Monday, 4 May 2009

The ‘hidden’ strengths of OFWs--how the IMF and MB can also go wrong

Manny Villar
Business Mirror

I have always been confident that overseas Filipino workers (OFWs) will play a big role in carrying the Philippine economy through the turbulent global recession. And I am optimistic we will not see any dramatic drop in their remittances at all.

So I was glad to read reports that the Bangko Sentral ng Pilipinas (BSP), which late last year expressed concern that remittances of OFWs would decline this year, is just as optimistic, too.

Only last month, the World Bank projected that remittances to developing countries like the Philippines would fall by 5 percent to 8 percent this year, citing the uncertainties over the duration and depth of the global financial and economic crisis.

The World Bank’s sister institution, the International Monetary Fund (IMF), estimated 2009 remittances from OFWs at 7.5 percent below the 2009 figure, or $15.17 billion, compared with last year’s $16.4 billion.

Actually, that’s not bad. Remember, OFW remittances totaled about $14 billion in 2007, when the economy grew by 7.2 percent in terms of gross domestic product. At $15 billion, remittances will still be several times the amount of foreign direct investments that flowed into the country, which reached only $1.5 billion last year, on a net basis.

Higher deployment to the Middle East will push remittances higher in the second semester, contradicting the dire forecasts by multilateral agencies of a decline in the money sent by Filipinos working abroad.

When Deputy BSP Governor Diwa Guinigundo returned from a trip to Saudi Arabia, he noted that highly skilled Filipinos are preferred in the Middle East.

“Personally, with the information I have, a decline in remittances is unlikely,” Guinigundo said. “There is also cause for optimism for the second half of the year, when we will have to review our numbers.”

Overseas Filipinos coursed $16.4 billion through banks last year, a 13.7-percent growth from 2007. During the first two months of 2009, remittances rose 2.5 percent to $2.6 billion, propped up by sea-based and land-based workers.

The BSP has explained that its earlier forecast of a flat growth in remittances this year was based on expectations that many OFWs would lose their jobs as their host- countries suffered from the impact of the global recession and deployment of Filipino workers overseas would slow down.

The opposite happened. More Filipino workers are leaving for jobs abroad than those who are returning home. The government has announced new job openings for Filipinos, who comprise almost half the workers in the construction industry in the Middle East.

According to Guinigundo, there are development projects worth $45 billion in Jeddah alone, which will open job opportunities for Filipinos.

I said earlier that Saudi Arabia and most other countries in the Middle East are the least affected by the global crisis. They may suffer lower earnings from exports, but they have ample resources to sustain their economies. Their sovereign funds are intact, they will not go into deficit.

This is why I don’t expect any radical cut in employment in Saudi Arabia, Kuwait, Abu Dhabi or Qatar. The only one hit by the global crisis was Dubai, which depends on tourism.

But what is happening now is that the OFWs who lost their jobs in Dubai are going to Abu Dhabi or Qatar, looking for new employers, instead of just going home. Their advantage is that Filipino workers, besides being hard workers, are multiskilled and can shift from one job to another.

There are other factors that will sustain OFW deployment and remittances growth amid the global financial crisis.

In Europe, where most OFWs work as domestic helpers and whose presence in the household allows their employers to work, or as caregivers who are taking care of the aging population there, it is not likely that they would all be sent home; not in droves, at least. After all, people who have gotten used to having somebody take care of their needs, to give them the time to pursue their occupational interests or enjoy personal comfort, would not easily give up their helpers or caregivers.

In the United States, the worst fear is that the recession will drive up the unemployment rate past the 8-percent level to as high as 10 percent. If we apply that to Filipino workers in the United States, then we can assume that 10 percent of OFWs there will lose their jobs, and remittances from there will decline by 10 percent.

But the US unemployment rate was already averaging 7 percent last year. So the 10-percent unemployment rate under a worst-case scenario means only a 3-percent increase in the US jobless rate. Applying that again to OFWs, then we can expect 3 percent of Filipino workers in the United States will lose their jobs this year, and their remittances will decrease by 3 percent.

What I’m saying is that the big drop in remittances projected by the World Bank and the IMF may happen to other labor-exporting countries, but less likely to the Philippines.

The pessimistic forecasts of the two institutions are understandable. They did not take into account or were not aware of the unique characteristics of Filipino workers.

I know, for example, that some of the OFWs whom I helped come home after encountering problems abroad have gone back and found new employment. That’s resilience, a strength of Filipino workers that is not likely to be appreciated by Western analysts.

One more thing is that if remittances do actually drop, the reason may not be that OFWs are being sent home, but because they are deliberately withholding or reducing the amount of foreign exchange they are sending to their families, in anticipation of a higher exchange rate (more pesos for a dollar).

OFWs are smart. They will rather travel far to get more pesos for their dollars instead of changing their currencies in hotels or airports. In our housing business, we have noticed that when they see the exchange rate going up, buyers will delay their amortization payments, waiting for a more favorable exchange rate, thus maximizing their income.

Can the bright boys from the World Bank and IMF see that? I doubt it!

I agree with the Bangko Sentral’s plan to review its forecast on remittances, given the increase in deployment. On the average, the number of Filipino workers leaving for abroad has increased from 3,000 in the past few years to about 4,000 this year.

During the first two months of 2009, remittances grew by 2.5 percent to $2.6 billion. That’s significantly lower than the 13.7-percent increase for the whole of 2008, but 2.5 percent is also significantly higher than zero growth, which should now be our worst-case forecast.

We know ourselves better than the World Bank and the IMF know us Filipinos!

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