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By Jose Enrique Africa
As a mitigating measure against growing poverty
as reported by the National Statistical Coordination Board due to
increasing prices and falling incomes, the government may opt to
implement capital controls that stem or even reverse the
appreciation of the peso.
Capital controls are restrictions on the
outflows of foreign exchange, such as dollars. More than any other
so-called mitigating measures, this will immediately benefit
millions of overseas Filipino workers (OFWs) and their families in
the country and give the quickest relief to the greatest number of
Filipinos.
There are over nine million Filipinos working
abroad as of end-2007. Moreover, there are over 1.5 million Filipino
families with remittances as their main source of income, or some
7.5 million Filipinos at an average family size of five members. The
peso’s appreciation against the dollar has hit the incomes of
these millions of Filipinos hard.
The income of the average one-OFW household was
effectively reduced by P11,300 last year. If the peso appreciates to
P38 per US dollar by the end of this year as has been forecast, then
the average OFW household will be losing around P3,710 per month
compared to early 2007, or a loss of P30,000 to as much as P45,000
over the whole of 2008.
Capital controls on portfolio investments will
immediately stem the severe appreciation of the peso by keeping
dollars in the local economy, and could even help restore lost
incomes. One reason for the strengthening of the peso is the rapid
increase in net foreign portfolio investments that, for instance,
rose by a very large 77 percent to $3.7 billion in January to
November 2007 from the same period the year before.
Imposing capital controls will not solve the
increasing poverty incidence in the country, but will definitely
give a respite to many Filipino families suffering from rising
prices and falling incomes.
Deeper reforms, however, are needed to
substantially address poverty in the country, and only a government
with genuine interest in uplifting the conditions of the poor
majority can undertake these.
Jose Enrique Africa is research head of Ibon
Databank Philippines. He graduated from the undergraduate and
masteral programs in economics of the London School of Economics.
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