Global Remittances Working Group (GRWG) The 2011 Spring Meeting Minutes April 15, 2011 Washington, D.C. The 2011 Spring meeting of the Global Remittances Working Group (GRWG) was chaired by Janamitra Devan, Chair of the GRWG and Vice President for Financial and Private Sector Development Vice Presidency of the World Bank. The World Bank was also represented by the GRWG Coordinators, Massimo Cirasino and Dilip Ratha, and by the Secretariat (Carlo Corazza and Isaku Endo). 1 The meeting had a special session Innovative Financing and International Remittances, and the session for updates by the member countries and observers with four interventions from the governments of Australia, France, Italy and Russia. In addition, the Coordinators of the GRWG presented the latest trends in the cost of remittances and the migration and remittances patterns worldwide. Opening Session Janamitra Devan opened the meeting with his speech by acknowledging the G20 s endorsement of the Global Remittances Working Group at the Seoul Summit in December 2010 and reiterated the commitment of the GRWG to continuing closely working with the G20 s Development Working Group after the submission, at the meeting in Paris in February, of the inception report of the Guidance Note for the Application of the CPSS-World Bank General Principles for International Remittance Services. Since the creation of the General Principles, the World Bank s Finance and Private Sector Vice Presidency s Payment Systems Development Group (PSDG) has been working with countries across the regions to provide technical assistance in improving their markets for remittances and support the development of national payment systems and the government agendas for financial inclusion. In so doing, the World Bank s PSDG team has developed a number of key partnerships with other donors and international organizations and began to deliver concrete results. Such partnerships include, for example, projects with the UN Food and Agriculture Organization (FAO), the Universal Postal Union (UPU), and the Africa Diaspora Group of the World Bank for the African Institute of Remittances (AIR) project. The Payment Systems 1 It was agreed that the GRWG will have at least two meetings per year to coincide with the Annual and Spring Meetings of the World Bank and the International Monetary Fund. 1
Development Group and FAO undertook a joint mission in Bangladesh in February 2011; at the same time the PSDG is now working with the AIR and the UPU to expand the postal remittance system in Sub-Saharan Africa and has planned various technical assistance missions in the coming months, including countries like Tanzania, Malawi, Liberia and other LDCs. A growing number of regional and national remittance prices databases have obtained the World Bank certification. The most recent is the SendMoneyPacific database, covering remittance corridors from Australia and New Zealand. In addition, the African Remittance Price Database (http://sendmoneyafrica.worldbank.org) is going to be developed by July 2012. The World Bank s DEC-PREM Migration and Remittances team published the Migration and Remittances Factbook 2011," which provides a snapshot of migration, skilled migration and remittances, and socio-economic characteristics for all countries, regions and income groups. In March 2011, the World Bank and the African Development Bank jointly released a report on Leveraging Migration for Africa: Remittances, Skills, Investments and two companion volumes on Diaspora for Development of Africa and Remittance Markets in Africa. The World Bank Group will continue to lead the effort by closely working with members of the GRWG. The GRWG will also continue to work with the international partners to achieve their respective goals such as the remittance cost reduction, the implementation of the General Principles for International Remittance Services and the other developmental goals related to remittances. The Chair extended an invitation to the Side Event The International Commitment to Reduce the Cost of Remittances and the Importance of Remittances for LDCs Development to be held during the IV UN Conference on Least Developed Countries, on May 9, 2011, in Istanbul. Presentation by the Coordinators Massimo Cirasino, Coordinator and Head of the World Bank s Payment Systems Development Group, presented findings of the recent updates of the Remittance Prices Worldwide database and updated the audience on the several activities on remittances at country level. In the First Quarter 2011 the total global average of sending US$200 worldwide has remained stagnant. The Latin America and the Caribbean Region and the Middle East and North Africa region showed the most relevant cost reductions. Yet, the increase in costs in the Sub-Saharan Africa region appeared to pull the global average cost up. In the last 6 months the G8 average cost decreased by 0.48 percent, while the Global Average cost increased by 2.14 percent. The G8 average cost decreased from 10.26 percent to 8.36 percent from 2008. With respect to the impact of remittances, Low Income Countries have greater impacts of remittances on the cost than higher income countries. There are also regional differences in remittance costs. The Sub-Sahara Africa region has the highest costs of remittances and the reason could be found in the lack of competition in African remittance markets and in the underdeveloped payment systems infrastructures. 2
