World Bank to issue general rules on remittance flow
by ISAGANI DELA PAZ
OFW Journalism Consortium, Inc.

MANILA -- THE World Bank will release this month its general principles for international remittance systems as it and the International Monetary Fund (IMF) attempt to capture migrant workers’ money flowing through informal channels.

In her presentation at a meeting in Bangkok, Thailand last May, WB official Marilou Uy’s paper, copies of which were given to the OFW Journalism Consortium, cited that a WB unit is crafting the general principles governing countries’ policies on remittances.

The presentation of Uy, WB director for financial sector operations and policy, was titled “The Role of Public Policy and Remittances” and presented to more than a hundred financial executives in Bangkok during the second Asia Pacific Economic Cooperation (APEC) policy dialogue held May 26-27. This dialogue on the role of the private sector in shifting from informal to formal remittance systems comes after the WB released a report, Global Development Finance 2003, saying remittances have become an important and stable source of financial inflows to developing countries.

Uy’s paper defined remittances as the sum of workers’ remittances, compensation of employees, and migrant transfers. Citing the World Bank’s Global Development Finance 2005 report, Uy’s presentation showed a graph that inflows to developing countries reached beyond $120 billion end-2004 from less than $40 billion in 1990.

In his presentation, Bangko Sentral ng Pilipinas Deputy Governor Nestor A. Espenilla Jr., one of three speakers from the Philippines in the conference, cited that remittances of overseas Filipino workers (OFWs) have been a major source of foreign exchange for the country.

Espenilla presented that from $6 billion in the year 2000, OFW remittances hit $8.54 billion in 2004, which is 52.65 percent of the country’s gross international reserves and roughly 14 percent of the Philippines’s gross domestic product.

Espenilla’s presentation also cited six key regulatory challenges in OFW remittance flows namely money laundering channels, low transaction cost, convenience and access, consumer protection, operational risk management, and proper recording and monitoring.
Uy’s presentation, meanwhile, emphasized five key issues for public policy and remittances – as person to person flows - that have five major considerations.

Her presentation emphasized the international lender’s seriousness in tackling the issue of remittances, so much so that the WB’s Global Economic Prospects 2006 for release this year would center on international remittances and migration.

Key issues
A KEY issue that the WB considers in its policy recommendation to be included in its report is reducing remittance costs through improved financial systems and infrastructure.

Uy said in her presentation this is important since “reducing remittance fees is likely to increase annual remittance flows to developing countries”.

“To date, remittance costs remain regressive and high on average,” Uy’s presentation added.

It cited that on the average, sending money to the Philippines and Mexico through Moneygram and Western Union is higher compared to sending it through other remittance firms.

Uy’s presentation cited that sending $100 through Moneygram and Western Union to the Philippines from the US exacts above 14 percent in fees compared to other remittance firms that charged below that range. However, the two firms are charging less for every $1,000 remittances sent to Mexico from the US compared to other remittance companies.

Another key issue for public policy on remittances is the regulatory regime for anti-money laundering and financing terrorism.

This was emphasized by IMF’s Chee Sung Lee as a main issue who said in his presentation that while remittance flows are an important source of external funds for many countries, “such flows may go through informal systems.”

“Informal remittance providers may pose a particular risk of misuse for ML and the financing of terrorism (FT),” Chung added.

However, Chung and Uy agree that this situation shouldn’t impede flows, nor drive remittances underground.

“The regulatory regime needs to introduce ways of ensuring financial integrity without unnecessarily reducing access to remittance services,” Uy said in her paper.

Basically, Uy said, policymakers should understand and enhance the development impact of remittance.

This key issue comes from the WB’s belief that remittances directly reduce the severity of poverty, smooth consumption, and affect household investments in education, health, land and housing.

Likewise, the WB believes that remittances indirectly affect growth and poverty through financial sector development and improve access to finance and improve stability.

Uy explained that remittances are countercyclical and improves debt to exports ratio.
Remittances “(raise) the country’s ability to raise external financing through using remittances as collateral,” she added.

Her data cited that with remittances in the denominator, the Philippines’ debt as percent of exports would only hit below $151 billion, the amount of debt as percent of exports the Philippines would have without remittances in the calculation.

The fourth key issue for public policy focuses on improving data on remittances and migration as “reliable data on remittances are keys to our understanding of their development impact.”

Considerations
TO note, WB and IMF data units have begun working on improving data on remittances since a technical meeting on measuring migrant remittances in January. In that meeting, the WB Development Data Group and the IMF Statistics Department agreed on a work program to improve data on migrant remittances.

That meeting, according to the WB website, helped define how Group of Eight (G8) nations and other countries will work with the WB, IMF and other bodies to improve data on remittance flows and develop standards for data collection in both sending and receiving countries.

The WB also conducted beginning November last year a survey of 40 central banks on remittances. That survey revealed that nearly 90 percent of these CBs collect data on remittances from commercial banks while only nearly 40 percent collect this data from money transfer companies and the post offices.

The survey also revealed that more than 80 percent of central banks monitor electronic transfers while only nearly 20 percent monitor withdrawals at automated teller machines (ATMs).

Still, Uy bared these data are not enough since “estimates of unrecorded flows have a large range --- from as low as seven percent to 300 percent of recorded remittances”.“There is need to have a better sense of the range of unrecorded flows, perhaps through model based estimates,” Uy said, adding that early model-based estimates tend to have a narrower range.”

Another WB survey of 56 remittance firms in five US states revealed that the main obstacles to doing business for these firms are all tied to the regulatory environment.
The survey cited by Uy in her presentation bared that of the total 30 obstacles, the top obstacles are: bond requirements, informal competition, AML/CFT requirements, and the closure by banks of remittance firms’ accounts.

The same survey also revealed that the main barriers to entry in the US for remittance firms are related to regulations. Of the dozen barriers cited, the top two barriers identified by the surveyed firms are: getting a license to operate as a money service business and building systems for AML/CFT requirements.

Uy recommends that a regulatory environment should “create clear, predictable and risk-measured licensing requirements” as well as balance AML/CFT reporting with firm efficiency.”

The key issues and considerations would be likely discussed when the WB releases its report after an institutional review of the general principles for international remittance systems in September this year.

Nonetheless, Uy said that in creating a sound and competitive remittance industry worldwide, key policy priorities depend on a country’s context yet “some policy initiatives are more effective with international cooperation”. end