VZCZCXRO3470
RR RUEHGR
DE RUEHKG #0482/01 0931900
ZNR UUUUU ZZH
R 031900Z APR 07
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 4573
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEHSJ/AMEMBASSY SAN JOSE 1893

UNCLAS SECTION 01 OF 03 KINGSTON 000482 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/CAR (RBUDDEN), WHA/EPSC (JSLATTERY, FCORNEILLE) 
 
SANTO DOMINGO FOR FCS AND FAS 
 
TREASURY FOR A FAIBISHENKO 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN ENRG JM
SUBJECT: JAMAICA: REMITTANCES PROVIDING LIFELINE 
 
REF: 06 KINGSTON 1280 
 
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Summary 
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¶1. Last year, expatriate Jamaicans sent home almost USD 1.8 billion 
in remittances, making the country the highest per capita recipient 
in the region.  This source is the country's second-highest foreign 
exchange earner, and vastly outpaced foreign aid and foreign direct 
investment.  Most of the funds go directly to poor Jamaicans, who 
use a large portion to finance household expenses, making 
remittances an effective poverty reduction tool.  However, rising 
transfers from abroad are generally associated with a lack of 
opportunities and social decay at home.  The remaining population 
becomes over-dependent on this source of funds, while almost 80 
percent of the educated labor force is lost to migration.  While 
this is disconcerting, the socio-economic consequences could have 
been worse if these trained minds were left to languish in the 
system.  It would appear that until a more accommodating environment 
can be created, Jamaica probably gains from the flow in net terms. 
End summary. 
 
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Living on Remittances 
--------------------- 
 
¶2. Remittance has cemented its place as one of the two major pillars 
of the Jamaican economy (with tourism), bringing in over USD 1 
billion annually since 2002.  But while in recent years the threat 
of terrorism and natural disasters have depressed tourism earnings, 
Jamaican immigrants have continued to send remittances in the same 
volumes, highlighting the resilience of this source of income. 
During 2006, remittances jumped by 10 percent, ending the year at 
USD 1.8 billion.  This is far greater than foreign aid and foreign 
direct investment combined, and outperformed the country's earnings 
from merchandise exports.  While Jamaica ranks down the list in 
remittances as a percentage of GDP (17 percent), the country is by 
far the largest per capita recipient of remittances in the region at 
around USD 670, and is the ninth-highest recipient in absolute terms 
in Latin America and the Caribbean. 
 
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Where does the money come from? 
------------------------------- 
 
¶3. Estimates of Jamaicans abroad range from two to three million, 
forming the basis of the remittance trade, with over a million 
Jamaican immigrants residing in the U.S.  A survey commissioned by 
the Canadian Foundation for the Americas in April 2005 found that 70 
percent of persons receiving transfers have relatives who live in 
the U.S., of which 47 percent reside in New York.  It is little 
surprise, therefore, that 60 percent of total remittances flow from 
the U.S., while 25 and 5 percent come from the U.K. and Canada, 
respectively. 
 
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And where does it go? 
--------------------- 
 
¶4. Based on a 2006 Jamaica Chamber of Commerce survey, more than 30 
percent of Jamaican households reported receiving remittances, with 
25 percent of these recipients receiving money at least once per 
month.  Of the recipients, 67 percent were female and 33 percent 
male.  Over 85 percent of these recipients are in the 18-44 
demographic, living in households with three to four persons.  In 
addition to highlighting the matriarchal nature of Jamaican society, 
these figures also highlight the disproportionate number of men 
migrating and/or employed in the Overseas Employment Program (a 
seasonal farm worker program). 
 
¶5. Contrary to popular belief, the majority of recipients, 52 
percent, are "working class poor," while 31 percent are classified 
as "very poor."  However, a number of these working class recipients 
may be acting as guardians for children left behind.  On average, 26 
percent of households get between USD 100 and USD 161 in remittances 
monthly.  Over 40 percent of remittances are used for general 
household expenses, 30 percent for utilities and 20 percent for 
educational expenses.  Only an estimated 10 percent of remittances 
are saved on a consistent basis. 
 
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What explains the surge? 
------------------------ 
 
¶6. Despite the current buzz around the meteoric rise of remittances, 
 
KINGSTON 00000482  002 OF 003 
 
 
the flow was hardly recognized two decades ago.  However, three 
developments catalyzed financial transfers to Jamaica. 
 
-- A new wave of Migration: Globalization opened new opportunities 
for Jamaicans abroad, while political mismanagement, poor economic 
policies, and rising crime at home created a major push for labor to 
emigrate to areas where economic sustenance can be realized. 
 
-- The liberalization of the financial sector in the mid-1990s 
mirrored by a rising level of financial sophistication among 
recipients: over three quarters of Jamaican recipients utilize 
remittance companies, while 16 percent use banks or other financial 
institutions.  Western Union remained the company of choice, being 
used 68 percent of the time.  86 percent of recipients are bank 
account holders, with 74 percent of these holding bank cards.  This 
provides a clear opportunity for recipients to use their banks to 
receive funds, thereby reducing costs. 
 
