The result of remittances rising

By Atty. Jose Ferdinand M. Rojas II / Rising Sun

THE recent strong inflow of dollar remittances contributed to a couple of interesting economic outcomes—the rise of the peso against the dollar and a surplus in the balance of payments.

In August, money sent home by Filipino overseas workers increased by 7.6 percent, the fastest growth recorded this year.

The Bangko Sentral ng Pilipinas said remittances sent through banks in August reached $1.8 billion, with the January to August total at $13.7 billion, higher by 5 percent for the same period last year.

It is estimated that over 9.4 million Filipinos abroad send money to loved ones in the Philippines. Moreover, the Philippine Overseas Employment Administration said last week that there are more than 1 million Filipinos who are waiting to be deployed overseas. Once their contracts come through, they will contribute to the inflow of remittances.

The top sources of remittances are Filipinos in the United States (43.1 percent), Canada (9.5 percent), Saudi Arabia (7.7 percent), the United Kingdom (4.9 percent), Japan (4.9 percent), the United Arab Emirates (4.2 percent), and Singapore (4 percent).

Remittances are the “largest source of foreign exchange after exports,” accounting for 10 percent of gross domestic product (GDP), enabling consumer spending, and, coupled with enhanced public spending, are among the main drivers of the country’s current economic growth.

The continued growth of remittances, said British bank HSBC, “would provide ample support for the economy.”

However, some foreign analysts warn against over-reliance on remittances. Credit Suisse group AG economist Santitharn Sathirathai said they have “become a defensive support for the economy, a stabilizer,” and Standard & Poor’s Rating Services credit analyst Agost Bernard said that while the strength of remittances was a “positive factor for the Philippines’s external position and rating,” large inflows of such are a “sign of failure” that implies lack of employment opportunities in the country.

This is a concern that the government of President Benigno Aquino III is addressing by strongly marketing private-public partnerships (PPP), direct foreign investments such as business-process outsourcing and manufacturing, tourism, and other job- and business-creating initiatives.

Meanwhile, the rise in remittances led to a rise in the peso on Tuesday—the highest rate in four years.

That day, the peso gained 0.3 percent and closed at P41.33 to the dollar, its strongest performance since April 1, 2008. This was bolstered by the news of the new peace accord in Mindanao, which has encouraged businessmen to look forward to a renewed and revitalized economic climate in the region.

In a joint statement, the Makati Business Club and the Management Association of the Philippines welcomed “with great hope” the new framework agreement, “a clear road map,” they said, that could lead to “what can truly be a lasting peace in Mindanao.”

This was echoed by the European Chamber of Commerce and Industry. Michael Raeuber, ECCP president, said, “Anything that brings peace is positive,” and that more European companies would now be likely to consider Mindanao for business expansion purposes.

The strong inflow of dollar remittances was also among the factors cited for the $751-million surplus in the Philippines’s balance of payments in September, according to the BSP on Friday.

The total for January to September is $5.8 billion, more than double the forecast for the entire year. The BSP called this a “healthy level.”

There are foreign analysts that remain optimistic about the Philippine economy, among them the Union Bank of Switzerland, which said recently that growth is likely to be “relatively healthy” with a high GDP even with the challenges posed by the worldwide financial crisis.

Edward Teather, UBS senior economist, cited the lively local stock market and the BSP’s current and soon-to-be-implemented measures “to calm property lending.”

The International Monetary Fund said on Monday that the Philippines could grow over 5 percent annually over the medium term through higher state revenues and public spending on infrastructure.

Among the planned infrastructure projects of the government are the two PPP projects—the Daang Hari-South Luzon Expressway link road project worth $46.6 million, and the PPP for School Infrastructure project of P16 billion.

Moody’s Analytics on October 13 revised their outlook for the Philippines this year from 4.7 percent to 5.2 percent on strong domestic demand, and 5 percent in 2013.

To sum up, dollar remittances are a big boost to the economy and a main driver of the robust growth our economy is experiencing now. However, the Aquino administration knows that the country should not put its eggs in one basket.

Along with proper use of government funds to spur the economy through infrastructure projects and other nation-building initiatives, good governance and implementation of reforms, and hope for lasting peace, the country is on the right path to realizing its dream of an economic sunrise and better lives for Filipinos.

Atty. Rojas is general manager of the PCSO. E-mail: jrojas@pcso.gov.ph.