Ilocos Sur Polytechnic State College

Sta. Maria, Ilocos Sur

In partial fulfillment of the requirement

of the subject in English

title
OFW Remittances Boost Our Economy

Submitted by:
Edgar A. Peralta

March 2011

c
P ag e
 

The World stands as a globalised village. Many people go aboard for better education or for
a better lifestyle. Through Remittance they do not need to worry about their loved ones at
home anymore. Remittance transfers have existed for centuries, but have only garnered the
attention of people in the last couple of decades.

Remittance Transfer could either be domestic or could be International. If the money is

remitted within the same country then it is said to be Domestic. It is believed that almost ten
percent of the population of the world is a part of the process of remittance.
The majority of the remittance receivers are poor individuals, thus remittance leads to better
economic conditions and in many parts of India for the Indian families.

Nothing pushes businesses to innovate and boost efficiency to meet market demand
than competitive price pressureͶif your customers won͛t buy your product at a high price, you
lower your price or else your competitor will. Because of OFW remittances, this price pressure
is weakened. The Philippine economy has been floundering since the mid 80s and became
pronounced during the first Aquino administration and can barely keep up with the per capita
GDP pressure caused by a high birthrate. Without OFW remittances, this closed system would
force local companies to lower prices/be more efficient to try to capture Filipinos͛ diminished
earnings. Thanks to remittances, money is flowing in and allowing the local monopolies and
market players to keep inflating prices due to inefficiency. Moreover, it empowers the local
monopolies to keep the local market relatively closed through tarrifs/rent seeking deals with
the government. End resultͶcrappier service, less selection, less employment. Ever notice that
the local GDP (despite the occasional ͚blips͛ during GMA͛s administration) always remains
anemic?


P ag e
 
 


The researcher wishes to express his profound gratitude and sincere appreciation to all
those who were instruments in the accomplishment of this study.

To my adviser, who exerted tremendous effort to correct and guide my research

towards the completion of this research study?

To my parents, brothers & sisters and my aunties & uncle who supported me in my
studies.

To my colleagues for lending assistance whenever needed.

Ö
P ag e
    





I. Title page 1

II. Preface 2

III. Acknowledgement 3

IV. Table of Contents 4

V. List of Tables Illustration 5

VI. Body 6

Abstract 7
Recommendation 10
References 10

s
P ag e
  


Ë
P ag e
 

Remittances stifle economic growth by reducing labor participation

Another sad effect of OFW remittances is that it enables otherwise able-bodied and
educated people in the prime of their life from going out there and getting a job. This hurts the
economy because wages for ͞college required͟ and other mid to higher tier jobs are boosted.
Isn͛t this a good thing? Not really because higher wages for these jobs mean there͛s going to be
less of these jobs available. Why work for P15K to P20K a month when your parent is sending
your family $2K (roughly 90K php) a month, right? Why deal with the added expenses of
commuting, buying meals, and the daily hassles of gainful employment when you can sleep
late, wake up, eat, and go pick up a Western Union money transfer twice a month? Not only
does this dependence distort the local labor market͛s wages, it also incentivizes (perversely)
students NOT to finish school. How? Why would a student in college want to hassle with
getting up early, commuting through horrible traffic, putting up with boring lectures, and the
other ͞torments͟ of modern student life when the work they get (maybe) when they graduate
pays LESS than the amount of money they are getting from their overseas relative? This is sadly
ironic given that one of the most common reasons OFWs go overseas in the first place is to
provide for their families͛ educational needs.

Remittances fuel local inflation while maintaining flat GDP growth

Ever notice the huge rise in home prices? Much of the real estate ͞boom͟ in many parts
of the Philippines is due to OFW demand. While this creates some jobsͶthey are mostly
temporary and the economic effect is fairly shallow while local prices get distorted. Locals have
to contend with inflated prices while local purchasing power keeps eroding. Again, this
arrangement favors the land development monopolists/land bankers who turn out overpriced
and shoddy (by world standards) products while harming local buyers.

