Remittances: An Underlying Casualty in President Trump’s Immigration Plan

By David Leftwich

Since President Trump’s election, he has released executive orders to regulate immigration. The first executive order that received the most attention banned travel into the United States from six Muslim-majority countries. The next executive order was released on January 25, 2017 and is entitled, “Enhancing Public Safety in the Interior of the United States.” This executive order attempts to rid the United States of “criminal” illegal migrants in the U.S and will likely have a large impact on Mexico. Remittances, or gifts and money sent by migrants living in the U.S. back to Mexico, are an important source of revenue for the poorest people there. In addition, a drastic reduction in remittances will hurt the country’s economic growth.

Mexico is one of the leading remittance receiving countries in the world, receiving $28.7 billion in 2015 from all countries. The other top five remittance receiving countries are India, China, the Philippines, and France. To put this $28.7 billion in perspective, it represented 2.7% of Mexico’s total GDP of just over $1 trillion in 2016.  Because of close proximity and economic ties to the United States, Mexican migrants in the United States are the main source behind those remittances. Out of the $28.7 billion sent to Mexico in 2015, an estimated $25.2 billion came from the United States. In total, the United States is home to about 11 million Mexican migrants, most of whom send remittances back to Mexico. The median amount of money sent is $300 per gift, 14 times a year. This income from remittances is vital to both working migrants in the U.S. and their families in Mexico, especially in a Mexican economy that has seen a shrinking rate of GDP growth over the past two years.

Besides helping out families, remittances also diversify the Mexican economy away from oil. Relying on oil and other natural resources is related to many negative outcomes in developing countries. Energy dependence is correlated with authoritarianism according to Larry Diamond, professor of political science and sociology at Stanford University: “There are twenty-three countries in the world that derive at least 60 percent of their exports from oil and gas and not a single one is a real democracy.” Other negative outcomes associated with resource dependence include slow economic growth rates, inequality, and poverty.

Besides these negative long-term effects, from day-to-day, economies dependent on natural resources are more volatile and fluctuate drastically depending on the markets for their resources. Remittances have been important to reduce this resource dependence in Mexico’s economy, and in 2015, for the first time, money from remittances surpassed money brought in from oil.

This flow of remittance money into Mexico is being threatened by President Trump’s second executive order. The order targets “those that have abused any program related to the receipt of public benefits” for deportation. This includes a variety of common programs, such as Social Security, Medicare, Medicaid, welfare, unemployment benefits, and the Supplemental Nutrition Assistance Program (food stamps). Additionally, the executive order focuses on finding people who have “engaged in fraud or willful misrepresentation in connection with any official matter or application before a governmental agency.”

In order to acquire a job, most illegal migrants need to lie about themselves, whether it is about their citizenship status or social security number. According to Ronald Mortenson, a Fellow at the Center for Immigration Studies, “…approximately 75% of working-age illegal aliens use fraudulent Social Security cards to obtain employment.” Even if it’s not work related, illegal migrants need to lie about biographical information when obtaining basic goods, such as credit cards, in American society. Additionally, if an illegal migrant applies to receive any kind of private healthcare or a government benefit, under the executive order’s broad terms, almost every illegal migrant in the United States will be targeted. While the order was created to help secure the United States against criminals who are in the United States illegally, it gives Immigration and Customs Enforcement (ICE) the authority to deport the majority of working illegal migrants and their families.

The people this order includes are mainly longstanding, contributing members to their communities and to the national U.S. economy. According to the data, most have jobs and are longtime members of their community. The Pew Hispanic Center listed that in 2010, 8 million of the estimated 11.2 million total estimated illegal migrants were in the United States working. Also, 78% of illegals have lived in the United States for 10 years or more, and only 7% have been here less than five years. By uprooting these people, the United States would lose millions of workers, and the Mexican unemployment rate would immediately rise. Because these millions of deported people will be returning to their already impoverished families without a job or the extra income from their jobs in the United States, many families will fall deeper into poverty in Mexico.

