Effects of Remittance

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Effect of Remittances in the Philippine Economy’s Role in theGlobalized World

Legal Research & WritingSaturday 1-4pm

Atty. Higuit

Emily E. MauricioExecutive Class

October 9, 2005



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ABSTRACT

According to the World Economic Forum, a weak economic environment andcorruption in the Philippine government were among the factors that pulled downthe country’s global competitiveness ranking by 11 notches within a span of threeyears. The forum also said in its Global Competitiveness Report 2005-06 that thePhilippines ranked 77th with a global competitive index of 3.47 from 76th lastyear, and also cited corruption, lack of infrastructure, a weak government policy,irregular payment of taxes, government wasteful spending and higher inflationare among the factors that weighed down the country’s competitiveness in theglobal market. 1 Other Asian countries such as Taiwan ranked 5 th with 5.58 indexpoints; Singapore, 6th, 5.48; Japan, 12th, 5.18; Korea, 17th, 5.07; Malaysia, 24th,4.90; Thailand, 36th, 4.50; India, 50th, 4.04; China, 49th, 4.07; and Vietnam, 81st,3.37. 1

The measurement of the Philippines’ economic growth primarily depends on thePhilippines’ global competitiveness rests with the quality of the macroeconomic

environment; the state of the country’s public institutions; and the country’stechnological readiness. With the global competitiveness index comes themacroeconomic environment index, the public institutions index and thetechnology index. In the macroeconomic environment index, the Philippinesranked 71st from last year’s 69th, while in the public institutions index, thePhilippines ranked 104th with an index score of 3.30, from 99th place last year,and in the technology index the Philippines ranked 54 th out of 117 countries. 1

However, taking the focus on the underlying microeconomic factors behind theaforementioned critical pillars and determining the global economies’ currentsustainable levels of productivity and competitiveness or the business

competitiveness index, the Philippines ranked 79

th

, which is comprised of officialdevelopment assistance, foreign direct investment, other private inflows, andinternational transfers. International transfers proved as a more constant sourceof income to developing countries like the Philippines. International transfers or remittances have become known as a remedy or at least a mitigating factor tolessening the Philippines’ poverty level through identifying and implementingmeasures that will maximize these influxes in forms of remittances and harnessthem for the development of the Philippines.

The report said the Nordic countries and East Asian tigers such as Australia,India, Ireland, and Poland topped the rankings and all moved up, while the USremained 2nd place behind Finland. 1

1RP slips further as global trader by Darwin G. Amolar, ABS-CBN Interactive



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Table of ContentsAbstractI. Introduction 4

II. Context and DefinitionA. Macroeconomic environment index, public institutions

index and technology index 5

B. Microeconomic Business Competitiveness Index 6

C. Definition of Remittance 6

D. Definition of Filipino Migrant Population 6

E. Remittance Transaction Flow 7

III. Philippine Remittance Market OverviewA. Market Definition 7

B. Market Size Estimate 7

C. Market Segmentation 7

IV. Year 2005 Remittance Behavior A. Remittances are up 8

B. Tax collections start to rise 8

C. Inflation Remains a concern 9D. Exchange rate concerns 9

E. Consumption remains principle 9

V. Remittances and Overseas Filipino WorkersA. Formal Remittance System 9

B. Informal Remittance System 10

C. Shift from Informal to Regulated System 11

D. Cash Brought Home 11

E. Remittance and Pricing Structures 11

VI. Regulations, Remittance Framework, and RecordingA. Regulations 12

B. Payment Methods, Taxes, and Clearing Systems13

C. International Connectivity, Inter-Commercial BankConnectivity, and Interconnectivity of Banking SystemMembers International 13

VII. Developments in the Remittance Industry 14

VIII. Projects to Leverage Remittances 15

IX. Philippine Developments through emerging RemittancesA. The Making of an OFW Bank 19

B. New ID System Launched for OFWs 21

C. US Official Express Support 22

D. Hiring Filipino Workers Through POEA 22

X. Philippine view of Finance and Development Issues Arising from

Asian Crisis 24

XI. Impact of Spin of Philippine Economy in the Globalize World 25



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I. INTRODUCTION

Remittances… what is remittance? How is it being processed? Where it comesfrom? Why does it always seem connected with the word OFWs (Overseas

Filipino Workers)? Who are these OFWs? What is remittance’s relevance tothem? Can it help us – The Filipinos as a whole? Or only the person or personswho are directly concern with it? If it could help the Philippines as a whole, doesit mean it could also help concerning the view of the global perspective? Howabout per the Philippines’ economic viewpoint - how far remittance can take thePhilippines at the end of the current year, in 2 years, 5 years ,or 10 years, or so?