The OFW ͞economic policy͟ the government is pursuing is short-sighted and ultimately
suicidal. It is like eating your arm to stave off hunger pangs. Without other food sources, even
if you eat your arm you͛re still going to eventually starve to death. The real solution comes
from elsewhereͶeconomic liberalization and real GDP growth. But that might mean
unclenching feudal forces like the local Catholic Church and keeping monopolies from making
PIGS of us.

DESPITE expectations that remittances will post an 8-percent growth this year, the
World Bank expects overseas Filipino workers (OFWs) and their families to scrimp to get more
bang for their buck due to the strong peso.

In the Philippine Quarterly Update (PQU), the World Bank said remittances would have
little or no effect on boosting private consumption mainly due to the dampening effect of the
strong peso.


P ag e
 ͞Our projections of broadly flat remittance inflowsͶin real peso termsͶwould act as a
moderate brake on private consumption, in contrast to the large boostͶabout 10-percent
growth rateͶit provided during the midst of the global recession,͟ the PQU stated.

͞Remittances are projected to grow by 8 percent in 2010 following the large

deployment of emigrants in 2009,͟ it added.

The World Bank said private consumption will grow by 5.3 percent this year and slow
down to 4.9 percent in 2011. The bank expects the overall effect of remittances on private
consumption to experience a ͞moderate brake͟ due to the strong peso.

Through the years, private consumption, largely due to OFW remittances, has greatly
boosted economic growth. During the crisis, OFW remittances that fueled domestic demand
prevented the economy from contracting and it still posted a 0.9-percent growth in 2009.

Economists earlier pointed out that the proclamation and inauguration of President
Aquino will boost the confidence of investors in the Philippines, likely resulting in the peso
appreciating in the second half of the year.

Meanwhile, the PQU said that what will support private consumption is an increase in
investments, as well as the expected improvement in labor performance. The bank said
investment growth is projected to reach 9.4 percent in 2010.

The bank explained that the strong growth in overall investment is a result of the low
2009 base, when investment sharply contracted during the crisis.

The low-base effects will also affect exports which the bank expects to grow 20 percent
this year. This is higher than the government͛s own forecast of 15 percent full-year growth.

The World Bank said these and the improving business sentiment indicate that the
robust growth in the manufacturing sector will likely continue for the rest of the year and
return to pre-crisis levels.

Agriculture, poor threatened

However, what is threatened is the plight of the poor since agriculture growth is
threatened. In the early part of the year, the bank said more than 800,000 jobs were lost in
agriculture employment due to the El Niño.

This, the PQU said, could continue due to the La Niña. ͞The agriculture sector is
particularly at risk, with a 50-percent probability of La Niña occurring in the second half of the
year. In contrast to the El Niño drought, but equally devastating for the agriculture sector, the
La Niña phenomenon causes heavy rainfall,͟ the bank said.

Ò
P ag e
 Social spending and fiscal consolidation

IN order to help the government cope with this and the possible effects of the European
debt crisis, the government must continue its social spending through better-targeted social-
protection programs, as well as implement a comprehensive and credible fiscal consolidation
plan, said the bank.

And, while the government͛s conditional cash transfer (CCT) program was well-targeted,
there is still a need to revisit many social protection and subsidy programs to enhance their
targeting and accountability, it added.

The Washington-based lender said better targeting of programs can be attained by

using the success of the CCT, reducing program leakages and developing the CCT as the
backbone of the country͛s consolidated social-protection system.

On the fiscal side, the World Bank said the government should implement a fiscal
consolidation program to shield the country from the ill effects of the European debt crisis,
which could still spill over to East and Southeast Asian countries like the Philippines.

͞A credible plan toward fiscal consolidation over the medium termͶalong with
measures to manage fiscal risksͶwould significantly reduce the Philippines͛ exposure to the
worsening European debt problems. Such credibility could be achieved, for example, by
designing a comprehensive and multiyear reform package,͟ the PQU said.

The report said stronger public finances would inspire confidence in the financial
markets, create policy flexibility to tackle global downside risks, and boost economic growth.

͞The Aquino administration͛s focus on increasing the efficiency of revenue collection

and expenditures is welcome in that regard and is expected to generate important fiscal space,͟
World Bank senior economist Eric Le Borgne said in a statement.

