[Kabar-indonesia] 1 of 2: Aceh Research Study: The Role of Remittances

[Joyo at aol.com]

-1 of 2-

The Humanitarian Policy Group 
at the Overseas Development Institute [UK] 
September 2006

Background Paper 

The Role of Remittances in Crisis: 
An Aceh Research Study

By Treena Wu

-------------

Contents 

INTRODUCTION...................2 

MIGRATION & REMITTANCES IN INDONESIA........4 

- MIGRATION & WAGES...........4 
- SOCIAL NETWORK RECRUITMENT ............4 
- EMPLOYMENT AGENCIES.........4 
- REMITTANCES..............5 

MIGRATION & REMITTANCES IN ACEH .........7 

- MIGRATION .........................7
- REMITTANCES........................10 

IMPACT OF THE TSUNAMI ON MIGRATION 
AND REMITTANCES IN ACEH............18 

IMPLICATIONS FOR EMERGENCY ASSISTANCE ..........24

BIBLIOGRAPHY ....................27

Introduction 

This paper will study the role of migrant remittances
in the livelihoods of the people of Aceh, with a
particular focus on the impact of the tsunami and
humanitarian aid. It will limit its scope of
remittances to funds sent by Acehnese migrant workers
located in Malaysia and Singapore.

The special administrative territory of Aceh, formally
known as Nanggroe Aceh Darrusalam (NAD) established in
1956, is divided into eight districts, two
municipalities, two administrative cities, 131
sub-districts and 5,349 desa (villages). The
population is estimated to be 4 million inhabitants.
The main ethnic groups are Acehnese, Gayonese, Alas,
Tamiang, Simelu, Ulu Singkil, Aneuk Jame and Kluet.
Since its resistance to Dutch colonisation in the late
nineteenth century, Aceh has been no stranger to
violence and conflict. In 1959, the Special Region
(Province) of Aceh (Daerah Istimewa Aceh) was
established with autonomous governance in religion,
education and culture. In the following decades, Aceh
saw massive exploitation of its natural resources,
most notably oil and natural gas. The Free Aceh
Movement (abbreviated as GAM) was created in 1976 with
the purpose of freeing Aceh from Indonesian rule, and
a heavy military presence was deployed in the province
in response. From 1976 until a Finnish-brokered peace
accord was signed in 2005, there was conflict between
the Indonesian military (Tentera Nasional Indonesia)
and GAM. An estimated 15,000 people died.

On 26 December 2004, an earthquake struck 150km off
the coast of Aceh. Forty-five minutes later the
tsunami wave hit, and within minutes it had swept
clean an 800km coastal strip. Some 130,000 people were
killed and 37,000 remain missing. An earthquake on 28
March 2005 added to the toll in Nias, Simeulue and
southern parts of Aceh. The December earthquake caused
the 2,000sq km island of Simeulue, with its 78,000
inhabitants, to sink about one meter; the March
earthquake caused it to rise two meters or more.

These events caused immense social, economic and
environmental devastation to areas that were already
poor. Before the tsunami, more than a third of the
population of Aceh lived in poverty. Now, almost half
live below the poverty line or are dependent on food
aid. To help households to cope with these political,
economic and social conditions, remittances are sent
back by large numbers of unskilled and low-skilled
migrant workers in Malaysia and Singapore.

This study explores how remittances are used to help
households in Aceh cope with crises. The research
questions in this study are: 1. How important are
remittances in people's survival? 2. What social
groups benefit from remittances? 3. Do remittance
patterns change in times of crisis? By how much? What
are the channels used? 4. How well do assessment
methodologies capture the role of remittances? 5. How
can humanitarian actors support remittances? In this
study, primary data has been collected based on
individual and focus group semi-structured interviews
with 29 migrant workers and/or their families in Aceh.
The sampling method used was nonrandom snowballing
because of the sensitive nature of questions asked
about a family's finances.