These are some among the practical questions of a person who belongs to thePhilippine society’s common group which is not aware or if aware does not havethe full grasp of the causality of the magic of the word which is as if inherentlybuilt in most of the OFWs center of the nervous system: Remittance.

The growing economic power of remittances has extended a changing structureof institutions, international organizations, foundations, universities, and nationalgovernments. 2

As of year 2004, an estimated number of 1.06 million3 Filipino Workers liveoverseas and remitted an amount of P64.7 billion3, contributing to thedevelopment of the Philippines and by filling labor shortages in certain areas or occupying jobs in foreign lands, these OFWs aside from as being consumers andtaxpayers also do something meaningfully for countries where they work. OFWsare at the same time regularly send back part of their income for the basic needsof their families and thereby also contribute to the urgent needed humanitarian

causes and socioeconomic projects in the Philippines.2

It is said that: “When you improve your business, life, relationships, finances, and your health, the whole world improves.” 4

A lot of studies had been conducted tackling how these remittances couldproduce the maximum advantage to the Philippines. But in addition to exploringon those studies mainly concentrating on the given particular benefits would bemore helpful and complete if we would be able to determine the effect of remittances in the Philippine economy’s role in the globalized world.

2 Enhancing the Efficiency of Overseas Filipino Workers Remittances, ADB TA-4185-PHI3

http://www.census.gov.ph/data/sectordata/2005/of0401.htm4

Mark Hansen, Chicken Soup



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II. CONTEXT AND DEFINITION

A. Macroeconomic Environment Index, Public Institutions Index andTechnology Index

The macroeconomic environment index, public institutions index and technologyindex make up the growth competitiveness index which aims to measure thecapacity of the national economy to achieve sustained economic growth over themedium term, controlling for the current level of economic development. 5

The macroeconomic environment index indicates the quality of themacroeconomic environment of a country composed of the macroeconomicstability subindex, country credit rating, and government waste.6 The surveyquestions for this index’s components concern the probability or likeliness of thecountry’s decline in economic activity on the succeeding year; the ability to obtaincredit over the past year; government surplus/deficit during the previous year;national savings rate during the previous year; inflation during the previous year;

real effective rate during the previous year; lending-borrowing interest ratespread during the previous year; and whether or not the composition of publicspending in the country is wasteful or it provides necessary goods and servicesnot provided by the market. 7

The public institutions index indicates the state of the country’s public institutions.6 It is composed of the contracts and law subindex and corruption subindex. Thesurvey questions for this index’s components particularly in contracts and lawsubindex concern whether or not the judiciary the country is independent frompolitical influences of members of government, citizens or firms; if property rights,including over financial assets, are clearly defined and well protected by law;

presence of neutrality among bidders when deciding among public contracts; if organized crime imposes significant costs on business. While the surveyquestions for corruption subindex concern frequency that bribes are paid inconnection with import and export permits; frequency that bribes are paid whengetting connected with public utilities; and the frequency that bribes are paid inconnection with annual tax payments. 5

The technology index denotes the country’s technological readiness. This indexis created with such indicators as companies spending on R&D, the creativity of its scientific community, personal computer and internet penetration rates.6 Technology index is calculated for the core and non-core innovators. Index for core innovators is composed of innovation subindex and information and

communication technology subindex while those for non-core innovators are theinnovation subindex, technology transfer subindex and information andcommunication technology subindex. Innovation survey questions concern thecountry’s position in technology relative to world leaders; whether or not the

