Made Here; Stays Right Here

In a recent incident that took place in Argentina, American Airlines were trying to persuade the “man in charge” that they are giving back to Argentina’s economy by creating jobs for locals as well as increasing retention by buying certain products produced locally. Hence, they were seeking approval to send more money back to the US to be invested or spent elsewhere. The reply was quite expressive as he pulled out his gun and placed it on the table. And when it gets to that, the safer choice here is to ditch the argument and run for your life, i.e. walk out of that person’s office. So even though they had a point in wanting to circulate the money in their main operations in the US; not everyone understands that this is the right thing to do and that a politician shouldn’t enforce laws that made no sense, economics wise. In the short-run, such laws might work beautifully as you can see their direct impact. But with time, and as these laws get more stringent, companies start to withdraw from such countries.

Though the earlier example is from Latin America; others exist right around the corner. In Sudan, prior to its division, companies were only allowed to send a certain capped amount back to their home countries. Since US Dollar is the currency in the retention against remittance debate for both countries, it would be reasonable to assume that one of the objectives is to keep as many circulating US Dollars in their respective economies as possible. If this is to indicate anything, it should at least point out the fact that there is a stronger belief here in US Dollars as Euro wanders aimlessly in the world’s economy, justifying why multinational companies prefer the former as a base currency for their operations in such countries. What is also quite interesting here is that these countries, despite keeping low profiles in the world’s economy, are the ones growing in significantly higher rates than their neighbors. Because of that, many argue that this was the reason Sudan’s division was pretty much accounted for, after being carefully planned.

Even with a strict remittance strategy, there is a very thin line that you are not supposed to cross. In a different scenario, Bolivia has announced that it will be banning Coca Cola and all of its drinks. Bolivia claims that it wants to promote local drinks in the process, sacrificing foreign operations of hundreds of millions in US Dollars and thousands of already existing local jobs. The latter is an extreme case of a direct ban of operations to ensure locally generated and retained funds. No matter what the ultimate goal is, political instability means economic instability as well.  Therefore, there is no such thing as a guarantee that operations won’t be banned, taxed, or capped by a certain retention rate. In Venezuela, for example; a totally different strategy is followed where successful foreign operations are nationalized. As a result of whatever strategy from the above being applied, companies will only stay as long as benefits exceed all kinds of monetary and non-monetary costs.

To conclude, India represents a clear example of how remittance can boost an economy by providing it with funds that are free of interest, theoretically speaking. And when you closely observe countries that are known for exporting labor services, they all get some sort of an economic push that is more desirable than funds provided by the World Bank or the International Monetary Fund at very high costs. In the examples given above, countries in Latin America seem to be more focused on short-term goals of enhancing economic growth, though not effective in the long-run. It makes sense to politicians there to retain funds generated by foreign operations, but not to companies who have to spend it on local products that may not meet their quality standards. Even though they sometimes get a portion of their revenues out, based on a politician’s mood on that specific day; companies tend to take the first exit out whenever they can. Consequently, countries involved keep running in circles of economic uncertainty.