The GRWG mapping exercise of remittance activities was updated according to the inputs received by multilateral and bilateral donors. The Latin America and the Caribbean Region (35 percent) and the Sub-Sahara Africa Region (22 percent) have the highest number of projects related to remittances. The majority of project topics include remittance impacts and economic development (23 percent), financial infrastructure and payment systems (22 percent), and awareness raising and capacity building (23 percent). It was proposed that the next steps for this mapping exercise include: 1) continuing to make an effort to gather information on remittances activities for the mapping by leveraging existing efforts, 2) reaching out not only to donor countries but larger participating countries, starting with the G20 and other key remittance sending and receiving countries, and 3) encouraging member countries to monitor remittance price changes to observe the impacts of policy and regulatory reforms. At the end of his presentation, Mr. Cirasino focused on the efforts to achieve the cost reduction objectives through the implementation of the General Principles. He also confirmed that the PSDG will continue to improve the accuracy of the Remittance Price Worldwide database and to increase the relevance and number of national and regional databases. There are a number of projects in the pipeline, including missions to implement GPs, the issuance of the guidance note on implementing GPs, country briefs, the African remittance prices database, the Pacific Remittances Initiative, and a number of strategic partnerships. Dilip Ratha, Coordinator and Manager of DEC-PREM Unit, updated the Global Remittances Working Group about the recent developments in the Thematic Areas I and II. The World Bank continues to work on the improvement of remittance data under the MEDSTAT MED-HIMS Project: Coordinated Household International Migration Surveys for the Mediterranean countries. At the same time, the unit has completed many activities among which the regular monitoring and forecasting of remittance flows worldwide, the estimates about the impact of the crisis on remittances and the research activities on the securitization of future remittances and diaspora bond. Mr. Ratha also shared the updates on the monitoring of remittances flows. Throughout the financial crisis, remittances to developing countries remained resilient although a slight decrease was observed. At present, the flow of remittances has returned to grow and has surpassed the pre-crisis level. Remittances to all the regions are now approaching to a sustainable level after the fluctuations caused by the crisis. The World Bank forecasts that the growth rate of remittances to developing countries would remain at the 7 percent level from 2011 to 2013. Special Session: Innovative Financing and International Remittances. Sahas Ketkar, Professor at the Vanderbilt University, presented his work on Diaspora Bond for Education. Diaspora bond is defined as a bond issued by a country to its own Diaspora to tap in their wealth in the adopted developed countries. In the past, Israel, India, Lebanon and Sri Lanka have issued such bonds to attract resources for overseas Diasporas. Recently, Greece applied to the Securities Exchange Commission to sell for up to US$3 billion to U.S. retail investors. Israel has tapped Jewish Diaspora since 1951 to raise US$32.4 billion while India has issued dispora bonds on three occasions to raise US$11.3 billion. Potentially, other countries with large dispora 3
groups could do the same to raise money. It is important to be reminded that diaspora bonds to fund infrastructure projects and social investments in several developing countries may require additional credit enhancements and investor protections. There are a number of attractions for both issuing countries and investors. Such attractions for issuing countries are, for example, patriotic discounts, stable resources of finances especially in bad times, and support to sovereign credit ratings. On the other hand, attractions for investors are patriotism and desire to do good in the country of origin and risk management. There are many potential countries that could meet conditions which allow them to successfully issue diaspora bonds. The number of diaspora from developing countries totals 161.5 million people with US$397.5 million of Diaspora savings (2009), which is 2.4 percent of developing countries income. Ethiopia and Mozambique have Diaspora savings larger than their respective GDPs, 157.1 percent and 264.4 percent, respectively. Also, there are many developing countries where remittances exceed US$ 2,500 per migrant. This is also an indicator for potential countries for issuing bonds. At the same time, there are needs for credit enhancement and investor protection in diaspora bond issuing countries. Examples of credit enhancement include seeking guarantees from bilateral/multilateral agencies or foundations, encouraging developing country banks to securitize future US dollars receivables, extending local currency denominated IFC guarantees, and possibly exploring Education Venture Funds. Examples of investor protections include channeling proceeds from diaspora bonds to existing education funding structures, establishing independent state authorities and issuing bonds against achieved results. Kevin Kime, Principal Finance Officer, IFC, explained the IFC s project on Diversified Payment Rights and IFC s involvement in the remittance-backed future flow financing in El Salvador. This project has a number of first s for IFC First remittance-secured transaction, first transaction with a credit cooperative union for IFC focusing on the bottom of the pyramid, debut borrower was introduced to international markets through the securitization, and the platform was structured to allow other investors to join. Terms of the international payment system (SWIFT) provide that financial intermediaries are the owners of cross-border electronic payment orders and receive the right to these payments in return for the obligation to reimburse the designated recipient. This right to receive can be legally separated from the obligation to pay the third party. If local law is supportive (many jurisdictions, but not all e.g. US), local onshore FI s may be able to sell or pledge their right to receive DPR payments in return for financing. A Diversified-Payment Right-secured financing has a number of benefits. Benefits for issuers include DPR allows clients to monetize an identifiable and predictable offshore hard currency stream to obtain longer-term hard currency funding at lower cost and provides a funding platform for multiple issuance. Benefits for investors and lenders include, among other things, security for a DPR structure is offshore in legally robust jurisdictions. Dilip Ratha made a presentation on Improving Capital Market Access through Shadow Ratings for Unrated Countries. Key messages of the presentation were as follows. Developing countries, 4