5http://www.cid.harvard.edu/cr/pdf/2001Growth_Competitiveness.pdf

6http://www.nationmaster.com/graph-T/eco_gro_com_sco

7http://www.weforum.org/pdf/Gcr/Composition_of_Growth_Competitiveness_Index



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companies in the country are not interested or aggressive in absorbing newtechnology; how much companies spend on R&D (Research and Development)relative to other countries; the extent of business collaboration in R&D with localuniversities, no. of utility patents granted per million population; and the grosstertiary enrollment rate in most recent available year. Technology transfer surveyquestions concern whether or not foreign direct investment in the country animportant source of new technology and is foreign technology licensing in thecountry a common means of acquiring a new technology. 5

B. Microeconomic Business Competitiveness Index

BCI (Business competitiveness index) captures a range of micro-economicissues vital to the productivity of companies. Factors covered by BCI includeaccess to highly skilled people, efficiency of government processes, quality of infrastructure and research institutions, and the competitive pressures faced bycompanies. 8

C. Definition of Remittances

The term remittance generally refers to the transfer in cash or in kind, from amigrant to household residents in the country of origin. The InternationalMonetary Fund categorizes remittances into: (i) workers remittances or transfers,in cash or in kind, from migrants to resident households in the country of origin;(ii) compensation to employees or the wages, salaries, and other remuneration,in cash or in kind, paid to individuals who work in a country other than where theylegally reside; and (iii) migrant transfers that involve capital transfers of financialassets as they move from one country to another and stay for more than 1 year. 2

D. Definition of Filipino Migrant Population

The Filipino migrant population can be classified into three main types:2

i. Permanent – Filipino immigrants who hold permanent residence or landedimmigrant status in a foreign country, whose stay does not depend onwork contracts. This includes even those who already have acquiredforeign citizenship.

ii. Temporary – Filipinos whose stay overseas is based or determined by aformal or informal contract of employment. These overseas contractworkers, who may be land-based or sea-based, are now collectivelyreferred to as OFWs; and

iii. Irregular – Filipino residents or workers overseas who do not possessvalid passports or documents; or, even if properly documented, lack validresidency or work permits; or have stayed.

8http://www.business.nsw.gov.au/factsReports.asp?cid=20&subCid=37



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E. Remittance Transaction Flow

III. PHILIPPINE REMITTANCE MARKET OVERVIEW

A. Remittance Market Definition

Remittance market represents the total funds sent by individuals abroad torecipient in the Philippines through both formal (banking systems) and informal

(such as Alternative Remittance System) channels. This also includes “person-to-person” payments and does not include US Social Security or militarypensions to Philippine residents. 9

B. Market Size Estimate

BSP (Bangko Sentral ng Pilipinas) indicates a remittance flow of about $8.5billion in 2004. 10 OFWs working in Asia sent the biggest cash remittance of about 33.9 billion pesos. This was followed by remittances from OFWs in Europewith 7.4 billion pesos and those in North and South America with 6.4 billionpesos. Among the 663 thousand OFWs in Asia who sent cash remittance, thebiggest was sent by OFWs in Saudi Arabia amounting to 11.4 billion pesos. 3

C. Market Segmentation

The Philippine diasporas is demographically and geographically complexcompared to Latin America wherein the remitting community abroad consists of

9Worker Remittances as a development tool opportunity for the Philippines by Kevin Mellyn.

10http://www.newnations.com/archive/2005/June/ph.html



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poorly educated unskilled worker in low wage jobs in the US and Europe.Compared to Mexico and Central America, Philippine educational standards arerelatively high. Another factor not present in Latin America, a formal OFWprogram that looks after OFW welfare and that of their dependents at homeassists to Filipinos seeking work abroad.

Filipinos working abroad have a wide range of skills and include a highpercentage (35%) of professional and technical workers on one end of spectrumand a correspondingly large segment of service workers, including mainly femaledomestics on the other. Philippine ship manning agencies have also created alarge “sea-based” segment ranging from stewards to skilled seamen and officers.Large numbers of Filipinos serve in the US armed forces. This results in a verywide range of income and remittance potential, as well as mobility to travel to andfrom the Philippines. The Philippine diaspora covers 140 or so countries.Filipinos are present in significant numbers in North America, Europe, the MiddleEast, and both high income and developing Asia countries.

