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UNCLAS SECTION 01 OF 03 SUVA 000503 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ELAB EFIN XV FJ TN
SUBJECT: REMITTANCES IN THE PACIFIC ISLANDS 
 
 
¶1. Summary: Remittances play an often unacknowledged yet crucially 
important economic and social role in the South Pacific. In the face 
of domestic turmoil, rising unemployment, and limited labor 
mobility, remittances have become a near irreplaceable source of 
funds for large portions of the population, particularly the poor 
and vulnerable. The sources and mechanisms of remittances vary 
significantly. Half of all Tongans live and work aboard in 
well-established communities; Kiribati and Tuvalu each are home to 
more than a thousand trained seafarers who man ships across the 
globe; and Fiji has seen  significant numbers of skilled laborers 
leave in the wake of a series of coups to seek greener pastures 
abroad. The long-term sustainability of remittances as a social and 
economic buffer is unclear, as family ties weaken and immigration 
opportunities shrink.  End summary. 
 
Forms of Remittance 
------------------- 
 
¶2. The most common means of making remittances is through cash, 
postal orders, and checks. In years past, remittances often took the 
form of goods either unavailable in the home country or only at 
prices substantially higher than abroad. The shift to cash has made 
documenting remittance flows more difficult as informal channels 
have developed and flourished. One source estimates that 
undocumented cash remittances to Tonga add another 34%-40% to the 
official figures. Undocumented remittances usually take the form of 
family and friends hand-carrying cash into the country, particularly 
during holidays. According to USP economist Prof. Mahendra Reddy, 
these routes are common and highly used, with some reports pegging 
the use of informal channels in Fiji to be around 33%. 
 
¶3. Despite the relatively recent arrival of non-bank financial 
institutions such as Western Union in the region, they are 
increasing popular as a conduit for remittances. A World Bank study 
found that 50% of Fiji households and 69% of those in Tonga use such 
channels.  By comparison, banks handle just 39% of documented 
remittances in Fiji and 58% in Tonga. One of the newest and lowest 
cost means are ATMs.  Remitters abroad send recipients a card and 
PIN number to access off-shore accounts.  According to the World 
Bank, this method, at only 0.8% in Fiji and 4.5% in Tonga, is still 
underutilized. 
 
Who are the Remitters? 
---------------------- 
 
¶4. Generations of Pacific Islanders have left home in search of 
social and economic opportunity. Once abroad, these supposed 
"temporary" migrant workers have tended to become permanent. 
Although hundreds of thousands have gone abroad, only six percent of 
households in Fiji and 13.5% in Tonga include a returned migrant. 
Despite the permanent character of much of this migration, a high 
percentage of such workers retain their commitments to family and 
communities in their countries of origin. Indeed, Pacific migrants 
often aim to benefit and support the family at home. This is in 
contrast to the rest of Asia, where remittances are saved or 
invested with an eye to the eventual return home of the migrant. 
Currently, a large portion of remittances in the Pacific is used for 
consumption. Investment is occurring, but primarily for education 
and human capital development, such as creating opportunities for 
others to migrate. 
 
Tonga: a Transnational Family 
----------------------------- 
 
¶5. Remittances have grown into an overwhelmingly important element 
of the Tongan economy. According to IMF data estimates that Tonga's 
remittance receipts total USD 90 million per year, equivalent to 40% 
of its GDP. This enormous inflow reflects the large number of 
historically well established Tongan migrant communities overseas, 
particularly in Australia, New Zealand, and the United States. These 
communities maintain close ties with the homeland, forming what one 
Asia Development Bank (ADB) report calls a "transnational 
corporation of kin" that helps perpetuate a strong and secure 
migrant-homeland relationship. In this context, remittances are not 
seen as handouts to needy family members at home but more as a 
collective, cultural, family investment in human capital. This is 
the basis for the longevity of remittances with respect to migrants' 
time spent out of country, and the ADB finding that distance does 
not degrade remittance amounts. 
 
