Philippine remittances rise, at a cost

MANILA – In suburban Alabang, south of Manila, Juana Santos, 57, runs a makeshift store. On any given day neighbors come in droves, not to buy goods but to enquire about padala, a Tagalog word that in English means remittance.

The elderly woman’s store – which also doubles as a place to change money – is typical of the grassroots-based remittance outlets that have mushroomed across the island nation since the exodus of Filipino workers to the Middle East in the mid-1970s. All it takes to engage in this kind of business, whether legal or illegal, is a cell phone, and both the remitters and their recipients are just text messages away.

In Binondo, Manila’s Chinatown, returning Filipino seamen withdraw wads of US currency from a bank, then swap them for pesos from Chinese merchants at black-market rates – a few pesos more for every US dollar than is offered by banks. (The present exchange rate is about 45 pesos per US dollar). As a rule, no receipts are issued and no questions asked.

Such hassle-free transactions characterize the rapid shift in the Philippines’ financial architecture, driven by booming remittances from more than eight million Filipinos working and living abroad.

From only US$105 million in 1975, annual inflows have grown to $17.3 billion in 2009, equivalent to 10.8% of the Philippines’ domestic output. In the first six months of this year alone, remittances rose 6.9% year-on-year to $9.1 billion, the latest central bank figures show.

The 2009 volume – a 5.6% surge from the previous year’s level – defied gloomy projections by the World Bank and International Monetary Fund. Both had forecast a negative growth rate for Philippine remittances in the wake of the previous year’s mortgage debacle in the United States and a worldwide recession.

Last year, the major sources of foreign money, which helped the Philippines weather the onslaught of the global economic meltdown, were led by the US and Canada, Saudi Arabia and the United Kingdom. Other top sources were Japan, Singapore, United Arab Emirates, Italy, and Germany. According to World Bank statistics, the Philippines was the fourth-largest recipient of remittances among developing economies, trailing only India, China and Mexico.

Overall remittance flows to developing countries were estimated to have reached $305 billion in 2008, almost triple their level in 2002. Among all developing regions worldwide, the East Asia and Pacific region continues to be the largest recipient of migrant remittances. From 1975 to 2007, the Philippines received more than $120 billion in remittances passing through the formal banking system.

Overseas Filipinos are the Philippines’ single largest source of foreign exchange. Last year’s remittances from overseas Filipinos, particularly contract workers – hailed by the government as the country’s “modern-day heroes” – overshadowed foreign direct investment, which totaled a mere $1.9 billion in 2009. Money sent home by sea-based workers jumped 12.1% to $13.9 billion, while the flow from land-based workers rose 4.2% to $3.4 billion.

With the resurgence of the world economy from last year’s slowdown, the Philippine Overseas Employment Administration (POEA) expects a heightened demand for Filipino workers and professionals over the next 10 years. POEA data showed a 15.1% rise in the number of new workers deployed overseas to 1.4 million in 2009, against 1.2 million in the previous year.

The POEA predicts that the Middle East will continue to be the Philippines’ major labor market. Saudi Arabia, Qatar, Oman, Kuwait and United Arab Emirates have all embarked on major projects related to energy, petrochemicals, water, transport and telecommunications, the POEA has noted.

The US, meanwhile, is facing a critical shortage of healthcare professionals. Vacancies for nurses are projected to grow from 275,000 this year to over 800,000 by 2020. Europe is also in short supply of manpower due to a rapidly aging population and a declining workforce.

The impending transfer of US military bases from Okinawa, Japan, to Guam is also expected to spur demand for Filipino contract workers. The US wants to replicate in Guam its former Subic and Clark military bases, now bustling investment hubs in the Philippines, it left behind in the mid-1990s following the lapse of its lease agreement with Manila.

Asia, the second-largest regional destination for Filipino labor, is likely to continue hiring skilled workers and professionals as Japan, China, South Korea, Malaysia and Singapore are projected to widen their economic bases. Taiwan’s medium-term development plan will create 700,000 new jobs for foreign workers in the next five years.

POEA’s upbeat outlook of the overseas labor market prompted the central bank to upgrade its remittance growth forecast for 2010 from 6% to 8%, or more than $18 billion. Overseas Filipinos remit to their families back home an average of $350 a month to help defray the costs of food, shelter and education, says the Manila-based Asian Development Bank.

Rent-seeking middlemen

The multi-billion dollar remittance industry has sparked cutthroat competition among local banks and a proliferation of thousands of non-banks or “informal channels” such as door-to-door enterprises, couriers and other “fly-by-night” remittance handlers. Even those fronting as Internet cafes, money changers, pawnshops, cargo forwarders and post offices often also operate as “remittance centers” on the side.

Mostly unlicensed by the central bank, these underground financial conduits thrive because of the high charges banks impose on fund transfers.

The Trade Union Congress of the Philippines (TUCP), a labor group, cited a World Bank study in 2009 which found that Filipinos pay charges of between $6.93 and $19.05 to remit just $200.

TUCP secretary general Ernesto Herrera, a former chairman of the senate committee on labor, employment and human resources, described the rates the banks and other money transfer firms slap on the remittances as “oppressive and burdensome”.

“These bank charges are definitely excessive, considering that in this day and age of modern technologies, seamless and cost-efficient money transfers are already possible through such platforms as the Internet and international mobile telephone short-messaging,” the labor leader said.

The Philippines’ high remittance rate implies a weak local employment base. The unemployment rate averaged 10.4% annually from 2001 to 2008, one of the highest in the Association of Southeast Asian Nations, if not the entire Asia Pacific region. In the same eight years, the unemployment rate was only 3.4% in Malaysia, 8.9% Indonesia, 2.3% in Thailand, and 3.4% in Singapore.

And while Filipino workers and professionals are often given preference by foreign employers over other nationals because of their skills and English language proficiency, the departure of workers deprives local industries of much-needed qualified manpower. Government initiatives to stem the “brain drain” have not had much success because the pay scales abroad are comparatively much higher than those offered by local employers.

On the human side, high remittance rates often hide the underlying social costs of massive labor migration, including the broken homes of separated families and the setbacks facing those overseas, who often fall prey to illegal labor recruiters and contract violations.

Al Labita is a Manila-based journalist.