Stock estimates of Filipinos overseas show the largest group to be in the US or its trust territories in the Pacific. However, the vast majority of Filipinos in the USare permanent residents, about 2 million legal and 1.2 million of irregular status.

As a group, they are less likely to be supporting dependents in the Philippinesthan in OFWs. OFWs, on the other hand, largely work abroad on renewablecontracts for fixed periods precisely to support their families or accumulatecapital, especially in the form of housing. Many of them deploy to countries likeSaudi Arabia and the United Arab Emirates where permanent emigration isscarcely an option for most Filipinos.9

IV. YEAR 2005 REMITTANCE BEHAVIOR

A. Remittances Are Up

According to the BSP, the total of dollar remittances in the first quarter was up 17percent from US$1.96 billion a year ago, exceeding the government growthforecast of 10 percent for the whole year. Remittances coursed through banksreached US$8.5 billion in 2004 and are expected to reach US$9.4 billion in 2005,based on the 10-percent growth target. If the first quarter growth becomes atrend throughout the year, there are reasons to believe that cash remittancesthrough banks would breach easily the US$10-billion mark for the first time in2005. 10

B. Tax Collections Start to Rise

The government’s monthly revenue collection reached a high of US$1.5 billion in April, enabling the government to post a budget surplus for the first time in four years. With expenditures standing at only Ph79.5 billion in the same month, thegovernment was able to realize P3.3 billion budget surplus during April. 10



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C. Inflation Remains A Concern

There are a few storm clouds on the horizon – principally concern over inflationand export growth, which has suffered a severe and early downturn from the highpoint of 2004. As elsewhere in Asia, exports are dependent on a buoyantelectronics sector and electronics shipments have declined rapidly as consumersin OCED (Organization for Economic Cooperation and Development) countriesrein in their spending on consumer items to pay for higher prices at the petrolpumps. 10

As the government attempts to improve its fiscal situation by raising tax rates andincreasing electricity charges, the Philippine economy is entering a crucial stage.The combination of measures proposed by (or supported by) government couldlead inflation rate to double-digit levels in the coming months if not handled withcare. This is the possible outcome if the additional tax measures are combinedwith a new round of transport fare increases and the proposed wage

adjustments. 10

D. Exchange Rate Concerns

Costs, especially manufacturing costs, are rising but the productivity of theworkforce is not increasing at the same rate. The peso continues to be one of thefew Asian currencies (apart from those pegged to the US dollar) that have so far not seen any real appreciation. Indeed, it is still considered the one currency inSoutheast Asia that is under significant downward pressure. It is the inwardremittances – this year (2005) likely to top US$10 billion – that is the salvationbut the reality is that the peso is overvalued at the present time if the Philippines

will restore its export competitiveness. Remittances might slow appreciably if overseas workers feel that by holding off, they can get more pesos per dollar for their families at home. 10

E. Consumption Remains Principle

Despite the signs of an upturn in foreign direct investment, most of it is in theform of investment commitments rather than actual inwards remittance and for the time being, consumption expenditure, buoyed by the increasing level of inward remittances will continue as the principle growth driver. 10

V. REMITTANCES AND OVERSEAS FILIPINO WORKERS

A. Formal Remittance System

In the first few years after the start of organized overseas deployment, OFWshad difficulty accessing remittance services of host country banks. PNB(Philippine National Bank) started their remittance service in the early 1970sthrough their foreign offices, while several Philippine courier companies providedremittance services, including door-to-door deliveries, as an adjunct to their



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cargo business. In the early 1980s more banks, such as the BPI (Bank of thePhilippine Islands), PCI (Philippine Commercial and Industrial Bank), Metrobank(Metropolitan Bank and Trust Company), and Allied Bank (Allied BankingCorporation) established offices and remittance partnerships overseas. 2

