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The global slowdown may mean a fall in
remittances, the Philippine lifeblood, and an end to the party for the peso
Could the Philippines remittance bonanza be
about to hit a wall? Most
of the success as the Arroyo government has achieved in
terms of economic growth can be attributed to the remarkable rise in overseas remittances
over the past five years. Now totaling about $15 billion a
year they have underpinned successive years of consumer-driven growth even
while investment has remained weak. By strengthening the peso they have
contributed hugely to lowering the cost of servicing government foreign debt
and held down inflation.
This growth, however, has a strongly cyclical element that may be about to go
into reverse. The remittance
boom is partly a product of a period of very rapid
global growth that increased both
demand for Filipino migrant labor and the earnings of
the huge Filipino community in the US, the largest single source of
remittances. This is
now ending.
But two other factors must be taken into
account. First, the rise in
the peso spurred by remittances has itself increased
their value by raising confidence in the currency and hence the willingness of
overseas Filipinos to remit their earnings and savings. Secondly, the higher
the peso, the more dollars had to be remitted to meet the school, food and
other peso bills of families back in the Philippines.
Perhaps dollar weakness still has a way to
run against the peso along
with other Asian currencies. Remittances should also
continue to increase from the oil-rich states of the Gulf, the second largest
source. Meanwhile, East Asian
demand for Filipino labor also remains high.
The cloud is the US. Worker remittances from the US to Mexico
were already down 6 percent in January, the biggest drop in 13 years – and that
was before the US
recession really began to take hold. Of course, Mexicans and Filipinos are in
different situations and do different kinds of jobs. The Mexicans, often
illegal immigrants, are
at the bottom of the income scale. Many are in the
construction industry, which has been hard hit by the collapse of the housing
bubble. Many Filipinos,
by contrast, are professionals – nurses, doctors and others.
That said, the trend is clear and at some
point it is likely to impinge on all remittance sources to varying
degrees. High and rising energy and food import costs are also likely to erode
a Philippine current account which has been in a healthy surplus for
an almost unprecedented time. Looking
ahead, the issue will be whether remittances will stagnate because of the US
(and probably very slow growth in Europe), resulting in a weaker peso and the
unwinding of a cycle that
has taken the usually sickly peso from 56 to 40 against
the dollar over the past three years, the fastest rise of any Asian currency.
Many would argue that the strong peso has
been damaging the wider economy, encouraging imports, reducing the peso value
of remittances, deterring investment in industry and agriculture, helping
rentiers at the expense of productive capitalists. But to politicians, not
least Arroyo, it is a virility symbol.
The nation has become so dependent on the
seemingly endless increase in inflows which created the strong peso that any major
reversal or even slowdown will be shock to the system. Don’t be surprised if
the peso is back at 56 before the decade is out.
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Economics/Business 
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