The media and President Donald Trump have inflamed the issue of illegal migration, even though rates of immigration into the United States from Mexico have dramatically decreased over recent years, and the population of illegal migrants in the United States from Mexico has decreased from 6.9 million in 2007 to 5.6 million in 2015. This represents roughly a 19% decrease in population size over eight years. Despite this reduction, President Trump is focused on slowing immigration into the United States. He attempted to increase regulations on immigration in his first, “Travel Ban,” executive order, but this second executive order fills a completely different role. Its broad reach deports a group of working, productive members of society under the guise of criminal behavior.

President Trump paints all illegal migrants in the United States as a dangerous group, but in reality, they commit less crime than native-born Americans. According to the 2010 American Community Survey, about 1.6 percent of migrant males aged 18-39 were in prison compared to 3.3 percent of native-born males. There is an issue with illegal immigration in the United States, but broadly deporting established migrants is a counterproductive way to solve the problem that would hurt both the United States and Mexico.

Removing most working illegal Mexican migrants from the United States negatively affects the Mexican economy. As of 2013, 67% of remittances to Mexico were from undocumented migrants. Using this percentage against remittances from the U.S. to Mexico in 2015, President Trump’s plan could eliminate $16.9 billion of the estimated $25.2 billion of remittances being sent to Mexico. In 2016, Mexico’s economic growth slowed to 2.3%. Applying these estimated remittance losses from Trump’s proposed executive order to Mexico’s 2016 GDP would eliminate most if not all of the 2.3% GDP growth in 2016.

Even though President Trump’s executive order is meant to protect the United States from dangerous migrants, its broad language may cause widespread deportations. As an important financial resource for the poor and a diversifying component of the Mexican economy, a multi-billion-dollar reduction in remittances from the United States will have destabilizing economic consequences for Mexico. President Trump should weigh the unintended costs and see whether this executive order’s nominal gains are worth the damages.

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Banking on Acceptance: China and the Asian Infrastructure Investment Bank

The Beijing-headquartered Asian Infrastructure Investment Bank (AIIB) opened in January 2016, establishing itself as the newest member of the multilateral development bank community. Commonly billed as “China’s answer to the World Bank,” the AIIB aims to invest in infrastructure and other productive sectors across the Asian continent. Concerns about China using the AIIB as a front for its strategic and economic objectives plagued the bank’s planning stages and initial months of operations, but such concerns were difficult to substantiate before the bank had funded any projects. The recent announcement of the AIIB’s first four funding projects suggest that, while China is using the bank to its advantage, it is also maintaining the bank’s legitimacy as a multilateral institution.

China officially proposed a multilateral infrastructure bank for Asia in 2013, an announcement that received an unenthusiastic response from the United States and Japan. Both countries were concerned that founding a new bank, not necessarily beholden to “international standards of governance and transparency,” could provide China with the opportunity to exert disproportionate influence over Asia’s development agenda.

These concerns were substantiated in 2015 when it was announced that China would be the largest stakeholder in the bank, with a 26% voting share, after funding $29.78 billion of the AIIB’s $100 billion capital. Given that major changes to the bank, including capital increases or alterations to the governing structure, must be approved by a supermajority totaling 75% of the voting share, China effectively possesses an informal veto power over many AIIB decisions. However, Beijing has been keen to assuage worries of Chinese dominance. The chief of the bank stated that China will not seek to increase its voting share – in fact, he alluded that China’s voting share may decrease over time as more members join. In addition, China will not possess a formal veto power, a stark contrast to the United States’ formal veto over structural changes within the World Bank.

That said, Chinese interests were clearly supported when the AIIB began to consider development project proposals, the first of which were approved in June 2016. They included revitalizing slums in Indonesia and upgrading the power grid in Bangladesh, as well as constructing and improving roads in Pakistan and Tajikistan. While these projects will undoubtedly benefit China, they also show that AIIB’s reputation as a multilateral bank will not be undermined to serve solely Chinese interests.

To understand how the AIIB benefits China, it is necessary to look at Chinese development in the larger context of the country’s One Belt, One Road (OBOR) initiative. Inspired by the ancient Silk Road, OBOR seeks to connect China with trading partners through Asia, the Middle East, and Africa via an “economic land belt” and a “maritime road” that links Chinese ports to those of other countries.

The AIIB, as a formal investment institution with international support to increase regional prosperity, is partly a way to fund OBOR. It is therefore unsurprising that the AIIB’s projects for Pakistan and Tajikistan are directly related to OBOR.  Both projects call for the construction and improvement of roads, which is critical to trade between China and other Asian countries.