All the major Philippine banks in the remittance business offer door-to-door services, while most nonblank agents are promoting bank credit-to-accounttransfers. Currently, 17 Philippine financial institutions are involved directly inservicing remittances of overseas Filipinos through their branches, affiliates, or agents in 30 countries. Of the 44 commercial banks, 16 are involved inremittances. Only four of the 92 thrift banks handle remittances. Sixteen banksare members of the Association of Bank Remittance Officers Incorporated, whichassists in bringing the concerns of the remittance industry to regulators and other stakeholders. The association’s members include two specialized governmentbanks, the LBP (Land Bank of the Philippines) and the DBP (Development Bankof the Philippines); as well as two branches of foreign banks, Singapore-based(UOB) United Overseas Bank and Taipei, China-based Chinatrust Commercial

Bank Corporation. The six major remittance players are PNB, BPI, EquitablePCIBank, Metrobank, RCBC (Rizal Commercial Banking Corporation), and LBP.Combined, these banks service 80-90% of the market. 2

Philippine banks, affiliates or agents, and remittance partnerships are known tohave been established in about 30 countries, including US and Canada in North

America, 10 countries in Asia and the Pacific, and 9 countries each in the MiddleEast and Europe. 2

Filipino companies are established such as iRemit Inc. and LBC Express Inc.among others, to concentrate purely on remittance services. 2

Large international money transfer agencies also operate in the Philippines suchas Western Union, the biggest; MoneyGram, through its representativePeraGram; Vigo, through New York Bay; and Uniteller. 2

Host country banks have limited participation in the Philippine remittance market.Recently, the DBS-PSOB (Development Bank of Singapore-PSOB) opened itsremittance service for Filipino remitters through partnership with BPI; UnitedFinancial Japan accepts deposits in Japan through the use of ATMs for credit toMetrobank Japan’s remittance account; Citibank, through its Hong Kong, Chinabranch through PNB and the 7-11 chain of convenience stores; and Wells Fargoin the US. 2

B. Informal Remittance System

The Filipino’s, aside from the formal system also practices informal system of remittance such as “padala,” among other unregulated channels. The practice of padala, which in Filipino means to send, involves sending money or goodsthrough relatives and friends returning home. It is an accepted practice in the



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Philippines. Fees normally are not charged by the carrier as this is done to returna favor, or as a gesture of hospitality. 2

C. Shift from Informal to Regulated System

The market study and interviews conducted with Philippine banks, foreign banks,and transfer agencies indicated that many remitters have shifted from informal or unregulated channels to banks and licensed transfer agencies. The shift wasdriven primarily by (i) improvements on cost, speed, and service banks andmoney transfer companies; (ii) the growing financial literacy of remitters; and (iii)the closure of unregulated money transfer businesses in the wake of the 9/11terrorist attacks. Philippine-based banks’ handling of last-mile distribution alsohas reduced operational costs of their US-based money transfer agents. 2

D. Cash Brought Home

Most OFWs personally carry cash after completing their work assignments, or

when making temporary visits to the Philippines. Entertainment workers fromJapan on a 3-6 months assignment bring home large amounts of cash. Filipinoworkers in Taipei, China accumulate funds through a form of forced savings astheir employers a percentage of their wages, which are deposited on their behalf.Workers receive these as a lump-sum upon the termination of their contracts,and personally bring them home as well. For sea-based workers, almost 80% of their wages are retained by shipping agencies and remitted to their designees inthe Philippines. The remaining 20% and overtime pay received on board isusually brought home. 2

E. Remittance and Pricing Structures

The cost for a credit-to-account, dollar-to-peso transfer by Philippine banks or remittance agencies, with proceeds credited to a beneficiary’s account in thesame bank in the Philippines, differs from country to country, depending on theregulatory and competitive environment. In Japan, for instance, only threePhilippine banks operate (two as branches, another as a representative office),and apparently only banks and post offices are allowed to engage in remittancetransactions. In contrast, the presence of numerous banks and money transfer agents in Hong Kong, China has resulted in the lowest costs among thosesurveyed. 2

The sustainability of players in the money transfer business is affected by

variable costs and overhead expenses, which in turn affect remittance charges.Other than these, remittance players are concerned with the uncertainty of profitreturns, prompting them to evaluate revenue and expense dynamics constantlyto stay competitive. Long-established banks in the remittance business areconcerned with money transfer agents, who typically may dictate terms of engagement, and with new players that operate with little overhead. 2