Attempts were made to ensure that the sample group was
split between urban (13 respondents), periurban (six
respondents) and rural (ten respondents), and between
men (21 respondents) and women (eight respondents).

Interviews with six migrant worker union organisers
and community leaders were also used. These help to
increase the reliability of the conclusions drawn, and
enabled some generalisation. To complement the migrant
worker interviews, semi-structured interviews were
carried out with seven remittancesending companies in
Aceh, Malaysia and Singapore. These companies provide
a perspective on the remittance channel and whether it
was affected in the aftermath of the tsunami, as well
as pre- and post-tsunami remittance patterns. In terms
of triangulation of data, there is an analysis of
secondary data comprising macro-level and micro-level
studies carried out by migration and economic
researchers, migrant worker recruitment practices,
Central Bank reports, commercial banking reports and
postal authority reports.

Migration and wages 

The top destinations for migrant workers are Malaysia
and Singapore (other destinations include the Middle
East). This is because of the geographical proximity
between Indonesia and these two countries,
similarities in culture and the existence of social
networks in the destination countries. The labour
supply chain is well established. This supply chain is
managed by a series of middlemen and brokers (known
locally as calo). The type of labour that is needed
tends to be low-skilled and is used to meet the needs
of the mining, plantation, construction and domestic
work sectors.

These migrant workers come largely from the
agricultural sector, which is predominantly made up of
peasant farming. But because of the gains made from
technological advancement in this sector, there is
less need for agricultural labour (Hugo, 1995).
Non-farm activities are limited, leaving many of these
low-productivity workers unemployed. Because of the
higher rates of economic growth in Malaysia and
Singapore, there are more employment opportunities for
these workers. Furthermore, the wages paid in these
destination countries are much higher than in
Indonesia (Hugo, 1993; Jones, 1996). As a result,
there is a trend of increasing out-migration in
Indonesia.

A migrant worker can be recruited for employment by
two methods: 1) with the help of relatives in the
destination countries; or 2) by employers/employment
agencies in the various sectors.

Social network recruitment Pioneering migrants who are
settled are a very important source of job information
for new migrants.

New arrivals in Malaysia or Singapore are initially
settled by the pioneers, and they are instrumental in
finding jobs for the newcomers. This is mainly because
there is a social network in terms of a strong blood
relationship between new and old migrants (Salt, 1987;
Boyd, 1989; Mantra, 1997).

Employment agencies The employer or employment agency
initiates the recruitment process. This type of
recruitment is used by Malaysian and Singaporean
employers who urgently need to fill positions in
factories and on plantations. A premium is paid and
this provides an incentive for recruiting agencies and
brokers officially licensed by the Indonesian Ministry
of Manpower to send migrants illegally (Jones, 1996).

Migrants recruited in this way tend to enter on a
tourist visa; when the visa expires, they are likely
to be caught, detained and deported; this after having
mortgaged land or taken out loans from local
moneylenders at 100% interest or higher to pay the
recruiter's fee (Jones, 1996). This was verified by a
man interviewed in Kuala, Lamno. He had made two
attempts to become a migrant worker. He sold all his
household assets in order to pay for the recruiter's
services, as well as to buy a counterfeit passport.
Upon arriving in Malaysia, he was arrested and
deported. His remaining asset for collateral, land,
was destroyed in the tsunami, and he is now struggling
to look for work as a driver. Based on interviews with
other migrant workers, the average cost for travel
papers (legal or illegal) is a prohibitive Rp6–7
million ($600–700).

Remittances According to World Bank estimates, the
total amount of remittances received by Indonesia at
the national level was $4.6 billion in 2004. At this
aggregated level, remittances represent a large
potential for economic development. But this is not
the case for migrant workers from poor households.