But consistency with OBOR’s objectives does not mean that these projects are simply moves by China to increase its regional influence. Rather, the AIIB has chosen to co-finance all of these projects, except the one for Bangladesh, with other multilateral agencies including the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), and the World Bank. Co-financing mitigates the risk that the young AIIB and its stakeholders are accepting and eases concerns in the international community regarding the transparency and governance standards of the AIIB. Cooperating with respected multilateral agencies ensures that the AIIB will, at least for these projects, comply with accepted international standards. This compliance strengthens the bank’s standing among multilateral institutions.

Still, some are convinced that the AIIB is prioritizing Chinese interests at the expense of regional prosperity. In particular, there is concern that AIIB rejected a project for India in favor of a road construction project for its strategic ally, Pakistan. However, the president of the ADB, which is the lead financer of the project, stated that there are “so many projects in the list in many countries. It just happened that the Pakistan project was approved first because it could be done quickly.” That this statement comes from the ADB strongly suggests that financing for the Pakistan project was not a case of the AIIB favoring China’s regional allies. Given Japan’s tenuous relationship with China, the Japan-backed ADB would have little incentive to finance a project in Pakistan if it believed that it would solely aide Chinese interests.

The AIIB is increasingly perceived as an institution that complements other development efforts, as evidenced by co-financing and support from other multilateral banks and the membership of other global powers such as Australia and Germany. Such acceptance is beneficial to both the multilateral development industry and China. Increased membership could augment the capacity of the AIIB to contribute to infrastructure development, leading to greater prosperity for China and the rest of the continent. Such a prospect is certainly motivation for the AIIB to continue to seek success not only in its project outcomes, but also in the eyes of the global development community.

Burundi: Civil Society in Jeopardy

Burundi has recently raised some concern from the international community due to unrest between its largely Hutu government and the Tutsi opposition. This unrest stems, in part, from the government’s censorship practices. Over the last few years, these restrictive government policies have affected journalists, opposition leaders, human rights defenders, and civil society organizations (CSOs). More recently, the Burundian government has turned its attention towards CSOs and human rights organizations.

Like its neighbor Rwanda, Burundi has had a long history of political unrest and ethnic tensions. A little over twelve years ago, the country was engaged in a bloody civil war that resulted in the deaths of an estimated three hundred thousand Burundians. Since then, the country has attempted to ease these tensions by dividing political leadership more equally between the Hutu and Tutsi ethnic groups. Thanks in large part to this restructuring; Pierre Nkurunziza was elected to the presidency in 2005. The most recent conflict began when Nkurunziza ran for a controversial third term and won with 69.41 percent of the vote. Nkurunziza’s reelection violated Burundi’s terms limits. According to the country’s constitution, established in 1992, a president may only serve two five-year terms. As a result of the fierce opposition to Nkurunziza’s reelection, the government has engaged in a variety of  anti-democratic actions.

According to the Economist’s Intelligence Unit, Burundi is “on the cusp” of another civil war. Self-censorship (e.g. not reporting on certain topics and declining to speak on particular issues that concern the government) is reportedly common among citizens and the government has attempted to confiscate weapons in an effort to prevent a potential coup d’état. The president has stated that those who belong to the opposition party and who do not comply with these new measures will be considered “Enemies of Burundi and treated as terrorists.”

Burundi’s government has also carried out attacks and arrests on civil society leaders, journalists, and those who oppose the new repressive measures. At a time when watchdogs and whistle-blowers are needed most and at their most vulnerable, the government has approved a new law that requires journalists to disclose all of their sources. Bob Rugurika, the director of Radio Publique Africaine, was arrested for withholding a suspect from the authorities.  In addition, Welly Nzitonda, the son of prominent civil rights activist Pierre-Claver Mbonimpa, was arrested on trumped up charges and later killed by the police.

In addition to these high profile arrests, the government has also attempted to exert its control over local CSOs. Early last year, the government announced that it would freeze the bank accounts of local CSOs and the interior minister subsequently suspended the operations of such groups. According to a secretary in the interior minister’s office, these organizations were being led by civil rights activists who had fled the country and backed the “troublemakers.” Thankfully, these CSOs were given a chance to defend themselves after further investigation.