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VI. REGULATIONS, REMITTANCE FRAMEWORK, AND RECORDING

A. Regulations

Banks, remittance companies, and foreign exchange corporations must beregistered with the SEC (Securities and Exchange Commission), theGovernment agency responsible for the registration, licensing, regulation, andsupervision of all corporations that are affiliates or subsidiaries of the banks alsorequire a license from the BSP, which supervises the operations of those banksand corporations. Remittance companies and foreign exchange corporations notaffiliated with a bank are not required to have a license from the BSP. Singleproprietorships engaged in remittance and foreign exchange operations simplyregister their businesses with the Bureau of Domestic Trade, an arm of the DTI(Department of Trade and Industry). Single proprietorships also must obtain aMayor’s Permit from the local government, and register books of accounts withthe BIR (Bureau of Internal Revenue). To complete Government requirements,

hired staff of all establishments must be registered with the DOLE (Department of Labor and Employment) and the SSS (Social Security System). 10

The General Banking Law of 2000 (Republic Act 8791) provides for theregulation, organization, and operations of banks, including thrift banks, rural andcooperative banks, and quasi-banks. 10

Central Bank Circular 1389, dated April 1993, contains the consolidated rulesand regulations covering foreign exchange transactions. 10

No mandatory foreign exchange surrender requirements are imposed on export

earners. The exchange rate is not fixed, and varied daily due to market forces.

10

BSP Circular 388, dated 26 May 2003, consolidates and clarifies regulations onthe sale of foreign exchange for non-trade transactions. It also establishes theauthority to sell foreign exchange by authorized agent banks, BSP-supervisednonbank entities, and their subsidiaries and affiliated foreign exchangecorporations. 10

The Bank Secrecy Act (Republic Act 1405) prohibits parties and individuals fromproviding information to third parties on deposit accounts which was amended by

AML (Anti-Money Laundering) law. 10

Republic Act 9160, which was signed into law on 29 September 2001, definedmoney laundering as a crime when proceeds from illegal activities are made toappear to have originated from legitimate sources. It also defined among the 14unlawful activities, and provided penalties for money laundering. Theamendments to AML law were signed into law (Republic Act 9194) on 7 March2003 which (i) defined the coverage of the law (banks, quasi-banks, trust entities,non-stock savings and loan associations, pawnshops, foreign exchangecorporations, money changers, money payment, remittance, and transfer



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companies, among others); (ii) lowered the threshold for covered transactions;(iii) authorized BSP to inquire or examine any deposit or investment with anybanking institution without court order in the course of a periodic or specialexamination; and (iv) removed the provision prohibiting the retroactivity of thelaw. 10

B. Payment MethodsC.D. , Taxes, and Clearing Systems

While the use of cash is still prevalent, the increased use of ATM cards andcredit cards in the past 10 years has demonstrated the trend toward more use of technology. Filipinos have responded positively to the aggressive marketing of credit card companies. Charges are levied on payments between banks. Severalcommercial banks have established their own electronic online systems betweentheir branches in the Philippines and overseas. They encourage their customers

– payers and payees – to establish accounts with their own banks to facilitate

payments between parties and avoid revenue leaks. Three ATM networks –Bancnet, Megalink, and Expressnet – also have established their own e-paymentsystems to facilitate electronic payments. 10

DST (Documentary Stamp Taxes) are imposed on all bonds, loan agreements,bills of exchange, drafts, instruments and securities, deposit substituteinstruments, certificate of deposits drawing interest, and orders for payment of any sum of money, except for loan agreements that do not exceed P250,000.

