Aggressive Moves to Corner Remittances

Transcription

1 The Role and Process of Remittances in the Labor Export Industry in the Philippines Second of a two-part research by the Asia Pacific Mission for Migrant Filipinos (APMMF) This is the second part of our paper entitled, The Role and Process of Remittances in the Labor Export Industry in the Philippines. This sequel will be about the relevant and specific rules and regulations of Philippine government agencies on matters of handling overseas inward remittances by banks and other institutions, the relationship of the remittances of overseas Filipinos and the Philippine Balance of Payments and the liberalization of the Philippine economy. Aggressive Moves to Corner Remittances As early as November 23, 1989, then President Corazon Aquino came out with Executive Order No. 378, constituting the Committee on the Remittance System for Filipino Overseas Workers. The primary objective of the said Committee was to improve the remittance system for the overseas Filipino workers through the official exchange (banking) channels. This is one very clear indication of the Philippine government s historical bias for big business. One result of this executive order was the holding of the Symposium on Inward Foreign Exchange Remittances held on July 24, 1991 in Manila, which was organized by the Philippine Overseas Employment Administration (POEA) in cooperation with the Bagong Bayani Foundation, Inc. (BBFI). The former financed the activity together with the Allied Bank, Far East Bank and Trust Company, Philippine National Bank, United Coconut Planters Bank, Bank of the Philippine Islands, Philippine Commercial and Industrial Bank, Metro Bank and Land Bank of the Philippines. This symposium came out with a recommended plan of action to improve remittances of overseas Filipinos through the banking sector of course. The watershed government regulation came out in late 1992 when the Bangko Sentral ng Pilipinas (BSP) deregulated foreign exchange rules. This was through the passage of Circular No in August 24, 1992, which amended two earlier circulars (1318 and 1319 Foreign Exchange market liberalization of January 3, 1992). Foreign exchange deregulation was made in part to encourage bank efficiency for servicing overseas workers remittances (OWRs). In fact, the BSP claimed in 1993 that because of this new policy, there was a 35% increase in OWRs since the reforms were implemented. Prior to liberalization, all foreign exchange earnings of residents passed through the domestic banking system because of requirements under Circular 1028 that residents should surrender for pesos their FX (foreign exchange) receipts to domestic banks. In the case of Overseas Filipino Workers (OFWs) they were required to remit inward and sell for pesos to an Authorized Agent Bank (all categories of banks duly licensed by the BSP are considered AABs) a portion of their basic salaries as follows:

2 Seamen/Mariners 80% Land based with free board and lodging 70% Others without board and lodging 50% FX earnings in excess of the above percentages can be retained. With the issuance of BSP Circular 1389 (Consolidated Foreign Exchange Rules and Regulations) dated 13 April 1993 all foreign exchange rules and regulations on current account, capital account, foreign currency deposit units, offshore banking units and representative offices of foreign banks were consolidated. Remittances of OFWs are included in the current account. In particular it is classified under the income account of the balance of payments (BOP), which is a category of the BOP s current account. This also means that there is no restriction on remittances. Foreign exchange earners may either exchange the proceeds for pesos deposit in FCDUs of local banks or even in banks abroad. Other policies have laid the foundation to encourage bank efficiency for OWRs. Among its notable impacts are: 1. Enhancing Institutional Ability to Service OWRs In July 1992, Circular 1349 was issued by the BSP to allow banks, which have established branches in lower income class areas to establish additional branches in upper income class areas, provided they remain open to additional branching. And as earlier stated, CB 1389 allowed offshore banking units to open and maintain peso deposit accounts with domestic agent banks exclusively for, among three accounts payment of the peso equivalent of inward remittances of foreign exchange sold by beneficiaries of overseas workers. Another effect of these circulars is that it allowed thrift banks and rural banks to engage in the buying and selling of foreign exchange over the counter. 2. Improving the payments mechanism itself in servicing OWRs The BSP has allowed telegraphic swap arrangements involving foreign exchange including OWRs. This gives banks more latitude in handling foreign exchange transactions. (Circular No July 29, 1991) Another incentive made by the BSP is the implementation of the Foreign Exchange Clearing Mechanism and Settlement System. All incoming OWRs amounting to US$10,000 and below shall be processed by the receiving bank and readily transmitted for clearing within 48 hours in favor of the beneficiaries bank. This in turn shall make the proceeds available within 24 hours after clearing. The banks must maintain a FOREX clearing account that effects the settlement between and among the banks.