The unrest in Burundi goes beyond mere political tension. The government has attempted to silence its critics through arrests, financial restrictions, and the outright closure of human right organizations and CSOs, but Burundi needs civil society organizations now more than ever. As it stands on the brink of a constitutional crisis and an ethnic civil war, the Burundian government must communicate with its opponents and critics to ensure peace and stability in Burundi and the region.

The Economics of Migration

In the current debate surrounding refugee migration, most people seem to fall into one of two camps: those who favor hosting refugees, and those who oppose it. But many seem to have forgotten that human migration has supported human progress and contributed to global development for centuries.

For opponents of migration, the large influx of foreign born laborers seeking jobs, education, and security is something to be feared. They fear that refugees and other migrant groups are low skilled workers hoping only to benefit from social welfare programs and decrease the standard of living in their host country.  Evidence suggests, however, that on average over a third of migrants entering the workforce have completed post-secondary education, and that in most countries, migrants contribute more in taxes and social contributions than they receive in individual benefits.

We must rise above this seemingly instinctual reaction and consider the benefits that migration has had in those countries that migrants and refugees leave behind. Not only does migration increase wages for workers that stay behind, but migrant workers often remit money to their families back home. This supplementary income is, in turn, invested in education and health care, important indicators of a country’s development that can lift people out of poverty. The Migration and Remittances Factbook 2016 suggests that total remittances were estimated to have reached $601 billion in 2015, of which $441 billion went to developing countries, a total that is almost three times larger than official development aid flows. These remittance flows to developing countries have grown significantly in recent years, from $325 billion in 2010, to $372 billion in 2011 and $401 billion in 2012.

Nevertheless, the high financial costs of international migration and the transmission of remittances are inhibiting the benefits of migration. The 2015 Sustainable Development Goals (SDGs) address these issues. Target 8.8 notes that labor rights, including those of migrant workers, should be protected, and Target 10.7 calls for the facilitation of the orderly, safe, regular and responsible migration of people through the implementation of planned and well-managed migration policies. In addition, Target 10.c strives to reduce the costs associated with remittances to 3% by 2030. Taken all together, these innovative targets would reduce the cost of remittances and encourage sustainable and profitable international migration.

As the Sustainable Development Goals suggest, we need to recognize what technology can do today and use it to redesign the world for a more inclusive and prosperous tomorrow. Modern technology requires specialized knowledge, and the easiest way to gather such knowledge is to recruit from outside of the system. It is easier to move brains than it is to move knowledge and expertise. As such, migration is key to the diffusion of knowledge and its long-term positive impact on worldwide development. In short, we cannot have global markets, trade, products, and services without global migration.

The Scalpel before the Sword

The recent actions against non-government organizations (NGOs) by the Kenyan government reflects the necessity of implementing some protective measures in combating the use of NGO’s as a conduit for illicit financial flows (IFFs). In Kenya, the NGO Coordination Board is tasked with the difficult mission of finding and closing NGOs utilized for the finance of criminal and terrorist activities. This mission has been executed with more blunt force than precise control. The decision in 2013 to revoke the registration of more than 500 organizations, of which only fifteen were suspected of money laundering, demonstrates how the broad pursuit of terrorist funding can quickly impinge upon democratic freedoms. While the Kenya’s Ministry of Devolution’s cabinet secretary succeeded in directing the NGO board to reverse the decision that would revoke the registration of an additional 1000 NGO’s, Kenya serves as a marked example of the need to systematically address the issue of illicit financial flows.

The G8 and G20 have continued to urge countries to strengthen money laundering identification and the improve efforts to trace, freeze, and recover assets. This is reflected in the OECD publication that seeks to measure and combat illicit financial flows from developing nations that reach the “safe haven” of the OECD banking system. The Financial Task Force’s Recommendation 8 further requires that the laws and regulations governing NGOs be reviewed to prevent the abuse of these organizations to finance terrorism.  Combating illicit financial flows is a particularly critical mission for developing nations since this type of capital flight deprives fragile economies of their national wealth and resources. Strengthening  a country’s defensive capabilities against illicit financial flows does not and should not necessitate a restriction against the freedom of organization. Kenya’s sweeping action against NGOs, under the guise of anti-terrorist financing operations, is little more than a restrictive attack by a repressive government.