͞The government would need more funds for education, health and other social
programs so that marginalized sectors could equitably share in the benefits of growth in a
sustainable way,͟ he added.

The PQU, as well as the Global Economic Prospects report of the bank released last
month, forecasts the Philippine economy to grow by 4.4 percent in 2010 and 4 percent in 2011
on the back of a global recovery in trade.

Worldwide, growth is firming up to reach 3.1 percent to 3.3 percent this year.
Developing countries are projected to grow significantly faster, to a little over 6 percent.

(
P ag e
 The bank said growth in the United States and Japan is firming up and has spread to the
private sector, becoming more broadly based and self-sustaining. In contrast, however, growth
in European countries, weighed down by the debt-related issues, remains weak.

Next to the exports of goods and services, overseas remittances are the largest foreign
exchange sources for the Philippine economy. And empirical results as that undertaken by
the Bangko Sentral ng Pilipinas indicate that the beneficiaries are first, the middle-income
classes from across all regions and second, the low-income classes, also from all regions,
except that of the NCR where the high-income classes come only second.

Further studies as that of the Asian Development Bank indicate that this has become a
strategy in most developing countries ʹ exporting human capital in favor of migrant
remittances ʹ to address poverty reduction. Truth is, practically, 10% of Filipinos today of
the 90 million population work overseas making RP the third largest migrant-sending
country next to Mexico and India. Thus, such remittances clearly become source of capital
and resources as it impacts on the development of millions of households in the country.

In 2003 alone, almost 8 million reside or work overseas. Again, some $7.6 billion are
recorded to have flowed in through various formal channels in the Philippines but such
amount is even believed to reflect only half of the money sent to the Philippines through
various other unregulated channels.

Currently, the Central Bank forecasts that overseas worker remittances will hit record of
$15.9 billion this year or up by 10% from 2007. It ought to be higher than these recorded
figures on account of other channels or modes by which foreign earnings come into the
country other those through commercial banks. Fact is, for July 2008 alone, it is said that
migrant remittances rose double-digit to hit 24.6 percent. Thus, it cannot be gainsaid that,
as a major source of foreign exchange, migrant remittances pay a significant contribution to
the country͛s gross national product.

RP has, matter-of-factly, filled the void for that great demand for sea-based workers
accounting for almost 30$ of the world͛s supply of seafarers. And of the total amount of
annual migrant remittances, some 14% of which were from Filipino seafarers. And not too
surprisingly, albeit sadly enough, these remittances have been mostly used for excessive
consumption, both from the OFWs and from their household beneficiaries.

On the other hand, the soothing effect of migrant remittances, is said to have perpetuated a
culture of dependence on remittances and this perceived moral hazard or dependency


P ag e
 syndrome is seen to impede economic growth unless such amounts of money are better
geared toward more productive economic endeavors. In other words, if otherwise not
invested productively away from mere excessive consumption of the new-moneyed class, it
cannot be transformed as a source of capital for development.





Viewed another way, I do believe that our overseas workers ʹ as the main labor force of
most developed countries in the world ʹ only know too well on how to remit their hard-earned
earnings to their families and households in the Philippines. Perhaps, it will be a better scheme
for them to send their earnings through some backdoor approach other than formal channels
since banks stand more to benefit in the process if it were through the formal sector.

The government does not have to design a sort of a ͚strategic fiscal template͛ in order to
harness remittances for other purposes than that designed by the OFWs and their beneficiaries
ʹ excessive spending in consumer goods. That will be alright in any case since a lot of money
circulates in our domestic markets. Still, ours is a free market economy and any form of
imposed economic order is but taboo, call it that. Let not the hand of the State is seen getting
cookies from the cookie jar. Leave the OFWs alone.

r
  


 

 
rrr !"# $%&'()""  *
$* !+, -.

http://businessmirror.com.ph/index.php?option=com_content&view=article&i...


$$$ !

""/0"+ "0


$$$ / 


  ,
$  1 1 2  



  ,

c
P a g e