3 One other incentive for OWRs is the passage of Philippine Republic Act 7111 dated August 20, Under this Act, the Overseas Workers Investment Fund was created to make sure that OWRs are given the best incentives and together help reduce the country s foreign debt obligation. Contract workers are offered a wide range of convertible debt at a discount wherein the peso proceeds may be invested in transferable medium term CB notes at Treasury bill rates. 3. To extend the period of servicing OWRs The BSP has also authorized banks and their branches to purchase foreign exchange from the public beyond normal banking hours and days. Mostly OWRs beneficiaries have benefited from this arrangement. To sum it all up, the BSP attributes the surge in remittances through the banking system because of its policies that helped the banks to corner a larger share of the market. It claimed that it weakened the parallel market during the onset of liberalization by lowering the spread between the bank rate and the parallel market rate. At the same time the OFWs have opted for the security of bank remittance facilities over the informal channels. To give one concrete example, the Philippine National Bank has claimed that it is the most dominant in dollar remittances. This totaled US$3.1 billion in 1999 which is US$401 million or 15% more than the 1998 level. That means that it took 54.8% of the total remittances that passed through the official channels in Banks (or the so-called formal channels) have made leaps and bounds with the help of Philippine legislation to aggressively capture the profitable market of inward remittances of overseas Filipinos. The Remittances of Overseas Filipinos And the Philippine Balance of Payments As had been previously stated in the first part of the research, the remittances of Filipino overseas have greatly impacted the Philippine economy. Remittances of overseas workers (OWRs) alone represent more than a third of the current account balance of many South East Asian countries from

4 Table 1 RATIO OF OVERSEAS WORKERS REMITTANCES TO CURRENT ACCOUNT BALANCE Selected SEACEN countries, SEACEN Countries Period Indonesia (US$m) (a) Overseas workers remittances (Non-freight of non-oil/gas services) (b) Current account balance Ratio (a/b) Korea (US$m) (a) Overseas workers remittances (Invisible Trade) (b) Current account balance Ratio (a/b) Malaysia (US$m) (a) Overseas workers remittances* (Bulk transactions, private transfers) (b) Current account balance Ratio (a/b) Nepal (US$m**) (a) Overseas workers remittances (unrequited transfers) (b) Current account balance Ratio (a/b) Philippines (US$m) (a) Overseas workers remittances*** (Personal income, non-merchandise trade) (b) Current account balance Ratio (a/b) Sri Lanka (US$m) (a) Overseas workers remittances (Private Transfers) (b) Current account balance Ratio (a/b) Taiwan (US$m) (a) Overseas workers remittances (Labor Income) (b) Current account balance Ratio (a/b) Thailand (US$m)**** (a) Overseas workers remittances (Other services) (b) Current account balance Ratio (a/b) * actually private transfer receipts in bulk; breakdown between gifts and OWR s not available; in RM but converted to US $ using IFS exchange rate averages ** in million rupees but converted to US $ using IFS average exchange rates *** sum of landbased and seabased workers; net of income of resident aliens **** both (a) and (b) in million bath but converted to million US $ using IFS average exchange rates Even if we only account the reality that recorded OWRs are those, which were channeled through official banking channels, and thus, are underestimated, its magnitude vis-avis the current account balance is still very significant. Diwa C. Guinigundo of the SEACEN Center analyzes the visible trend: For the Philippines, movement in the ratio is more disparate even as it remained large through out In 1988 and 92, OWRs represented 220 percent of the country s current account deficit. A big dip in the ratio to 44 percent was observed in 1990 following the adverse impact of the Gulf War. This heavy reliance on OWRs would explain and may be explained by the bias of the country s central bank policies towards encouraging both OWRs into the official banking system and bank efficiency in serving such remittances. *

5 In factoring in the net effect of foreign remittances into the financial status of the Philippine economy, the Philippine government subscribes to the format of the International Monetary Fund. Mr. Guinigundo explains: IN keeping track of OWRs in the Philippines and in other South East Asian countries who are members of the International Monetary Fund (IMF), governments and central bank agencies have as their guide, the IMF Balance of Payments Manual (BPM) in recording transactions particularly labor/personnel/workers income. Under this Manual, OWRs are classified under the non-merchandise/services account Due to the differences in the nature, duration of overseas employment, a distinction is made between individuals whose earnings are to be classified as labor income and migrants who are persons who have become residents of a country by virtue of being expected to live there for a year or more. However, this is very difficult in practice. The Manual therefore proposes that OWRs of persons working in a foreign economy for less than a year (in which case, they are classified as seasonal workers) or those who do not have their abode in the same economy where they work (border workers) be classified as labor income under private transactions of other goods, services and income of the current account. Migrants who have become residents of that economy by virtue of being expected to live there for over a year are to be compiled as workers remittances under private requited transfers of unrequited transfers of the current account. Starting with the January 2000 BOP, the BSP has adopted the new framework for BOP computation and reporting in accordance with the IMF s BOP Manual 5 th edition (BPM5). The only difference (relevant to the monitoring of OWRs) has been in the introduction of an INCOME account that reflects the net earnings from the use of land, labor and financial capital SEPARATE from SERVICES account and the breakdown of TRANSFERS into current and capital account. Previously, the SERVICES account included the transactions, which involved the performance of services such as freight, insurance, travel, including labor services provided by Filipino workers abroad. Through this modality, the Philippine government is able to maximize the net effect of the infusion of foreign exchange through overseas worker remittances. The inclusion of OWRs in the BOP is correctly seen in different sections of the accounting. One can view billions of US dollars registered in various entries in the service account, in the income and even current transfers. This has created a buffer or cushion to the otherwise collapsing money supply and financial instability of the Philippine economy. The magnitude of the remittance, as in the case of the Philippines, has permitted a distorted view of growth by reducing the deficits and even at certain periods, projecting positive financial accounts.