Kenya has had a tempestuous relationship with its NGOs. While running their election campaigns, political leaders Uhuru Kenyatta and William Ruto criticized the NGO community for relying on funding from outside sources in pursuit of interests that opposed Kenyan national interests. After a conference in 2011, Ruto stated that NGOs  should stop interfering in government matters, as it was not their business. This distrust of foreign funding is reflected in Kenya’s philanthropic environment. In the Center for Global Prosperity’s Index of Philanthropic Freedom, which compares nations on their enabling environment for philanthropy, Kenya ranked in the lower half of African countries surveyed and below the majority of the countries in the study. In the Index, Kenya received its lowest score in the treatment of cross border funding, a fundamental part of NGOs working in the developing nation

While it is good news that the decision to revoke the registration of a vast number of NGOs was prevented from taking effect, it is important that Kenya’s continued pursuit of illicit financial flows gains some clarity. Preventing a mass deregistration may have kept Kenyan NGOs open but it did not ensure their freedom. Two of the organizations that were suspended in April after being accused of supporting al-Shabbab were only recently granted access to their assets. Muhuri and Haki Africa, two human rights organizations working to counter violent extremism in Kenya, faced financial and work holds following this accusation. In June, the organizations were removed from the list of accused organizations, but their accounts remained frozen. It was not until November 12, after ruling that the government did not provide sufficient evidence linking Muhuri and Haki to terrorist activities that both NGOs were granted access to their funds by Kenya’s High Court. While the decision to lift the hold was well received, the protection of NGOs should not be an after-the-fact attempt to bring back to life falsely accused organizations. If Kenya is to combat the infection of terrorist financing, it must prioritize the scalpel over the sword or risk killing its NGOs.

 

The FCRA: Modi’s Secret Weapon

On April 30, 2013, the Indian Social Action Forum (INSAF)—an umbrella organization of over 700 civil society organizations—received a non-descript notice from the Ministry of Home Affairs that revoked the INSAF’s registration and froze its assets in an effort to allegedly protect “the public interest.” This was not the first time that the INSAF had encountered resistance to its activities. Both the INSAF and its member organizations had often sparred with the Indian government over issues of environmental policy including the construction of nuclear power plants and the legalization of GMOs. Thanks to an ambiguous new section of the legal code, however, the Indian government has the authority to freeze assets and rescind the registration of organizations that receive unapproved foreign funds and/or pose a threat to “the public interest.” The true motivation behind the deregistration of the INSAF was immediately obvious to the organization’s leadership: they were being targeted for their activism.

Prime Minister Narendra Modi addresses the 2014 UN General Assembly  (UN Photo/Cia Pak)
Prime Minister Narendra Modi addressing the 2014 UN General Assembly (UN Photo/Cia Pak)

The notice delivered to the INSAF in April was issued in accordance with Sections 13(1) and 14(1-2) of the Foreign Contribution Regulation Act of 2010. Based on an older 1973 law designed to shore up foreign currency reserves, the ambiguity of the amended FCRA allows for nefarious government overreach. Section 13(1) states: “Where the Central Government, for reasons to be recorded in writing, is satisfied that pending consideration of the question of canceling the certificate on any of the grounds mentioned in sub-section (I) of section 14…[it may] suspend the certificate for such period not exceeding one hundred and eight days.” Section 14 is more severe: “The Central Government may, if it is satisfied after making such inquiry as it may deem fit cancel the certificate if, in the opinion of the Central Government, it is necessary in the public interest to cancel the certificate…”

Objecting particularly to the ambiguity of Section 14, and drawing significant support from the American Bar Association’s Center for Human Rights as well as the international CSO community, the INSAF filed a strongly worded petition with the High Court of Delhi. In September, five months after the Ministry’s notice had been delivered to the INSAF, the High Court finally dismissed the deregistration and thawed the organization’s accounts. The FCRA, however, was upheld.