For these workers, the rationale for labour migration
is to improve economic welfare; this is not the same
as economic development (Fagen and Bump, 2005).
Households' economic dependence on these remittances
is very high. Many of these low-skilled workers view
their employment as short-term because they would like
to be quickly reunited with their families once they
have made money. These remittances can be in the form
of money, property or ideas (skills) usually carried
back by the returnee migrants to their places of
origin (Mantra, 1997). Main areas of spending are
repairing or building a home, sending children to
school or purchasing agricultural land (Rudnyckjy,
2004). However, such spending is adjusted to the
unpredictable nature of remittances – migrants will
send money home only when they have paid off their
debts to agents and have some savings.

One of the problems encountered in computing or
estimating how much remittance is made by these
migrants is the uncoordinated nature of remitting. On
average, a migrant remits 20%–50% of his/her income
(Orozco, 2005). In Indonesia, the value of individual
remittances can range from the equivalent of $25 to
$75 a month (Kompas, 30/10/2004; New York Times,
26/3/2006). Although these amounts seem negligible,
they go a long way in supporting the livelihoods of
families in Indonesia. This is because, given the weak
exchange value of the Indonesian Rupiah compared to a
foreign currency like the Malaysian Ringgit (RM), the
family in Indonesia has significantly increased
purchasing power.

These remittances become a critical source of cash.
These amounts can help prevent families from falling
into chronic poverty, or can minimise the incidence of
transitory poverty.

Migration According to the 2003 estimates of the
national Badan Pusat Statistik (BPS), almost 30% of
the population in Aceh was living below the poverty
line, as against the national average of 17.4%. Aceh
is the third poorest region in Indonesia despite its
natural resources, which are mainly extracted for use
at the national level. Table 1 provides a breakdown of
income per capita and poverty levels by district in
2003.

Note: Poverty Line, US$0.47 per capita per day for
Aceh and US$0.45 per capita per day for Indonesia. It
varies district to district, with max in Aceh Besar of
US$0.54 and min in Simeulue US$0.45.

- Based on World Bank figures

 The unemployment rate in Aceh was 11.2% in 2003,
higher than the national average of 9.5%.1 Many of the
unemployed Acehnese are either unskilled or
low-skilled workers from subsistence and lowincome
production households. Because of the inability of the
province to provide economic stability and personal
livelihood opportunities and the consequences of the
conflict, workers have to look elsewhere to improve
their economic welfare.

There are two main differences between Indonesian
migrant workers and Acehnese migrant workers.

First, while most Indonesian migrants take on
short-term work contracts, Acehnese migrant work is
characterised by both short-term and long-term work.
Long-term work increases the ability of workers to
keep sending remittances home. Second, migration and
remittances have been strongly influenced by the
conflict. Acehnese society was in continuous crisis
for over 30 years. How people coped is reflected by
migration trends (forced and voluntary), and the
remittance system as an adaptive response has
developed over time. The same type of coping has been
used in response to the tsunami.

There are permanent Acehnese settlements in Malaysia
and Singapore. Migration by these settlers was not
solely motivated by economics. People migrated for
different reasons – trade, education, religion and
politics. The implication is that the social network
for Acehnese migrant workers is much stronger than for
other Indonesian workers. The settlers become an
important source of information and support for new
arrivals.

Acehnese migrant workers in Malaysia and Singapore are
concentrated in urban and peri-urban areas which have
these social networks. Based on interviews, there is
specialisation of work and this is distinguished by
gender. Men tend to work in construction, factories
and trading. Women tend to work in factories. In the
interview responses it was found that men tended to
accept work in the informal economy and risked arrest
and deportation. On the other hand, women tended to
work in the formal economy, and as such experienced
less vulnerability. This distinction is related to
education levels and the qualifications required for
formal work. In the interview responses, the men
tended to be less welleducated than the women, who all
have at least a high school education. This is
associated with the conflict, where males were
targeted, and many could not complete their education.
Another distinction was that men tended to take on
unpredictable short-term work, while women signed job
contracts for two years, which could be renewed. Many
women were between 18 and 30 years of age, worked for
up to five years in factories, accrued more savings
for remittances and/or investment and then returned
home to Aceh to marry.

