PERU: Workers' Remittances of Peruvians Through Informal Channels

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Canonical URL: PERU: Workers' Remittances of Peruvians Through Informal Channels

Informal economy in Peru includes informal activities, underground activities and illegal activities and represents an important share of the Peruvian economy and workforce.
The Peruvian Balance of Payments (BOP) currently includes:
- informal, small scale gold mining,
- remittances from Peruvians working abroad,
- remittances of Venezuelans working in Peru sent to their country through informal channels.
The IIP does not include financial balances for informal activities.

Remittances increased from 0,3 percent of GDP in 1990 to a maximum of 2,1 percent of GDP in 2006 and 2007.
From 2007 onward the percentage decreased, reflecting migration patterns and economic conditions in main destination countries (United States, Spain and Japan) and improved job opportunities in Peru.
Remittances sent to Peru through informal channels are estimated between 10 and 12 percent of total remittances.

Before 2003, compilation of total remittances was difficult due to unknown numbers of Peruvians living abroad and limited statistics from Money Transfer Enterprises (ETFs).
July 1993: Central Bank applied the first survey to Peruvians living in the United States (12 cities). Early surveys indicated informal channels (pocket transfers) represented around 11 percent of total remittances.
1985 conservative estimate: 100 thousand migrants living abroad; updated to 500 thousand for 1995 based on Migration Office annual flow data.
Japan: number of Peruvians living in Japan estimated at 45 thousand and total remittances from Japan estimated at US$ 140 million.
1998: Central Bank contracted GRADE to independently estimate remittances using demographic census data (United States, Spain, Japan, Mexico, Canada, Argentina, Chile) and estimates of illegal workers; results showed previous estimates were underestimated and the series was corrected.
Subsequent years: number of Peruvian workers abroad updated with Migration Office data; average remittance updated based on recipient economies' evolution.

Since 2003 the Superintendence of Banks and Insurance Enterprises (SBS) became the official source for remittance registers; additional inputs from a remittance intermediary in Japan and postal services.
For 2003, comparison between SBS data and previous methodology showed a difference of 10 percent, attributed to remittances crossing the Peruvian border through informal “agents”, relatives, friends and similar channels. Comparable ranges in other economies: Mexico (8 percent), Ecuador (14 percent), Colombia (4 percent).
Annual interviews with Banks and ETFs and an assessment by the Center for Latin American Monetary Studies and the Multilateral Investment Fund (Interamerican Development Bank) in 2011 confirmed an estimated 10 to 12 percent of total remittances enter Peru through informal channels.
2012 survey of the Peruvian Community abroad reported channels used to send remittances as: ETFs (68,0 percent), Banks (19,0 percent), and internet, friends or relatives or other not specified (13,0).

The relatively stable and relatively low percentage of remittances sent through informal channels is attributed to:
- a relatively high number of participants in the remittance business, generating competitive costs,
- perceived security in using formal agents.
Historical market composition:
- When ETFs were main providers there were around 12-14 agencies participating in the market.
- After banks entered the business post-2000, transaction costs were further reduced and some ETFs exited the market, reinforcing the preference for formal channels.