THE REMITTANCE CURSE

July 31, 2008

Tajikistan receives more than $1 billion in remittances each year from Tajiks overseas, equivalent to a staggering 36 percent of the gross domestic policy (GDP) of the notoriously corrupt country, says Foreign Policy. 

Because most of the country's 7 million citizens lack sanitation, clean drinking water and health care, you might think that this influx of cash is a saving grace for Tajiks on the receiving end.  Not necessarily, warns Foreign Policy.

According to a new study of 111 countries between 1990 and 2000 by the International Monetary Fund (IMF):

  • Remittances may actually encourage government corruption and ineffectiveness.
  • High levels of remittances often lead to greater corruption and irresponsible economic policies.
  • Officials in remittance-rich countries are often let off the hook for failing to provide basic services, freeing them to divert resources for their own purposes.
  • This gives citizens less of an incentive to demand reforms.

Since the government assumes citizens with help from abroad will turn to the private sector for essential services such as health care and education, leaders face little pressure to change. 

Not everyone is persuaded by the study's findings, says Foreign Policy.  Dilip Ratha, a World Bank expert of remittances, argues that though the risk of dependency on remittances does exist, one has to put things in perspective and recognize that the good things completely swamp the bad. 

But if a little extra cash helps a family get through tough times, it can also buy a corrupt government time to stall reform, says Foreign Policy.

Source: "The Remittance Curse," Foreign Policy, July/August 2008.

 

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