During fieldwork, the presence of a social network was
found in an Acehnese community located in Selayang
near Kuala Lumpur. The size of the community is about
500 people. This is a low-income, peri-urban area that
functions as the wholesale market for fresh produce
sold to the city. Wholesale trading activities here
used to be controlled by Malaysians, but this is
gradually changing because of the entrepreneurial
spirit of the Acehnese. Acehnese in this community
come exclusively from Pidie, Bireun and Lhokseumawe.
They will only protect the interests of those from the
same area of origin. In interviews with community
leaders, this group has been in existence since the
beginning of the conflict.

According to them, there are other similar communities
in the Klang Valley, Penang, Malacca and Johor.

Community leaders explained that they have been
assisting in the relocation of undocumented migrants
(mostly men) from the same areas of origin in order to
escape political persecution. This assistance was also
provided in the aftermath of the tsunami, when some
IDPs did not know if the security situation in Aceh
would stabilise. Once they have entered this
community, migrants receive assistance in looking for
housing and work on construction sites or increasingly
at the wholesale market. Since the Aceh peace
agreement, some families who migrated either because
of the conflict or because of the tsunami have started
to return to Aceh.

Based on interviews, the wages earned in the different
types of work were as given in Table 2. :

Table 2: Wages earned Type of work Monthly wage (US$
equivalent) Construction 400–530 (depending on skill
level) Factory 114–530 (if including overtime) Trading
320 (average income) Services – bakery, restaurant,
cleaning 186–213 Domestic maid 133–213 Plantation 106
(average income)

The wages in all these types of work are well above
the Aceh average (equivalent to $71/month or
$862/year) – a wage differential up to seven times
higher. It is assumed that wages in Aceh have not
significantly changed since the tsunami.

To analyse this further, in Aceh if an individual is
able to secure stable casual work or can be
consistently self-employed, say as a motorised
rickshaw or becak driver, he/she is able to earn
between the equivalent of $90/month in Banda Aceh.
This amount is not sufficient to support an entire
household or to enable a single person to have
savings. This is because, in dollar value, basic needs
in Aceh are approximately $80/person/month,2 and the
average size of a household (pre-tsunami) is five
people.3 Based on this comparison of wages, there is a
strong motivation for the out-migration of
unskilled/low-skilled Acehnese workers.

Remittances Based on limited data accessed from Pos
Indonesia, the amount of remittances received in Aceh
for 2003 was $3.15 million.4 This amount does not
include remittances sent through sources other than
Pos Indonesia, and does not include remittances in the
form of property or skills. It is extremely difficult
to collect this missing data. Compared to the World
Bank estimate of $4.6 billion for the whole of
Indonesia in 2004, based on a crude approximation it
can nonetheless be observed that remittances
contribute minimally to the regional GDP of Aceh. But
remittances still play a very important role in
society in terms of improving economic welfare.

In general, remittance channels can be categorised as
formal and informal.

Formal remittance channels Formal banks in Malaysia
such as Bumiputera-Commerce Bank (BCB), Rashid Hussein
Bank (RHB) and Malayan Banking provide
remittance-sending services using telegraphic
transfers (TT) or international bankers' cheques. In
Indonesia, banks such as Bank Internasional Indonesia
(BII), Bank Nasional Indonesia (BNI), Bank Rakyat
Indonesia (BRI), BUKOPIN, Danamon and Bank Syariah
Mandiri provide remittance-receiving services. The
recipient must have a bank account. The time needed
for the transfer to reach a recipient in an isolated
area can be up to two weeks. This is because the
receiving bank 2 Based on calculations by PUGAR – The
Center for People Movement & Democracy, Aceh 3 Based
on calculations used by NGOs in the tsunami response
for pre and post tsunami household size 4 Kantor Pos
Purwokerto ; FAO & WFP Aceh Food Supply and Demand
Assessment March 2005, 11 branch is located in a town
and the recipient from a village has to arrange for
transportation to go to the bank to withdraw the
funds. Banks like BNI and BRI are expanding to rural
areas. These services tend to be used by formal
migrant workers with a higher level of education, who
demand secure transactions and who are less sensitive
to commission fees. In addition, they have a higher
level of awareness of the benefits and costs of using
these services. Commission fees increase with the
amount sent. Fees are considered to be expensive.
Migrant workers usually compare these fees with the
amount of rice that can be bought at Acehnese prices –
1kg for $0.90.

