• Worries for OFWs are worries for the country

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    TWO pieces of economic news earlier this week have revealed, once again, just how vulnerable our Overseas Filipino Workers (OFWs) are to what economists dryly refer to as ‘external factors.’

    On Monday, the Bangko Sentral ng Pilipinas (BSP) published data that showed the growth rate of OFW remittances slowed in April. The month’s total of $2.23 billion represented a year-on-year increase of 4.9 percent over the $2.12 billion sent to the country in April 2014. While still positive, this was a slower pace than the 5.4 percent expansion recorded for the same month a year earlier, and considerably less than the 11 percent posted in March.

    At the same time, the peso is being battered in the local currency market. In trade on Monday, the peso slipped to P45.20 to $1, the lowest the local unit has been in 15 months; the peso closed at P45.29 back on March 21 of last year.

    The two pieces of news are related, but in ways that are perhaps not obvious to the casual observer. Ordinarily, weakness in the peso with respect to the dollar is a positive development for remittance-receiving families, because they will receive more pesos for each dollar sent. However, a weakening peso for all practical purposes raises inflation by raising the peso-relative cost of all imports. Technically, this also includes the foreign money that is being “imported” by remittance-receiving families; these families, however, are unlikely to notice; the burden of the extra costs of money is instead borne directly by banks and other businesses (for instance, pawn shops) that convert the dollars to pesos for local use. Families feel the pinch later, when more expensive imports contribute to higher prices of goods and services.

    ‘Exchange effects’
    Changes in exchange rates affect remittances in a hidden way as well. Remittances that start as amounts of foreign currency often undergo conversion two or more times before reaching their intended recipients. For example, a remittance from a worker in Germany, paid in euros, generally is coursed through a US bank, where it is converted to dollars, and then transmitted to the Philippines, where it is converted to pesos. A relative weakness of one or more of the three currencies involved will affect the final amount received, almost always negatively.

    OFW remittances contribute more than 10 percent of the Philippines’ GDP, and when growth in remittances lags behind growth in the number of OFWs, it must be taken as a warning that the situation could have a broadly negative impact: In simple terms, remittances have to grow at or above the rate of GDP growth in order to contribute positively to the wider economy; when they do not, as is the case after the April numbers, GDP growth will be reduced.

    For five years, the Aquino Administration has treated OFWs as an afterthought, having no real policy other than to react – usually too late – to various crises. The current indicators of remittance levels and peso exchange value are not a crisis yet, but because these factors potentially affect much more than just the OFW sector, the government should not waste a moment waiting for the situation to clear up on its own. Taking the proactive approach and examining costs of remittance services, the impact of currency controls, as well as the exchange rate policy, all with a mind toward increasing where possible value for money for remittances would not just make the sacrifices of our ‘modern-day heroes’ more worthwhile, but would help to prevent or minimize significant shocks to the entire economy.

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    2 Comments

    1. Mariano Patalinjug on

      Yonkers, New York
      21 June 2015

      There are now more than 10 million Filipino OFWs scattered in some 191 countries on our planet, with their annual remittances back to the homeland now at an average level of over US$2 billion a month, or over US24 billion a year.

      As this column says, this average annual dollar remittance to the Philippines accounts for around 10 percent of the country’s annual GDP–a very substantial portion, indeed.

      There are concerns that with the peso-to dollar forex now at US$1 to P45+ the country will be negatively impacted; but. on the other hand, homeland recipients of this improved forex will benefit them immensely. So it is not a one-sided problem. Consumption expenditure happens to be around 60-67 percent of a country’s GDP.

      And there is the other fact that on the average a year an additional at least one million adult Filipinos are forced to join the Great Diaspora of OFWs to these 191 countries on our planet–for the very simple reason that these have no chances whatsoever of finding gainful employment in their own country. Thus, it is possible that this additional million OFWs yearly will be sending their own remittance to their families in the homeland, and in the process take up part or all of the slack.

      And this in spite of the fact that the country’s GDP has been posting an impressive average quarterly growth of around 7 percent–which is said to be one of the highest in Asia now. Sadly, however, that impressive spurt in GDP has been uniformly JOBLESS for all of the years that President Aquino has been in office.

      That is a paradox or conundrum that must befuddle and confound President Aquino and his Economic Brain Trust no end. But Pope Francis, although not an Economics or Finance graduate from Wharton or Harvard, knows why. On a plane-side interview he gave on his way back from Manila to Rome after his epochal January 15-19 visit to the Philippines, where he saw with his own merciful and compassionate eyes how truly poor “poor”Filipinos were, probably forgot not only that he was Roman Catholic, but also that he is the Pope, and warned ‘CATHOLICS NOT TO MULTIPLY LIKE RABBITS!” [I imagine how the bishops of the Catholic Bishops Conference of the Philippines must have squirmed!]

      MARIANO PATALINJUG
      Lapulapu1927@Yahoo.2om

    2. OFW Modern Day Heroes however when they returned home for good our gov’t doesn’t have anything for them. The gov’t should give them pension from OWWA Contributions they paid in return for their sacrifices once they reach the retirement age.