¶6. Studies estimate that 60% of all Tongan households have at least 
one migrant worker abroad, 90% or more of all households receive 
 
SUVA 00000503  002 OF 003 
 
 
remittances in many villages. The ratio of remittances to GDP in 
Tonga has increased dramatically in the past decade. In 1997 it was 
about 23%, in contrast with today's 40%. By comparison, Samoa 
started at 17% in 1997 and is now around 25%. The difference in 
growth rates can be accounted for, in part, by domestic growth rates 
and the availability of employment. Samoa has had relatively 
successful economic reforms in the interim, while Tonga's economy 
has lagged behind. 
 
Fiji: the Political Root 
------------------------ 
 
¶7. In absolute terms, Fiji receives the most remittances in the 
region. Growth in remittances in the past decade has gone up 
significantly. In 1997, an estimated USD 41.4 million, equivalent to 
2% of GDP, was remitted to Fiji according to Fiji Government and IMF 
data. The 2000 coup, however, spurred a renewed exodus of trained, 
educated, and skilled workers, primarily Indo-Fijians, resulting in 
a dramatic jump in remittances. In 2000, USD 43.9 million was 
remitted, growing to USD 82.5 million in 2001, and exploding to USD 
183.9 million in 2005, the equivalent of almost 7% of GDP. The 
domestic turmoil of the current coup has continued the trend of 
skilled workers looking for greener employment pastures. 
 
¶8. Another contributing factor to the rapid growth in Fiji 
remittances has been the surge in UN peacekeeping assignments, 
security force hiring, and British military recruitment, 
predominantly taken up by ethnic Fijians. A recent study estimates 
that one third of all households have one migrant worker overseas, 
and 43% of all households receive remittances, a definitive shift 
from a decade ago. These surges in migration and resulting 
remittances are significantly different from the patterns in other 
countries like Tonga, which have had steady, constant remittance 
patterns for as much as four decades. 
 
 
Kiribati and Tuvalu: Shipping Out 
--------------------------------- 
 
¶9. The isolation and very limited domestic economies of Kiribati and 
Tuvalu make the importance of remittances to their populations 
particularly significant. The Kiribati Maritime Training Institute 
was established in 1973; the Tuvalu Maritime Training Institute in 
¶1979.  Through their graduates, both have secured steady streams of 
remittances for their respective island communities. Well trained, 
IMO-certified seafarers man merchant ships throughout the world, 
typically serving one-year renewable contracts and accounting for 
the majority of their nations' remittance totals. In Kiribati, these 
seafarers annually remit USD 11.5 million, according to IMF 
statistics the equivalent of some 14% of the country's GDP. On 
average, these amounts have remained fairly constant over the past 
decade.  They represent unique and irreplaceable contributions to 
the well being of thousands of island families. 
 
The Impact of Remittances 
------------------------- 
 
¶10. The 2006 World Bank report "At Home and Away" finds that 
remittances contribute positively to social stability and economic 
development of the Pacific Island nations, particularly in helping 
reduce overall poverty. In Fiji, the average income of the poorest 
20 percent of the population increases 82% when remittances are 
added in according to the World Bank reports. In Tonga, the effect 
is even more dramatic, with a 639% increase. Other studies have also 
found a positive effect on households with access to remittances, 
particularly in areas of education, health, small business 
engagement, and savings. Some negative effects have also been noted, 
however. Most prominent is the contributing effect to brain drain. 
 
 
Comment 
------- 
 
¶11. For the current pattern of remittances in the Pacific to go on 
providing relief, there needs to be continual and new migration, but 
unskilled labor opportunities in countries such as Australia, New 
Zealand and the United States have declined in recent years. 
Greater demand for skilled labor and tightened immigration rules are 
expected to further suppress already relatively low labor mobility 
for the PICs. The World Bank argues that this needs to be addressed, 
as unskilled labor mobility directly reduces poverty, even in 
greater proportion than trade liberalization. To the degree that 
 
SUVA 00000503  003 OF 003 
 
 
opportunities for island labor can be found in receiving countries, 
remittances can remain a fundamental underpinning of the PIC 
economies for the foreseeable future, as efforts are made to expand 
the PIC's economic base and link them better into the global trading 
system. 
 
DINGER