The attack on the INSAF was just the beginning. In the last two years, Modi’s government has used the FCRA to target thousands of CSOs that have criticized government policies. On June 9, 2015, 971 organizations, including several prominent public universities and local chapters of international NGOs, were stripped of their registration for accepting unapproved funds. Greenpeace activist Priya Pillai, herself a recent victim of FCRA regulations, noted that “The issue is not related to the source of our funding or FCRA. It is a larger political issue under which NGOs are being targeted and persecuted for working, as well as, raising the voice of the poor, weak, and the deprived.” Ms. Pillai is partially correct. While the government’s use of the FCRA is, indeed, a reflection of larger political issues, repeal of the amended FCRA would be an appropriate first step on the road to philanthropic freedom in India.

In the 2015 Index of Philanthropic Freedom, India maintains a mid-range composite score of 3.2, but in the area of cross border flows it scores just 2.1 out of a possible 5. In his justification of this low score, Noshir Dadrawala of the Centre for Advancement of Philanthropy emphasized the onerous requirements of the FCRA: “It is important to note that no CSO operating in India whether registered or not can receive foreign contributions without first obtaining prior permission from the Home Ministry.” In order for civil society to thrive and international philanthropic funds to flow into India, the government must amend the FCRA and end its attack on the third sector.

The “Pride and Prejudice” of Economists

The dominant position of economics in the field of social science has long been recognized, but Marion Fourcade, et al. recently published a new paper investigating this phenomenon in greater detail. By presenting evidence of the hierarchy that effects job prospects, getting published, and establishing influential connections, Fourcade argued that economists’ objective supremacy is intimately linked with their subjective sense of authority and entitlement. “Economists may advise governments, but they do not convince the people.”

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Whether or not that is a problem depends on its unintended consequences. William Easterly has expressed concerns for the “tyranny” of economists in international development. The “tyranny of experts” in development posited the belief that poverty is due to a lack of technical expertise, and that autocrats are best at delivering this. The support for a benevolent authoritarian approach to development is not overt but implied, and is often altruistic rather than self-serving. Easterly sympathized with economists who, in their zeal to help the world’s poor, unwittingly favor autocracy, because he used to be one of them himself. Economists choose to advise governments on how to alleviate poverty through a top-down approach, but for Easterly the real cause of poverty is exactly the unchecked power of the state against the poor.

According to Fourcade, 57.3% of American university economics professors disagree with the statement that in general, interdisciplinary knowledge is better than knowledge obtained by a single discipline. But as Easterly noted, at least for development, other than national policies of technical solutions to poverty, such as fertilizers, antibiotics, or nutritional supplements, history, non-national factors, and spontaneous solutions also matter. Therefore development may have to give up its authoritarian mindset to avoid tragedies such as the one that happened to the farmers in Mubende District, Uganda, detailed in the beginning of Easterly’s book. Soldiers marched more than 20,000 farmers away from their land at riflepoint in 2010. Some of those farmers died and the rest never returned, because they were told the land no longer belonged to them. Four years later, the whole event has been forgotten by almost everyone except the victims.

However, it is not always wise to label people and attack economists as a homogeneous group, because criticism or compliment could be just a matter of opinion. Fourcade consented to the notion that most modern economists are talented. They simply believe in the ideal of an expert-advised democracy, in which their competence would be utilized. Unfortunately democratic societies are often deeply suspicious of expertise as described by Alexis de Tocqueville:

“When the ranks of society are unequal…there are some individuals invested with all the power of superior intelligence, learning, and enlightenment, whilst the multitude is sunk in ignorance and prejudice. Men living at these aristocratic periods are therefore naturally induced to shape their opinions by the superior standard of a person or a class of persons, whilst they are averse to recognize the infallibility of the mass of the people. The contrary takes place in ages of equality. The nearer the citizens are drawn to the common level of an equal and similar condition, the less prone does each man become to place implicit faith in a certain man or a certain class of men.” That is what Fourcade meant by saying, “democratic societies are deeply suspicious of (non-democratic) expertise, and economic advice, unlike dentistry, can never be humble.” It is our own inclination to believe in practical and results-oriented views (instrumental rationality) from objective data (quantitative research) more than value-based (value rationality) statements from our peers (qualitative research).

That being said, the perceived superiority of economists and their supposed lack of humbleness may also be a kind of resignation. In other words, are we talking about the pride and prejudice of the economists or ourselves?