| |
DO OFW REMITTANCES PROMOTE ECONOMIC GROWTH?
Rodel E. Rodis, September 10, 2009
|
| |
The Philippines seems to have been spared the worst ravages of the economic crisis roiling the world’s most
advanced countries –its unemployment rate is hovering around 7% compared to the 9.7% in the US , and the
country’s gross national product (GNP) of about $186-B recorded a phenomenal 4.5% growth in 2008.
Moreover, while the US economy contracted, the Philippine economy managed a growth rate of 4.4% as of the
second quarter of 2009.
The cause of this phenomenal economic performance is that when the world’s economy suffered a great
recession, the tough overseas Filipino workers (OFWs) - laboring in all continents of the world except
Antarctica - somehow man aged to send more money home.
According to the Bangko Sentral ng Pilipinas (Central Bank of the Philippines ), remittances from January to
June 2009 totaled $8.5 billion, of which $4.5B came from North America . When annualized for 2009, this
translates to at least $17-B. Though the pace has slowed this year from the almost 10% annual growth rate
recorded for the most part of this decade, the final year-end tally will likely be higher because November-
December figures show a rise during the holidays.
It should be noted that the BSP figures only take into account those money flows which go through the formal
channels – i.e., money which flow through banks and non-bank financial institutions engaged in money
transfer services.
What would the total figures be if they included the value of goods and services which flow to the Philippines
using the informal channels and methods – e.g., the colorum” remitters; the padala system or the cash hand-
carried by balikbayans; and the pasalubongs stuffed in balikbayan boxes? What monetary value can be
placed on the hundreds of medical missions conducted by Fil-Am doctors; on those donations to charitable
organizations like Books for the Barrios and similar organization which advance Filipino causes; and on those
tourists who visit because of the encouragement, whether passive or active, from their Filipino co-workers and
friends?
The figure may not also reflect the heavy investment in the hundreds of skyscraper condominium buildings
that have sprouted all over Metro Manila that have targeted overseas Filipinos, particularly Filipino Americans,
who wish to retire in the Philippines .
In her report, “Poverty in the Philippines: Income, Assets, and Access,” Karin Schelzig, a Social Development
Specialist for the Asian Development Bank, cited a World Bank study which estimated actual remittances to
be as high as $21 billion in 2002. In that year, the official BSP figures only showed total remittances20to be
around $7.6B.
Applying the rudimentary rules of ratio and proportion, this means that the 2009 figure may be as high as
twice the $17-B estimated 2009 figure - $34-B. Or more.
Given that the Philippine government’s budget for 2010 is about PHP 1.541 trillion, or roughly about $32-B,
this means that after financing the operation of the entire Philippine government for the entire year – e.g., after
paying for the services of the President, every government worker serving at her pleasure, every teacher, every
soldier, and every Congressman/Senator and all his/her pork barrel projects – the OFW remitters still have a
couple of billion dollars of change left.
A 2008 research study by two University of British Columbia professors, Dr. Michael A. Goldberg and Dr.
Maurice D. Levi, and financed by credit card giant MasterCard, reveals that as a percentage of GDP,
remittances account for 13.5% of the Philippine economy and that they have become more substantial than
the combined impact of foreign direct investments (FDI) and official development assistance (ODA) funds.
The study also found that in large recipient countries like India , China , Mexico and the Philippines which are
characterized by income inequality, volatility, and an absence of developed credit and insurance markets,
“remittances can serve as a substitute for financial markets, for example, allowing households to finance
investments, including investments in human capital, and in this way spur economic development.”
Further, the study disclosed that “remittances might help investors circumvent the constraints of the financial
system to take advantage of high economic returns that are inaccessible to them because of the20lack of
credit and savings vehicles. In this case, remittances are more strongly associated with investment and
growth when financial development is poor.”
But economics is not called “the dismal science” for nothing. For every economist saying “good,” there’s
another saying “bad.”
A 2009 International Monetary Fund Working Paper entitled “Do Workers’ Remittances Promote Economic
Growth?” postulates that “[t]o the extent that remittance inflows are simple income transfers, recipient
households may rationally substitute unearned remittance income for labor income” and that remittances
“may be plagued by severe moral hazard problems.”
The children and other dependents of OFWs may choose not to work because the remittances they regularly
receive from their OFW parents may be enough to cover their needs. The remittances may also feed their drug
habits and vices especially when their parents are not around to personally oversee their conduct and welfare.
The study concludes that “[p]art of the reason why remittances have not spurred economic growth is that they
are generally not intended to serve as investments but rather as social insurance to help family members
finance the purchase of life’s necessities.”
The study revealed that “there is very little evidence that decades of official transfers have contributed much to
the growth of developing economies. Similarly, our findings suggest that decades of private income trans
fers—remittances—have contributed little to economic growth in remittance-receiving economies and may
have even retarded growth in some.”
According to this study, the most persuasive evidence in support of this finding is “the lack of a single example
of a remittances success story: a country in which remittances-led growth contributed significantly to its
development.”
The IMF study seems to suggest that by helping the poor financially, you are making them worse off and
dependent on you. I suspect that tens of thousands of OFWs who have seen their remittances send their kids
through college, finance the purchase of jeepneys and tricycles, and fund the start of sari-sari stores and
other small businesses, will disagree with the IMF.
The main flaw of the study is the starting premise that the role of remittances is to promote economic growth.
It is undisputed that remittances contribute to the economy, but they are not intended to promote economic
growth – only sound government policies can do that.
It is high time that the Philippine government be held accountable to the millions of OFWs remitting nonstop
year in and year out, crisis or no crisis, always reliably bailing out the government despite the endemic and
systemic corruption at its core.
That is the goal of the 6th Global Filipino Networking Convention set to take place on January 21-23, 2010 at
the Waterfront Hotel in Cebu City (6thGlobalCebu.com). It will be a forum for the 11 million Pinoys in the global
diaspora to voice their opinions on what the Philippine government should be doing with their money which
continues to be the singular, most reliable source of support for the Philippine economy. Since their funds
virtually finance annual government operations, their voices should be heard loud and clear.
(Send comments to Rodel50@aol.com or mail them to the Law Offices of Rodel Rodis at 2429 Ocean Avenue
, San Francisco , CA 94127 or call (415) 334-7800).
|
|
