Considering that the globe is mired in a major economic crisis which continues to roil its most advanced countries, the Philippines’ economic picture is impressive. Its unemployment rate is hovering around 7% (while the latest US figure is at 9.7%), and its gross national product (GNP) of about $186B recorded a phenomenal 4.5% growth in 2008. Moreover, while the US economy contracted as of the second quarter of 2009, the Philippine economy managed to grow by 4.4%.
What accounts for this performance? Simple: higher remittances. Which just goes to show that when the going gets tough, the tough overseas Filipino workers (OFWs) – laboring in all the continents except Antarctica – somehow manage to send more money home.
According to the BSP (the Philippines’ central bank), remittances from January to June 2009 totaled $8.5 billion, of which $4.5B came from the Americas. When annualized for 2009, this translates to at least $17B. Though the pace has slowed this year from the almost 10% annual growth recorded for most of this decade, the final year-end tally will likely be higher because remittances usually rise during the Christmas 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 value can be placed on the medical missions conducted by Fil-Am doctors; on those donations to charitable organizations like Books for the Barrios which advance Filipino causes; and on those tourists who visit because of the encouragement, active or otherwise, from their Filipino co-workers and friends?
In her report, “Poverty in the Philippines: Income, Assets, and Access,” Karin Schelzig, a Social20Development Specialist for the Asian Development Bank, cited a World Bank study which estimated actual remittances to be as high as $21B in 2002. That year, however, the official BSP figures only showed total remittances to be around $7.6B.
A rudimentary extrapolation from this data means that the 2009 figure may be as high as twice the $17B estimated for 2009 – $34B – or more.
Given that the Philippine government’s budget for 2010 is about PHP 1.541 trillion (roughly $32B), this means that after financing the operation of the entire Philippine government for the entire year – e.g., after paying for the President, every government worker, 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 study by two University of British Columbia professors, Dr. Michael Goldberg and Dr. Maurice Levi, 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 the lack of credit and savings vehicles.”
But economics is not called “the dismal science” for nothing. For every economist saying “good,” there’s another saying “bad.”
A 2009 IMF 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 paper 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 IMF study seems to suggest that by helping the poor financially, you are making them worse off and dependent on you. I suspect that hundreds 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 study.
The main flaw of the IMF 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.
Thus, 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, and 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, in Cebu, Philippines (www.6thGlobalCebu.com). It will be a forum for the 11 million Pinoys in the global diaspora to voice their opinions on what the Philippine govern ment 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.