Another formal channel is Western Union (WU), where
the recipient does not necessarily have to have a bank
account. The transfer is made in minutes. The sender
receives a Money Transfer Control Number (MTCN – used
by WU as a condition for disbursing funds). Either the
sender or WU contact the recipient (in writing or, for
an additional fee, by phone) to inform him/her of the
transfer. The recipient is then required to go to the
designated WU agent and provide the MTCN and identity
card (ID) to receive the cash disbursement. If the
recipient does not have ID, WU has a Test Question for
which only the sender and recipient have the answer.
Agents are only located in the main towns of each
district in Aceh.

Alternatively, WU will function like a bank and
transfer the funds to the recipient's bank account.
Many formal banks are WU agents. Commission increases
with the amount sent, and is relatively expensive.

At the lowest point of the scale for its operations in
Malaysia, the commission fee is $5.

For those without bank accounts, another formal option
available to them is to receive a money order (wesel
pos), whereby the sender informs the recipient of a
personal identification number to be used at the
receiving post office for redemption. Alternatively,
people with proof of identification or a letter from
the sender will receive a cash disbursement from the
post office. According to Pos Indonesia, wesel pos is
the most popular system of remittance.5 But it appears
to be less popular with the Acehnese, as only one
respondent used it. In interviews, it was found that
some of the 'unbanked' used the bank accounts of
others to receive remittances.

Formal remittance values and patterns are recorded by
the central banks of Indonesia, Malaysia and
Singapore. Indonesia requires general monthly bank
reports, but does not specifically require information
on remittances. In Malaysia, bank reports on
cross-border settlements are submitted online daily
through the International Transaction Information
System (ITIS).6

5 Kontan-Online No.34 Tahun IX 30/5/04 6 Source:
Regional Technical Assistance 6212: South East Asia
Workers' Remittance Study, Asian Development Bank

Informal remittance channels 

The money changer or bureau de change is licensed in
Singapore to provide remittance services. But it is
not permitted in Malaysia, making it an informal
channel. It provides a generally safe and more
affordable and convenient alternative to the formal
remittance channel. It charges a flat rate for any
amount transferred. Currency exchange rates can be
negotiated, which better-educated workers tend to do.
Rates vary between money changers, and this can be
from RM10–RM25. Transfers are made in 1–2 days. The
sender writes a letter to the recipient which the
recipient has to provide to the corresponding money
changer to collect the funds. Rates tend to be more
competitive in Kuala Lumpur than elsewhere. Most of
these money changers cluster in shopping areas such as
Kota Raya Shopping Complex and the surrounding
shop-houses, where there is a heavy presence of
migrant workers from different countries. The
equivalent in Singapore is Lucky Plaza. Operations
remain open after office hours and on weekends.
Factory workers who have long shifts are able to take
advantage of these longer operating hours. Partner
money changers in Aceh provide a crucial link in this
chain. This is because they provide additional
community services, such as physically depositing
funds into the recipient's bank account or delivering
the funds to the recipient's home. Based on
interviews, there have been no cases of theft or fraud
using this service. This is the most popular service
chosen by the interview respondents.

The riskiest type of informal channel is remittances
via friends and relatives. This service is used by
workers who cannot afford to come home often, do not
have permission from their employers to take a leave
of absence or do not want to risk arrest by
immigration officials. Remittances are sent in the
form of cash, clothes and consumer goods (TV sets,
fridges, rice cookers). Based on interviews, there was
a low incidence of friends or relatives stealing the
remittances. However, there was a higher incidence of
the remittances being confiscated by customs officials
in Indonesia. But over time, according to respondents,
migrant workers were becoming more aware of safer
channels.

