The Impact of Remittances to the Philippine Economy
Paper presented at the Outrage! Forum
Asian Center, University of the Philippines, Diliman
July 5, 2005

By Lualhati Roque
Executive Director
International Migrant Resource Center (IMRC)


Introduction

For the last thirty years, the Philippine economy, and all administrations from the time of the dictator Marcos to the present, have been propped up by the remittances of overseas Filipinos.

Simply put the country's economy is saved from eventual collapse by the remittances of Filipinos working and residing overseas. This is a stark reality that all Presidents and their different sets of economic managers know for a fact, and take pains to hide from the general public.

That general public includes the majority of the increasing number of families that are dependent on remittances for them to survive the chronic economic crisis.

Last year, close to 10 million Filipinos overseas remitted a total of US$8.5 billion to the Philippines. This is 9.2% higher than the US$7.6 billion total of 2003. This is aided by the government's pursuit of its labor export program that targets 1 million Filipinos deployed annually. For the first half of this year, 502,772 OFWs were deployed abroad compared to the 483,496 OFWs deployed in the same period in 2004.

The Philippines is the third-biggest recipient of remittances behind Mexico and India. Government data show that as of June 2004, annual remittances were three times larger than ALL the foreign direct investment the Philippines receives.

According to an IMF study, aside from exports of goods and services, remittance is "by some margin" the largest source of foreign currency for the nation. It sustains local demand for restaurant meals, motorbikes, pre-paid mobile phone credits and cinema tickets as exports slump and debt payments force the government to continue severely limit social spending.

We must note that the annual remittances (US$8.5 billion or P467.5 billion) of migrant Filipinos is bigger that the combined value of the top five Philippine merchandise exports (semi-conductors, finished electricals, garments, crude coconut oil, and bars and rods of copper) in the same year.

The same amount is more than half of the 2005 national budget (P907 billion); close to 100 times the Foreign Direct Investments for the year 2003; almost 10 percent of the Gross National Product in 2004; and 26 times bigger than the combined total of US military aid to the Philippines in the 1990-2001 period.

Why is government resolute in the pursuit of its labor export program? Despite the increasing trend - so far - of annual remittance inflows to the country, why does our economy remain generally fragile?

These are some of the questions that can be answered when we clarify some realities that are already part of our daily national life.

A backward, fragile economy

We are a nation of 86 million people wherein a third of the population lives on less than 60 US cents (P33 pesos) a day and actual unemployment is higher than 11 percent.

Ours is an economy that is driven by a heavy dependence of the import of finished products and export of raw materials, semi-processed materials and labor.

It is an economy that is backward, mainly agricultural and without basic industries. It is increasingly dependent on migrant Filipinos' remittances to keep government intact.

The current government is currently in a tough bind by pushing for new taxes and pursuing its labor export program in the drive to produce more revenues for its cash-strapped coffers.

Thus, the Philippine government, since the time labor export was institutionalized in the Marcos years to the present, cannot do without the remittances of migrant Filipinos and the revenues it derives from the fees that it gets from them before they leave the country.

It must also be noted that government raked in P14.4 billion pesos from the government fees charged to all the 933,588 workers who were deployed in 2004. An OFW applicant pays an average of P15,400 in government fees before he or she leaves the country. This does not include the astronomical charges of recruitment and manning agencies.

Simply said, labor export is also one big revenue generation scheme of the government.

Remittances help the economy stay afloat

Generally, there are two modes of sending remittances available to overseas Filipino workers. These are the following:

a. formal (banking) channels (Allied Bank, Metro Bank, Philippine National Bank (PNB), RCBC, Equitable-PCI). In this mode, the OFW would bring his/her hard-earned wages in whatever currency to the bank which shall transmit it its branch in the Philippines specified by the OFW.

The OFW's family or dependent receives the remittance in its peso equivalent. This is the general picture that most migrant Filipinos and their families know.

That is not the end of the story though. Remittances through formal channels are closely monitored by the Central Bank and multilateral financing agencies.

The inflow of remittances through formal channels are reported by all banks to the Central Bank, that in turn tallies this as part of the country's dollar reserves - the same reserves that are used to show the IMF, World Bank and other international funding agencies the country's "capacity to pay its debts."

These dollar reserves are what the Philippine government uses as part of its "collateral" in getting new loans. The government cannot do without the remittances that go through banking channels. It would mean the loss of investor confidence and worsen the government's long-term incapacity of possibly fully paying its international debts.

b. informal channels (door-to-door). This mode is actually an increasingly extensive network of informal money remitters that is also called the padala system. This system is based on personal couriers (usually friends and relatives) who deliver money door-to-door. In many cases, this mode is faster, cheaper and is more flexible with regard to time and proximity to OFWs and their dependents, especially in the urbanized areas of the Philippines.

The inflow of remittances through informal channels, since these do not go through the banking system, are not monitored and tallied by the Central Bank. Thus, the US$8.5 billion remittance figure for 2004 and all Central Bank annual remittance inflow figures for that matter, only show a narrow part of the actual remittance figure.

Keeping the economy and government afloat

The World Bank and Asian Development Bank, in their respective surveys on OFW remittances in 2002 and 2003 have estimated the actual inflows of remittances to the Philippines as between US$14-21 billion per year.

These remittances that seemingly go straight to migrant Filipinos' families and dependents and not into government hands are what keep the economy afloat.

When families and dependents get their remittances from both formal and informal channels, these are spent for survival. This generally fuels consumer spending and shores up the country's dollar reserves.

Remittances are spent by families and dependents primarily for food, clothing, utilities (electricity, water, communications), house rent, children's schooling, hospitalization and other services.

This is what 10 percent of the nation's population living abroad does, due to the obscene lack of decent jobs at home.

Government and big business know that the economy is being saved by the remittances of the overseas workers, especially in the provinces.

The Philippines is not creating enough jobs for its swelling population, driving one in 10 people to seek employment abroad. The one million deployment target of the current administration and its doctored statistics on employment and job generation only serve to cover up the extreme deprivation and grinding poverty being experienced by our people.

The best and brightest minds, and the sturdiest work hands of our country are forced by the current government and current societal set-up to leave and suffer abroad. The loss of dignity and the humiliation that we suffer as a nation as stark reality as doctors become nurses, nurses and teachers become domestic workers, mothers and daughters end up as entertainers or get caught in the web of sex trafficking abroad.

This actually denotes that we are losing the capacity to really build a strong and vibrant economy as our human resources that are vital components in the production and service sectors go abroad.

Government is content with the present dispensation. But this is not going to be the case as labor markets, on the long term, will constrict as nations that import migrant labor reel in the world-wide economic crisis.

Reliance on remittances from labor export will not cure the ills of our economy. It only heightens the stakes of how hard the country will fall when the remittance flows fluctuate from the present increasing trend.

Sources:

Asian Development Bank 2004c. Enhancing the Efficiency of Overseas Workers'
Remittances. Technical Assistance Final Report, July 2004.
Asian Development Bank, Poverty in the Philippines: Income, Assets and Access, Metro Manila, Philippines. January 2005.
Bangko Sentral ng Pilipinas
National Statistical Coordination Board
Philippine Overseas Employment Administration
World Bank Case Study on the Philippines, 2003b.

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