especially private entities, need access to international capital markets. There is need for both tax-based and market-based innovative financing instruments. Shadow ratings will encourage countries to seek sovereign ratings and improve access to international capital. Securitization of future exports and remittances can be a friend in foul weather. GDP-indexed bonds can reduce the pro-cyclicality of debt burden. Diaspora bonds can be a useful tool for tapping the wealth of the diaspora. The importance of sovereign credit ratings is that borrowing cost rises exponentially as credit rating deteriorates. Sovereign credit ratings affect private flows debt, FDI, and performancebased aid. They act as rating ceilings for sub-sovereign entities. The prediction of shadow ratings can be supported by regression model of sovereign ratings as a function of macro variables, rule of law, debt and international reserve and volatility. Ratings can be improved by counting all relevant flows, partial guarantees from donor agencies and securitization of future flows of remittances and other receivables. Risks involved in exposure overseas include: sovereign risk, performance risk, product risk, and diversion risk. However, future flow securitization structure mitigates sovereign risk and the choice of collateral; excess coverage and reputation of issuer mitigate other risks. In summary, developing countries need access to international capital markets. Shadow ratings could encourage several countries to seek sovereign ratings removing a constraint on their access to int l capital markets. Securitization of future exports and remittances can improve ratings on external financing transactions. Diaspora bonds and GDP-indexed bonds also offer additional innovative financing mechanisms. Updates by the Representatives of member countries and observers Ruth Goodwin-Groen, Adviser, AusAID, representing the Government of Australia, highlighted Australia s recent developments in the area of remittance cost reduction and stressed the commitment of the Australian government to the activities of the Global Remittances Working Group. Australia has made lots of effort to establish a national database that could obtain the World Bank certification. The country now has a database, SendMoneyPacific, which monitors the cost of remittances from Australia and New Zealand to pacific islands. Ms. Goodwin-Groen supported the efforts of the WB for the improvement of the Remittance Prices Worldwide, in particular in the areas concerning the refining of the methodology for the calculation of the global cost. Finally, she announced that the Australian government has authorized financial support to the Global Remittances Working Group. Christian Masset, Director General, General Directorate for Globalization, Ministry of Foreign and European Affairs of France, noted that France, as G20 presidency, promotes the G8 5x5 objective in the G20 discussions and is in favor of pushing forward the international agenda on remittances. Mr. Masset stressed the fact that the shocks caused by the global financial crisis were enormous and had a relevant impact on migrants and their families. Therefore, the international community has to find the best way to address these shocks and soften their effects on the most exposed parts of the population. In addition, Mr. Masset reminded the audience about the recent events in Libya, Egypt and Tunisia and how they pose economic and political challenges that cannot be underestimated. 5
Ambassador Magliano, Ministry of Foreign Affairs of Italy, shared his views on the work of GRWG. He stressed that proper knowledge of remittance markets would bring transparency that would lead to competition. He also added that Italy has been closely monitoring remittance markets and prices through the implementation of the national database on the cost of sending remittances from Italy and such tool is producing relevant results in terms of awareness and transparency of the Italian market. Ambassador Magliano also highlighted the important efforts of the Italian government in the area of communication and dialogue with the industry. He detailed the work done at national level to periodically meet the most relevant stakeholders in the area of remittances and discuss the possible measures that both the public and the private sector can put in place to reduce the cost of remittances. Lydia Troshina, Director of Balance of Payments Department, Bank of Russia, made a presentation on the Bank of Russia s recent developments of capturing remittance data on a bilateral basis. Eight central banks of CIS countries and IMF Statistics Department held a meeting on bilateral comparison of remittances data among CIS countries. The purposes of the meeting were to compare remittance data, develop the inventory of data sources and data collection practices, and compiling Balance of Payments (BoP) items. Data sources include bank reporting, postal office reporting, MTO reporting and surveys (household, labor migration and financial intermediaries). Ms. Troshina explained that the findings of such activity evidenced that there are small discrepancies in initial data and large discrepancies in the BoP data. The main reasons for discrepancies among data of cross-border money transfers were caused by different data sources, problems with identifying the counterparty s country because the clearing centers are in other countries, differences in the geographical classification of money transfers, differences in territorial coverage, and different exchange rates. In addition, the main reasons for discrepancies in BoP data were caused by lack of data in geographical breakdown, problems in identifying statistical residence of individuals, cash remittances, different thresholds for large-value transactions to be excluded, and differences in exclusion of payments relating to merchandise trade, services, and investments. As a follow-up, 2 countries have taken steps forward in implementing the new standards and BoP data have been exchanged based on BPM6 between CIS-countries. General discussions As a final point of discussion among the participants, much focus was given to the on-going debate about lowering the threshold for customer due diligence under the FATF s Special Recommendation VII wire transfer. The majority of the participants agreed that this proposal would be detrimental to remittances markets, especially to the international commitments about lowering the remittance costs. It was agreed that the World Bank would share the World Bank s position on this issue with the Global Remittances Working Group among member countries. #### 6