VZCZCXRO3814
RR RUEHGR
DE RUEHKG #1280/01 1791933
ZNR UUUUU ZZH
R 281933Z JUN 06
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 3114
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEHSJ/AMEMBASSY SAN JOSE 1826
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 KINGSTON 001280 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/CAR (WBENT), WHA/EPSC (JSLATTERY) 
 
SANTO DOMINGO FOR FCS AND FAS 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN JM
SUBJECT: REMITTANCES SURGE, BUT FACE SCRUTINY 
 
 
¶1. Summary: Remittances solidified their position as the leading 
foreign exchange earner in Jamaica, rising 12.6 percent to USD 1.65 
billion at the end of 2005.  At this level, Jamaica has the largest 
per capita level of remittances in the region, with inflows 
accounting for almost 18 percent of GDP.  The continued buoyancy was 
underpinned by increased labor migration and declining costs.  While 
most of the funds were used for consumption, signs suggest a rising 
share is being channeled into productive assets.  Despite positive 
developments, however, remittances have come under greater scrutiny 
in recent times, with the World Bank and the IMF highlighting some 
negative aspects.  The GOJ has also been expressing concern about 
the possible misuse of the funds and is examining increased 
regulation and study of the industry.  Negatives aside, remittances 
should maintain the growth momentum observed during the last ten 
years.  As this growth continues more funds could be diverted from 
consumption to production, aiding growth and development.  End 
summary. 
 
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Remittances Remain Bullish 
-------------------------- 
 
¶2. Remittances to Jamaica climbed by 12.6 percent in 2005 to USD 
1.65 billion or 18 percent of GDP.  At this level, remittances 
continued to grow on average by 16 percent since 2000 and solidified 
its position as the island's single largest source of foreign 
exchange and the mainstay of the external economy.  Remittances for 
2005 outstripped tourism receipts of USD 1.5 billion and were 137 
percent of merchandise exports and almost three times greater than 
foreign direct investment.  Jamaica also remained the highest per 
capita recipient of remittances in the region in 2005, with a per 
capita figure of USD 623 per year.  This is not surprising given 
that a 2006 Jamaica Chamber of Commerce (JCC) survey showed that 
over one-third of all households receive money from abroad, with 
half reporting that their average receipt has been increasing in 
recent years.  The upward trend is attributable to three main 
factors: increased labor migration to major source countries such as 
the U.S. and Canada; improved accessibility and convenience, with 
the channels for sending money expanding; and the continued 
improvement in technology and increased competition, making it much 
cheaper and safer to remit funds.  Remittances have also surged in 
response to the sluggish economic conditions prevailing in Jamaica. 
 
 
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Remittances Slowly Shifting To Development 
------------------------------------------ 
 
¶3. While remittances continue to be primarily used for consumption, 
emergent signs suggest an increasing share of the flow is being 
leveraged for development.  The clearest indication of this yet was 
provided by Manager of International Markets for Grace Kennedy 
Remittance Services (GKRS), Noel Greenland.  (Note: GKRS is the 
local agent for Western Union and accounts for 65 percent of the 
market.  End note.).  Greenland told emboffs that: "Whatever is good 
for Jamaica is good for us", adding that his company would be 
allowing the recipients of remittances to have funds deposited 
directly to their savings account, a service already offered by at 
least one other company.  These direct deposits will allow 
recipients to gain interest on their funds and possibly use the 
savings to leverage additional funds in the form of loans to start 
small businesses.  Greenland also disclosed that GKRS was exploring 
the idea of identifying a separate pool of funds to lend small 
businesses. 
 
¶4. Recent studies also suggest that an increasing share of the money 
remitted from Jamaicans abroad is being sent directly to building 
societies to pay mortgages.  This study found that remittances do 
not only serve basic welfare needs, as previously assumed, but are 
increasingly being used to spur investment in housing, thereby 
generating employment and economic growth.  Equally important is the 
fact that remittances are the only source of external payments going 
primarily to the poor.  It should be noted that the reduction in 
poverty since the late 1990s occurred simultaneously with the surge 
in remittances, amidst one of the longest periods of economic 
stagnation in Jamaican history.  Remittances also continue to play a 
positive role in maintaining macro-economic stability as well as 
reducing the current account deficit and possibly averting a balance 
of payments crisis. 
 
