VZCZCXYZ0006
RR RUEHWEB

DE RUEHPE #0635/01 0642059
ZNR UUUUU ZZH
R 052059Z MAR 07
FM AMEMBASSY LIMA
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INFO RUEHAC/AMEMBASSY ASUNCION 1619
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RUEHBU/AMEMBASSY BUENOS AIRES 2808
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UNCLAS LIMA 000635 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PE
SUBJECT: REMITTANCES REMAIN A STABLE SOURCE OF FOREIGN 
INCOME, THOUGH BELOW REGIONAL AVERAGE 
 
¶1. (U) SUMMARY:  Remittances in Peru continue to demonstrate 
upward growth though the rate of increase lags behind Latin 
America as a region.  Over the past 11 years, remittance 
inflows into Peru increased nearly threefold from $599 
million in 1995 to $1.796 billion in 2006 (about 2% of GDP). 
The growth trend is to continue through 2008 when remittances 
will reach an estimated $2.259 billion.  Between 2000 and 
2005, remittances inflows into Peru increased by 101 percent 
whereas remittance inflows into Latin America increased by 
136 percent.  The difference can be attributed to Peru's 
strong macroeconomic performance -- 22 quarters of sustained 
growth.  The United States is the leading source of 
remittances, contributing 46 percent of remittances to Peru. 
End Summary. 
 
A CASH COW INDUSTRY 
------------------- 

¶2. (U) Remittances have provided the most stable inflow of 
income into Peru over the past decade.   The steady increase 
in remittances stands in stark contrast to other forms of 
capital inflows into Peru.  According to a Central Bank of 
Peru (Banco Central de Reserva del Peru, BCR) study, between 
1995 and as projected through 2008, there was only one year, 
2002, when remittances were not at about the same level or 
higher over the previous year.  By comparison, foreign direct 
investment fluctuated due to changes in the investment 
environment in Peru.  As foreign direct investment dropped 
from over $2 billion in 1995 to less than $0.6 billion in 
2000 and then recovered to a slightly higher level at $2.5 
billion, remittances have steadily increased as a share of 
GDP.  There was particularly sharp growth over the 2003-2006 
period with annual increases eclipsing 23 percent.  For 2006, 
remittances contributed to 1.9 percent of gross domestic 
product (GDP) in Peru.  The BCR projects an increase to 2.1 
percent of GDP in 2008. 
 
¶3. (U) There are three channels for transmitting remittances. 
 The lead channel is Fund Transfer Enterprises (ETFs) which 
accounts for 50 percent of Peru's remittance inflows or about 
$720 million in 2005.  An example of this type of enterprise 
is Western Union.  In Peru, two local companies -- Jet Peru 
and Serviban -- dominate the business, both accounting for 
roughly 25 percent of the market for a total share of 50 
percent.  Western Union has a market presence but is not a 
major player.  The second most popular channel is the formal 
banking system which accounts for 28 percent of remittances 
or, in 2005, $322 million.  The remaining channel is termed 
"other channels" and accounts for 22 percent of the total, or 
$322 million.  This last type is a popular method in Japan 
for transmitting funds.   Typical of this type of 
organization are cooperatives which are consumer, business, 
or even community based. 
 
INFORMALITY POSES FORMAL ESTIMATION CHALLENGES 
--------------------------------------------- - 

¶4. (U) There are recipients of remittances who are outside of 
the formal financial system and can receive remittances 
through informal channels that are not readily tracked by 
banking institutions.  The informality issue is a technical 
challenge to the formal estimation of remittances.  Due to 
informality, there are differences in the estimation of the 
magnitude of this phenomenon.  For instance, an Inter 
American Development Bank (IDB) commissioned study estimated 
2005 remittance inflows into Peru at $2.495 billion compared 
to the BCR's estimate of $1.440 billion.  The BCR staff 
believes there are three weaknesses to the IDB study:  (1) 
the IDB classifies 41 percent of the inflows as entering Peru 
through the informal channel while the BCR estimates these 
inflows at only 10 percent of the total; (2) the lack of a 
properly defined household sample receiving remittances; and 
(3) the BCR staff argues that the huge variance of over $1 
billion between the two estimates would be reflected in 
permanent negative levels of Peru's balance of payments. 
Regardless of the estimate, Post's analysis of the different 
methodologies argues in favor of the BCR's method of 
estimation. 
 
WHO REMITS?  U.S., SPAIN, JAPAN... 
---------------------------------- 

¶5. (U) The United States is the source for the largest share 
of Peruvian remittance inflows at an estimated 46 percent. 
The next largest source of remittances is Spain, accounting 
for 13 percent.  Next is Japan at 11 percent and then Italy 
at 9 percent.  Within Latin America, the lead source for 
remittances directed to Peru is Argentina with 5 percent. 
Post developed an estimate of the origin of the remittances 
as the BCR study stopped short of providing estimates from 
all sources.  The table below summarizes the remittance 
inflows into Peru by both channel and country. 
 
--------------------------------------------- ------------ 
Channels of Remittance Inflows into Peru by Country, 2005 
--------------------------------------------- ------------ 

                                                Country 
Country     ETFs        Banks       Other       Total 
--------------------------------------------- ------------ 
U.S.        25.9%       14.3%        5.8%       45.9% 
Spain        7.0%        3.9%        1.6%       12.5% 
Japan         nil         nil       11.2%       11.2% 
Italy        5.1%        2.8%        1.1%        9.0% 
Argentina    2.6%        1.4%        0.6%        4.6% 
Chile        2.2%        1.2%        0.5%        3.9% 
Ecuador      1.2%        0.7%        0.3%        2.1% 
Germany      0.6%        0.3%        0.1%        1.1% 
Others       5.5%        3.0%        1.2%        9.7% 
--------------------------------------------- ------------ 
Channel 
Total       50.0%       27.6%       22.4%      100.0% 
--------------------------------------------- ------------ 
Dollars (MM) $720        $397        $322      $1.440 
--------------------------------------------- ------------ 
Sources:    BCR and Embassy Lima 
 
¶6. (U) Remittances from countries in areas with potential 
criminal or terrorist activities were on the level of less 
than $1 million via ETFs (this is the only channel for which 
data is available).  In rank order, Paraguay had the highest 
level in 2005 with $800,000 million transferred.  Next was 
Jordan, Kuwait, and Bahrain with $500,000 each followed by 
Lebanon with $100,000 and then finally Iran and Iraq with 
$2,000 each. 
 
¶7. (SBU) Peru's Financial Intelligence Unit (FIU) reviews 
remittances in cases of suspected money laundering and has 
investigated at least one remittance case in relationship to 
a suspected money laundering transaction.  Although this case 
illustrated the potential for returning laundered funds to 
Peru via remittances, we are not aware of any major focus on 
the use of remittances to launder money. 
 
COMMENT 
--------------- 

¶8. (U) Worldwide, the growth in remittances is a formidable 
trend.  Peru has demonstrated a steady and increasing 
appetite for remittances with a rate of increase from 2000 to 
2005 at an impressive 101 percent.  Although this rate is 
less than the Latin American average of 136 percent, it is 
possible that Peru's strong macroeconomic performance since 
2000 improved opportunities at home and its impact on 
reducing poverty -- particularly among the middle to lower 
echelon of the impoverished class -- could explain Peru's 
"slower growth curve" for remittances as compared to Ltin 
America as a whole. 
STRUBLE