-- Technological advances have made it easier for Jamaicans abroad 
to send money home: These technologies have made transfer cheaper 
for companies operating in the remittance sector, leading to 
increased competition and lower costs for the economic migrants. 
 
--------------------------------- 
Remittances and Poverty Reduction 
--------------------------------- 
 
¶7. The large - and growing - Jamaican expatriate population has 
become a powerful force for poverty reduction.  Studies have shown 
that remittances are the only source of external income that goes 
largely to the poor, directly increasing the income of the lowest 
socio-economic groups.  In fact, data from Jamaica's Survey of 
Living Conditions supports the notion of a close relationship 
between the growth in remittances and falling poverty rates.  During 
the last ten years (1996-2005) for which poverty data are available 
in Jamaica, remittances have more than doubled, while the incidence 
of poverty has declined from 26.1 percent to 14.8 percent.  The 
funds have also provided insurance for poor Jamaicans in time of 
disasters, as observed in 2004 and 2005 when the flow spiked in 
response to hurricane damage.  Remittances also indirectly affect 
poverty through the effects on growth, exchange rates, and access to 
credit by providing working capital for the poorest households that 
generally lack access to property and credit markets. 
 
--------------------------- 
Remittances and Development 
--------------------------- 
 
¶8. But remittances are not just a poverty reduction tool; they also 
have become a stable source of hard currency for developing 
countries.  World Bank findings suggest that this stability has 
allowed some countries to access funds on the international capital 
markets on better terms than they otherwise could.  In the case of 
Jamaica, for example, Bear Stearns has consistently indicated that 
Jamaican bonds trade as if the country's credit rating was higher, 
which might be due to the country's high stock of international 
reserves, buoyed by remittances. 
 
¶9. At the microeconomic level, in addition to augmenting income, the 
money also provides a growing share of capital that can be used to 
invest in micro-enterprises.  While studies show that most of the 
money is used for direct consumption, survey data confirm that a 
rising portion is being saved in Jamaica.  Over time this saving is 
expected to provide a pool of funds for investment and by extension 
growth and development. But even if the funds are consumed it still 
has indirect economic benefits through the generation of positive 
multiplier effects.  Additionally, the relative financial 
sophistication of Jamaicans provides a solid platform for bankers 
and policymakers to leverage a growing portion of remittances for 
development.  Finally, the migration of Jamaicans relieves labor 
market pressure and facilitates skills transfers if migrants return. 
 
 
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Some Concerns 
------------- 
 
¶10. Behind the relief that remittances bring is growing concern that 
the flow leaves a trail of negatives in its wake.  At the 
macro-economic level, private transfers might push up the value of 
the country's currency, making it less competitive.  This "easy 
money" stokes consumerism and stifles entrepreneurial efforts among 
the poorest groups, as they become over-dependent, reducing 
incentives to invest in their own income generating activities. 
Like any other form of wealth earned by others, remittances can 
foster idleness and anti-social behavior among beneficiaries.  Add 
 
KINGSTON 00000482  003 OF 003 
 
 
to this the risks of terrorist financing and money laundering and 
the negatives multiply. 
 
¶11. Worse yet, studies by the IMF and World Bank have posited that 
the loss of skilled and qualified labor could be crippling to 
Jamaica's development.  In the last decade alone, the Overseas 
Employment Program has more than doubled to 14,000 annually. 
Reports indicate that almost 80 percent of Jamaican university 
graduates live abroad, mostly in the U.S., placing Jamaica among the 
top 20 countries with the highest tertiary-educated emigration 
rates.  One study suggests that the majority of Caribbean countries 
have lost greater than 30 and 50 percent of its labor force in the 
secondary and tertiary education segments, respectively.  This led 
CARICOM Secretary General Edwin Carrington to speculate that total 
losses due to skilled emigration far outweigh the recorded 
remittances for the region, both on average and for individual 
countries. 
 
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Comment 
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¶12. It is inaccurate to assume that rising remittances are an 
indication that Jamaica is losing out in net terms.  It is equally 
likely that if these economic migrants languished in Jamaica, 
unemployed or at best underpaid, it would have led to other 
socio-economic problems.  Until the root causes of migration have 
been addressed, Jamaica might well be better off exporting its 
excess labor.  The task facing Jamaican policymakers is to maximize 
the benefits of remittances, while minimizing the associated 
socio-economic and political costs.  This is particularly important 
as migration and remittances are expected to increase in the near 
and medium terms as the government grapples with the twin threats of 
economic stagnation and crime.  If nothing else, the poor can expect 
to continue reaping direct benefits as remittances remain their 
primary external source of funds, making it an effective way to 
alleviate poverty on the island. 
 
HEG