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Remittances provide 70% chance to get out of poverty

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By Karen Flores, abs-cbnNEWS.com | 10/26/2009 2:29 AM

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MANILA - Amid economic crises and natural disasters, the Philippines is looking at positive growth this year as more overseas Filipino workers (OFW) send money to their families back home. This may prompt one to ask: what makes remittances so resilient, and how can we make the most out of such inflows?

The Philippines has long banked on the strength of remittances to keep the economy afloat. This is not necessarily a bad thing, according to a study conducted by 3 economics professors of the University of the Philippines (UP).

Entitled "Beyond the remittances-driven economy," the report stated that remittance inflows have served as an effective means for social mobility, allowing some poorer families to pull themselves out of poverty.

"It is estimated that owing to the presence of an overseas worker, a hitherto poor family gains a 70% chance of crossing over to being non-poor," the report said, citing an earlier study.

"Beyond the remittances-driven economy" was made by Felipe Medalla, Raul Fabella, and Emmanuel de Dios in late 2007.

Money sent home by OFWs is a key driver of consumption, which fuels the engine of the economy usually more than government spending does. Accounting for 10% of domestic output, it also stabilizes the peso and keeps the balance of payments in surplus.

Despite its advantages, however, the report warned that a remittance-driven economy is "inherently limited and self-undermining" since skills demanded in OFWs are usually fitted to external markets and are difficult to deepen domestically.

"Returning workers are rarely able to make use of their skills domestically and for the most part are compelled to accept being deskilled when they decide to get home," the report said.

What should be done

Although such a setup may not be sustainable in the long run, the report said that it is difficult to determine when a remittance-dependent economy will start to crumble.

In the meantime, the study recommended that we make the most out of the strength of remittances and start to develop other potential drivers for economic growth.

"The current challenge is how to make the most of a remittances-driven economy so that its deletrious consequences are minimized while the domestic economy is guided onto a path of more sustainable growth," the study said.

Specifically, the report advised the government to mitigate any unwarranted rise in the Philippine peso to prevent further damage to remittances. With a weaker dollar, the same amount that OFWs send home to their families and loved ones will only buy less in peso terms.

Aside from this, the government was urged to invest more on infrastructure and education, which were considered as "safe bets to focus on once the remittance-driven economy is over."

Other sectors include location-based tourism, medical tourism, retirement, information and communications technology, and business process outsourcing

Cushions typhoons' impact

The government said the Philippines is on track to meeting its 0.8% to 1.8% growth this year thanks to "stronger-than-expected remittances." Earlier, it said damages from twin storms "Ondoy" and "Pepeng" (international code names Ketsana and Parma) may shave off 0.22% and 0.11% from the country's full-year gross domestic product (GDP) growth, respectively.

Historically, OFWs send more money to their families back home when they need it the most. In June, for instance, remittances reached a record $1.498 billion amid fears that rich host countries would slash jobs and prioritize their own citizens in employment generation efforts.

June is one of the traditionally strong months for remittances as OFWs send home more money to their families to pay for tuition fees and other supplies needed for school. Inflows are also usually more robust in December as migrant workers send money to their loved ones to celebrate the Christmas season.

Given this trend, remittances are expected to rise further in the remaining months of the year as OFWs send monetary assistance to families whose properties were devastated by the 2 typhoons.

The global economic crisis has caused remittances to grow by less than 10% in the past months compared to double-digit increases in the previous years.

Still, remittances were better off relative to exports and imports, which posted double-digit declines since late last year.

Filipinos sending money to their loved ones at home, after all, are long considered the local economy's heroes.