Philippines' remittance lifeline frays
By Joel D Adriano
MANILA - Hefty remittances from overseas Filipino workers have in the past
rescued the Philippine economy from domestic and international economic and
financial turbulence. With the spread of the current global crisis, remittances
are expected to dip as overseas workers lose their jobs, raising questions
about how deep a downturn the Philippine economy might face.
More than 8 million Filipinos work overseas in 202 countries, the majority
finding employment in the United States, Saudi Arabia, Japan, Hong Kong,
Singapore and the United Arab Emirates, with some 112,000 setting sail for jobs
abroad from January to June this year, according to official statistics. Each
year they send billions of dollars home, helping to drive the national economy.
Remittances hit a record US$14.4 billion last year, equivalent to
about 10% of gross domestic product (GDP) and nearly 10 times the amount the
country received last year in new foreign direct investment commitments. The
Philippine central bank expects remittances to reach $16 billion this year and
had earlier forecast a surge to $18.9 billion in 2009.
Now several economic analysts project those targets won't be met as the global
financial crisis deepens and many Filipinos are expected to have to return
home, where their job prospects are slim. Remittances were up 25% year-on-year
in July, but fell back to 10% in August and are expected to remain flat for the
rest of the year. The question now is not if, but rather how bad the
retrenchment of these workers will be.
The Department of Labor and Employment recently estimated that some 50,000
US-based Filipinos were at risk of losing their jobs, mostly in the financial
sector. William Gois, regional coordinator of the non-government group Migrant
Forum in Asia, said that migrant labor from the Philippines, Indonesia, Sri
Lanka and Bangladesh will likely be worst affected by the downturn.
Singapore and Hong Kong, both home to large populations of Filipino workers,
are expected to be particularly hard hit from slowing trade with the US and
Europe. The prognosis is similar for the Middle East, where falling global oil
prices are expected to slow economic growth and demand for Filipino labor.
Gois forecasts a 50% drop in remittances next year from the US alone as
financial market turmoil starts to impact on the real economy. Slowing
remittances are expected to start to hit local consumption hard, beginning this
month and next, when traditionally capital inflows from overseas workers are
strongest in the run-up to the Christmas holiday season.
The Economic Intelligence Unit in a recent report doubted that remittances
would be able to offset a mounting huge drop in investment. With foreign
investment plunging 60.2% in the first seven months of this year compared to
the corresponding period in 2007, new job creation is down. Exports, which
account for about 45% of the Philippine economy, are already slowing in line
with the US economy.
Apart from labor, electronics and electronic components are the Philippines'
main export items and US-destined shipments now account for 15% of the national
total. Exports rose 6.1% last year and the government expects 5% growth this
year. The Philippine Exporters Confederation had earlier projected double-digit
export growth next year, but with the deepening global crisis now anticipates
zero growth.
National Economic Development Authority director general Ralph Recto estimates
that for every one percentage point drop in US GDP, Philippine economic growth
will fall a corresponding 0.6%. UBS, an investment bank, forecast in early
October that the Philippine economy would grow 4.3% this year and fall back to
3.5% in 2009.
Reversal of fortunes
It all adds up to a significant reversal of economic fortunes. Last year, the
Philippine economy grew 7.3%, marking a 30-year high. Much of that growth was
derived from consumption-promoting foreign remittances, which in the main go
towards grassroots spending rather than savings or investment.
Some economists note that the Philippines electronics-dependent economy escaped
recession during the 2000 dot.com bust specifically because of sustained strong
remittances from overseas which kept domestic consumption afloat. However, some
believe that President Gloria Macapagal-Arroyo's government is underestimating
the potential depth of the downturn and has been complacent in implementing
offsetting fiscal policies.
Criticized earlier in her administration for the lack of transparency
surrounding the country's bulging debt profile, Arroyo's government will have
whittled down public debt from around 63% of GDP in 2006 to 50% by the end of
this year. That figure is forecast to fall further to 45% by the end of 2009,
according to official projections.
The Philippine stock exchange has rallied in recent sessions on hopes the
central bank will follow the US Federal Reserve and cut interest rates, but it
is still on course for its worst annual performance ever. Makati City mayor
Jejomar Binay, an opposition candidate for the 2010 presidential polls, has
publicly complained that Arroyo's administration continues to say it is
prepared for the global financial and economic turmoil but has failed to
announce or implement any concrete policies to cushion the economy against the
inevitable blow.
Arroyo's bizarre announcement last month that the International Monetary Fund
and World Bank were preparing a US$10 billion rescue facility for regional
countries - later strongly denied by both multilateral lending institutions -
underscored the notion that her government is out of touch with fast-changing
global financial and economic times.
Instead, Arroyo has signaled her government may be content to look to sustained
foreign remittances to keep the domestic economy afloat. Arroyo told a Manila
business conference last month that her government "will continue to identify
and develop new market niches" and is ready to redeploy workers who lose their
jobs domestically to other emerging labor markets.
Philippine officials say they are looking towards an estimated 90,000 newly
created jobs in Australia, Canada, New Zealand and US territory Guam for
Filipino laborers to fill. It is unclear that those jobs will exist or be open
to foreign migrants once US and European financial turmoil trickles down to the
real global economy.
Critics say Arroyo's government has done little if anything to prepare for the
eventuality of unemployed workers suddenly returning to the country in droves.
University of the Philippines migration expert Melissa P Ferido worries that
the country has become addicted to foreign remittances and that, rather than
implementing policies to create jobs domestically, short-sighted political
leaders often encourage and facilitate the deployment of workers abroad.
It's an economic coping strategy that may have worked in the past, but may no
longer in the months ahead, she said.
Joel D Adriano is an independent consultant and award-winning freelance
journalist. He was a sub-editor for the business section of The Manila Times
and writes for Asean BizTimes, Entrepreneur Philippines, Masigasig and People's
Tonight.
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