Another informal option, albeit rarely used, is
provided by the taikong. This individual functions as
the employer and remittance agent of the migrant
worker. For a fee, the taikong will ensure that the
remittances are delivered to the home of the
recipient.

There are no records of the value of remittances sent
through informal channels. But given the services that
this channel offers it is likely that amounts are
high.

Remittances before the tsunami 

Before the tsunami, these formal and informal
remittance channels were well developed and functioned
well. Formal migrant workers could choose between the
two channels. Informal workers could use a combination
of the two – the sender without a bank account could
use a money changer to transfer funds to his/her
family's bank account. Respondents explained that
families try to ensure that there is one bank account
for use by the whole family. Normally, it is the head
of the family who has the bank account and everyone
else uses it.

Based on interviews with Acehnese families, the most
important cash spending priority for remittances is to
support elderly parents. This is because of the
importance of filial piety in Acehnese values. The
next priority is to help pay for the family's basic
needs, which includes school fees. Housing, which is a
priority in other parts of Indonesia, was not as
important to the Acehnese as most had some form of
housing and land (pre-tsunami).

Remittances are normally only sent after the first
year of work in Malaysia or Singapore. This is because
workers have to repay recruitment fees/debts to the
calo. Workers entering Malaysia or Singapore illegally
using social networks have no fees to pay. Amounts
sent tend to be fixed because most migrant workers,
with their limited income, have a fixed cost structure
that covers, in the following order of priority: 1)
debt repayment; 2) living expenses; and 3)
remittances. The amount of debt to be repaid is
determined by the calo, and repayment is normally
extracted directly from a worker's wages.

The remaining income is then split between the
worker's living expenses, remittances and a minimal
amount of savings.

Table 2: Remittance patterns Sender Recipient Amount
per year (US$ equivalent) Frequency Father and
breadwinner Wife and children 400–530 Once a month,
every other month, quarterly Son Parents Up to 200
Upon parents' request, once a month, quarterly
Daughter Parents 50–300 Upon parents' request, once a
month, every other month 14 Daughter Widowed mother
120 Quarterly Brother Parents and siblings 20–500 Once
a year Brother Brother Minimal amount Upon brother's
request At the household level, there is a degree of
reliability in the remittance pattern, though the
whether the same fixed amount is sent every month is
questionable.

Reliability as defined by respondents who receive
remittances means that they are assured they will
receive the funds at a fixed frequency for a given
year. To illustrate, a child needs to pay school fees
at the beginning of every month. His father, the
migrant worker, promises a monthly remittance to meet
this obligation so that the child does not risk being
expelled from school.

Reliability increases when the sender is the father
and head of the family. Fathers interviewed said that,
by sending money every month, they felt assured that
all expenditures could be paid on time.

They did not have to worry about their wives being
ashamed for making a delayed payment. Also,
reliability increases when the recipient is an elderly
or widowed parent. However, as shown in Table 2,
reliability decreases when the sender is not the head
of the family. It was also found that, if the sender
had many siblings who had jobs, there was even less
priority to send remittances. Young migrant workers
interviewed, especially unmarried men, were more
inclined to use their income as savings for future
investment in Aceh. Daughters were found to be
responsible for their widowed mothers' well being.

The ability to send the same fixed amount every month
is dependent on the sender earning the same amount
every month, and having the same expenses every month.
This can be difficult to achieve if workers do not
work consistently over time, if the employer has
less/no work available or if the calo announces more
hidden costs that the worker has to pay.

Concerning the money changers, many respondents found
their services to be reliable and satisfactory.

Money changers interviewed explained that they had
become familiar with their customers and knew which
village the recipients lived in. Door-to-door
deliveries could be made. The services provided by
money changers contributed to increased reliability in
remittance flows.

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