----------------------------------- 
Remittances Facing Greater Scrutiny 
----------------------------------- 
 
¶5.  Despite the positive attributes of remittances, the flow has 
come under increased scrutiny from the GOJ and international 
institutions in recent times.  The GOJ has become particularly 
 
KINGSTON 00001280  002 OF 002 
 
 
concerned about the possible use of remittances for terrorist 
financing and money laundering and has suggested a study to 
ascertain: (1) how the money is being utilized; (2) the profit 
margin of remittance firms; (3) the income group transferring money; 
and, (4) the recipients of remittances.  To bring some amount of 
order to the industry through regulation, the GOJ also initiated 
dialogue with players in the remittances industry, a welcome 
development for Greenland.  This drive to regulate the industry was 
largely due to ongoing pressure from GKRS to curb the activities of 
some companies.  He noted that when the U.S. stepped up regulation 
after September 11 it provided an avenue for Western Union to 
intensify its lobbying efforts.  When asked for his opinion on the 
current regulatory environment, Greenland told emboffs that the 
framework was taking shape.  "The regulatory environment is healthy, 
but needs more muscle", Greenland concluded. 
 
¶6. There are signs that the GOJ understands this need.  The Bank of 
Jamaica (BOJ) hosted a conference June 12-16 - co-sponsored by the 
Department of the Treasury's Office of Technical Assistance (OTA) 
and the Caribbean Group of Bank Supervisors - for Caribbean 
Regulators of Money Services Bureaus.  The Caribbean regulators 
requested this assistance from the USG to support ongoing efforts to 
develop best practices related to the industry, and to improve their 
oversight and regulation. 
 
¶7. The World Bank and the IMF have also weighed in on the discussion 
on remittances, expressing concern about the impact of brain drain 
on Jamaica, despite the positive roles of satisfying basic needs and 
maintaining macroeconomic stability.  An IMF working paper released 
in January and titled 'Emigration and Brain Drain: Evidence from the 
Caribbean' stated that there is a high level of emigration to OECD 
countries from Jamaica.  The paper suggests that the migration rate 
is particularly high for skilled labor, with calculations showing 
that losses due to migration outweigh actual remittances to the 
country, a real sign of brain drain.  According to the working 
paper, the tertiary-educated labor force in Jamaica has been reduced 
by 85 percent due to emigration to OECD member countries.  "The 
magnitude of these migration rates suggests that potentially, 
emigration can have large impacts on the local labor markets and on 
the welfare of those who stay behind in the Caribbean countries. 
Total losses due to skilled migration...outweigh the recorded 
remittances for the Caribbean region on average, and for almost all 
the individual Caribbean countries", the paper pointed out. 
 
 
¶8.  Remittances have also come under criticism due to social ills 
associated with them.  It is a common anecdotal belief that much 
anti-social behavior among children and young adults is due to a 
lack of proper supervision following the migration of parents.  Many 
hold that this "free money" facilitates idleness and by extension 
deterioration in work ethic among recipients who no longer have an 
incentive to engage in productive activities, creating dependence. 
According to this view, the very factors - low income and lack of 
opportunities -that promote migration also discourage investment, as 
the educated human resource is lacking. 
 
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Comment 
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¶9. Remittances are expected to remain buoyant during 2006, 
particularly given the sluggish economic conditions in Jamaica and 
the continued migration of skilled, educated labor.  As growth in 
remittances continues, more of the money should find its way into 
productive areas, which could spur economic growth and development. 
In addition, the increased flow will continue to provide a critical 
source of funding for the country's soaring current account deficit. 
 That said, the negative impact of remittances cannot be 
overemphasized, especially as the country grapples with the 
consequences of insufficient human resources and growing anti-social 
behavior.  Labor faces a global market and gravitates toward the 
most lucrative offer and the safest environment in which to operate. 
 Reducing crime, increasing investment in education and training, 
and providing sufficient compensation to retain expertise are always 
priorities, but ones that are difficult to synchronize with limited 
resources.  End comment. 
 
JOHNSON