6 If you consult the official BOP statement by the Central Bank of the Philippines, you will note that these remittances (called compensation of border, seasonal and other workers) compose 80% of the total INCOME account for the period January-Feb INCOME In million US dollars Item Jan-Feb 2000 Compensation of emp. incl. Border, seasonal and other workers (a) 1106 INCOME (Net) 764 Receipts (b) 1343 Disbursements 579 Ratio: (a/b) in percent 82 If you also include the entry on Workers Remittances under the CURRENT TRANSFERS account, there is an additional US$ 29 M in the over-all computation of income from abroad. CURRENT TRANSFERS In million US dollars Jan-Feb 2000 Workers Remittances 12 Receipts 29 Disbursements 17 CURRENT TRANSFERS (Net) 80 Receipts 111 Disbursements 31 With the introduction of exchange liberalization in 1993, declared remittances soared to a present rate of more than US$500 M a month, all of it included as service receipts in the current account. It amounts to 7% of the country s GNP. The ratio of OWRs to the Current Account Balance remains high for the Philippines. This is proof of how valuable overseas Filipinos are to the country s financial standing. Were it not for the volume of annual, even monthly, remittances, the BOP would register additional deficits or the registered surplus rendered moot.

7 Ratio of Overseas Workers Remittances To Current Account Balance ( ) Philippines (in US $ M) (a) Overseas Workers Remittances 4,306 5,741 4,925 6,794 (b) Current Account Balance -3,953-4,351 1,546 7,238 (c) Ratio (a/b) The fact that OWRs represented 318% of the current account balance in 1998 raised some controversy in 1998 between the Central Bank, investors and financial analysts. The latter have questioned the composition of the current account, especially the level of workers remittances. The alleged distortions in the Balance of Payments have been appreciated as unsustainable, and as statistical quirks especially when it was noted that the current account balance has been improving while the trade deficit has been deteriorating since The difference between the two has been attributed to OFW remittances and to peso conversion of foreign currency deposits which amounted to USD4.7 B in late Although some analysts think that this is more appropriate in the capital side of the BOP, the BSP includes this in the current account on the argument that it largely consists of OCW remittances sent in as foreign currency and then gradually converted to peso over time However way the debate is to be resolved, what is undeniable is the fact that OFW remittances have been the reason for the fantastic recovery of the Balance of Payments and the illusory growth of the Philippine economy. As the Central Bank report of 1998 has said: period remittances of overseas Filipino workers would continue to provide an important source of foreign exchange. One has to note that indeed, Filipino labor is a prime export of the Philippines and has gained indispensable significance in preserving the relative financial and economic stability of a backward economy like the Philippines, which has been tethering in a risky balance between crises. Remittance is the Main Purpose of the Labor Export Program, The Life-Saver of the bankrupt Philippine Economy The important role of remittances to the Philippine economy cannot be understated. Its continued generation is the main purpose of the Philippine government s labor export program. It accounted for one percent of the GNP and 22.85% of the total exports of the country in 1999 with the export of electronic equipment and parts standing out as the only export item higher in value than the money sent by overseas Filipinos.

