge each other for overnight loans and transfers. The higher the interest rates, the more expensive, in effect, the money supply becomes. Those interest rates are eventually passed on to businesses and consumers. So right now, for instance, the housing market is slumping because interest rates are higher – making a home loan monthly payments potentially much more expensive than one or two years ago, when a 30-year fixed was only four percent or so.

Mexico, by recognizing the value of the billions of dollars in remittance money, is doing a great service to their people by strengthening the personal banking sector in the rural areas where remittances go. These recipients will no longer keep their money in shoe-boxes or spend the cash right away – they are made to feel more confident in the banking system to put their money in the banks, which then lend the money out, creating more and more capital. It’s very exciting when you think about the possibilities.

It makes great sense, from a Sustainable Development perspective – to encourage this kind of practice. This is the essence of home-grown, sustainable development; it’s people lifting themselves up and helping each other. Where we, as Americans or citizens of the developed world can help – is to encourage good governance and the rule of law in the countries we support. We can clearly see the difference between Mexico and Haiti and how the billions of remittance dollars are being used. Haiti’s governmental infrastructure is almost non-existent, and there is no confidence in the rule of law – that is why Lundi, the subject of this article, has to go down to Haiti himself to hand out his cash. Mexico, on the other hand, has a government functioning well enough to enforce banking regulations and foster their citizen’s confidence enough to trust banks with their cash.


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