8 The moribund Philippine economy with its backward, agricultural and non-industrial characteristics ensures the continued exodus of Filipinos to seek work abroad. This is further heightened in recent years, as the Philippine government becomes the most assiduous implementer of the IMF-WB s structural adjustment policies of liberalization, deregulation and privatization. At the same time, the world's leading big capitalists led by the USA has time and again experienced the crisis of overproduction. The periods in between crisis are becoming shorter. To maintain their gargantuan profits they have to force the third world nations to open up their economy in the guise of "free trade and level playing field" by mouthing the globalization of economy. They cannot opt for long-term investments anymore. They wanted quick returns for their cash and capital. They put their excess capital in the speculative money market. Even the NIC s industry-based economy had to be transformed into a service-based economy. It is this neoliberal paradigm that is the global context of the crises in many national economies like that of the Philippines. The Philippine government policy of liberalizing the Philippine economy, in particular, has never been beneficial to the lives of the people. It continuously plunders the people s livelihood. Liberalization can be seen in all major aspects of the Philippine economy now. The advent of liberalization has heralded the imminent collapse of our backward economy. The liberalization of retail trade, instead of creating an environment of free trading, created a monopoly of traders. According to the Philippine Retailers Association, the entry of large foreign retailers will displace even the small local retailers, since foreign retailers enjoy a broader international network, are technologically superior and can afford larger discounts due to their high economies of scale. It also creates fewer jobs for the people by forcing the small retailers to close down as a result of tight competition. The local agricultural market was also liberalized. In order to complete the whole process of liberalization of the Philippine economy, banking and finance were liberalized. It provided a free flow of capital in and out of the country. It provided a favorable environment for speculative and portfolio investments by foreign banks and corporations. But take note that BSP-registered foreign investments have been on a downtrend from 1996 to Direct equity and portfolio investments shrank by 16% and 52% respectively in So where has liberalization practically benefited us? BSP-Registered Foreign Investments 1996 to 1999 (in million dollars) Direct Equity Portfolio Total , , , , , , , , Jan-Sept , , , Jan-Sept , , , Source: Ibon Facts and Figures, Vol23, Nos.1-2

9 However, despite the 90% increase in the portfolio investments for the first nine months of 1999, it must be stressed that these are speculative investments and do not necessarily translate to job generation or technology transfer, which are vital to national development. The main intention of liberalization is only to liberalize investments inflows and capital and profit outflow, which only exacted from the people. Its impact would only mean the destabilization of the local economy. However, the Philippine government has other means to cover up the declining economy. They use the supposedly improving trend of the Balance of Payments (BOP) to make it appear that the country s economy is still favorable to foreign investors. What they do not tell is that aside from one-shot privatization and selling of national property and corporations, overseas inward remittances provided the buffer for the economy. The inclusion of OFW s inward remittances to the current account computations of the BOP patches up the supposedly bloating deficit in the BOP. Hence, the growing deficit in the BOP is being covered up by OFW s remittances. Even in the process of transacting foreign exchange conversions, the Philippine government earns even more. So, despite the growing trade deficit that continuously deteriorating since 1994 the current account balances can now be seen improving. Because of liberalization, the same conditions unemployment and landlessness have intensified bringing with it the exodus of Filipinos seeking jobs and livelihood abroad. And this pattern was greatly utilized and exploited by the Philippine government with vivid connivance with banks and private recruitment agencies. All for the sake of more dollars to come into the economy to combat the massive capital and foreign exchange outflow brought about by the introduction of comprehensive liberalization. It is now an established fact that the role of inward dollar remittances of the OFWs is considered very indispensable. Government economists and statisticians cannot deny this, for without the OFW s remittances, the deficit in BOP will surge and the present administration of Estrada will be left empty handed in projecting the Philippine economy. Again, with this current dispensation, no one can deny that the Philippine government policies on labor exportation will continue to intensify and become a permanent fixture in the Philippine political economy. As long as the government s policies are geared towards opening up the economy and serving foreign monopoly interest, the country will remain backward and without basic industries to employ its millions of unemployed and underemployed workers and its peasants will remain landless. Thus, Filipinos are left without choice but to leave the country and their families and work abroad in order to survive.

10 ************** Bibliography: Report on the Inward Foreign Remittances: Policies, Incentives and Remittance Systems 24 July 1991, Manila POEA Central Bank Policies to Encourage Bank Efficiency for Servicing OWRs: The Philippine Experience PNB FX Remittance Volume Hits US$3.1B, PNB Online Magazine 8/17/00 Response to query, Evelyn R. Santos, Officer-in-Charge Department of Economic Research, BSP 25 July 2000 Discussion Points on OFW Remittances, Department of Economic Research, BSP July 7, 2000 Selected Philippine Economic Indicators, Publication of the Department of Economic Research, BSP June 2000 Staff Papers No. 50 Some Analytics of Migrant Earnings, the Current Account and Central Bank Policies, Diwa C. Guinigundo, The SEACEN Centre 1993, Malaysia HG Asia Limited, 1998 Bangko Sentral ng Pilipinas Report, 1998 Economic Indicators, National Statistical Coordination Board May 2000 Ibon Fact sheet, Special Release Supplement, Yearend 1999 Ibon Facts and Figures, Vol23, Nos.1-2, January 2000