Acceptance or payment of any bill of exchange, or order for the payment of money purporting to be drawn in a foreign country but payable in the Philippines,are all subject to DST. 10

Final taxes are also imposed on interest income as provided by Republic Act8424 on any currency bank deposit, yield, or any other monetary benefit fromdeposit substitutes, and from trust funds and similar arrangements. 10

The PCHC (Philippine Clearing House Corporation), a privately owned entityformed by member banks of BAP (Bankers Association of the Philippines) incooperation with the BSP, handles local, regional, and provincial check clearingfor peso transactions. The banking industry uses three electronic clearingsystems: (i) PDDTS (Philippine Domestic Dollar Transfer Systems); (ii)PHILPASS (Philippine Payment System) which provides real-time grosssettlement for high-value, interbank treasury and large corporate transfers; and

(iii) EPCS (Electronic Peso Clearing and Settlement) which is an interbankaccount-to-account system that operates as a domestic giro facility. 10

E. International Connectivity, Inter-Commercial Bank Connectivity, andInterconnectivity of Banking System Members

Most local banks use the transfer systems of their major US correspondentbanks and/or the SWIFT interbank systems for their remittance transactions.



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Normally, remitters would go to the bank’s agents or remittance centers and payfor the remittance by check or cash. Some remitters might have accounts withthe Philippine bank branches. Agents of banks all over the US would remit to thePhilippine bank’s US depository bank through the ACH (Automated ClearingHouse). Payments are consolidated by the local bank’s remittance centers, whichthen remit funds (usually one batch a day payment) using SWIFT and/or a USdepository bank’s system, and credit the Philippine head office account with thecorrespondent bank. 10

International connectivity might be enhanced with the plans of the US FederalReserve Bank to introduce ACH to the Philippine payment system which wouldenable banks in the US to remit funds without requiring a correspondent bank inthe Philippines. 10

Seven of 37 banks with electronic banking services offer electronic interbankfund transfers or inter-commercial bank connectivity across other banks in theBancnet ATM consortium via the Internet. 10

Utilization of clearing systems is limited to the member banks of the PCHC. Thisclearing house consists of 42 commercial banks, which are stockholders andparticipants, and 39 thrift banks, which are neither stockholders nor associatemembers. Most of the thrift banks and all rural or cooperative banks have not

joined due to high cost of membership; all inclusion of small rural banks whichare not automated and undercapitalized could subject the system to settlementand operational risks. 10

VII. DEVELOPMENTS IN THE REMITTANCE INDUSTRY

New participants have entered the Philippine remittance market, includingPhilippine and foreign-based banks, internet-based remittance servicecompanies, a large international money transfer agency, and telecommunicationsand mobile phone-based money transfer systems. The new players bring intoindustry more alliances among card companies, banks, insurance, andtelecommunication companies. Some go beyond simply offering remittanceservices for migrant workers by linking beneficiary families to livelihood andfranchising programs. 10

In June 2004, Wells Fargo launched its Philippine ATM Remittance Account.Citibank Manila is planning to introduce to Filipino migrants in the US its Citibank

Access program, which is used by Mexican migrants. New US-based remittance

services, such as IKOBO and Yahoo/HSBC, are expected to attract the younger generation through use of the Internet. IKOBO reported that Philippineremittances have shown the highest growth among migrant populations in theUS. Vigo, on the other hand, is restructuring its distribution network in thePhilippines to improve its market share. Paypal is also looking at Asia for expansion of its business. Xoom, a California-based company, recentlyappointed Equitable PCI Bank as its distribution arm for its internet-basedproduct. 10



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Credit card companies, such as Visa, are likewise active in the market, pushingfor alliances with stakeholder, including banks, insurance companies, andtelecommunication companies. Visa tied up with RCBC on an internet-basedproduct; with Philamlife (a large insurance company affiliated with AIG) for aninvestment and savings product for seafarers; and with BPI, PNB, and EquitablePCI Bank for other card products. 10

The two largest Philippine mobile phone companies, Smart Communications, Inc.and Globe Telecom, Inc. recently launched their text-based money transfer services, which reportedly are first in the world. 10

Two Filipino companies, Paysetter International and Global Mobile Enterprises(under brand name REMITXT), are expected to launch their mobile phone-basedremittance services in partnership with local banks. 10

Technological innovations in the banking industry have been supported by (i)

early passage of the Electronic Commerce Act 2000 on 26 July 1999, whichprovided for the recognition and use of electronic commercial andnoncommercial transactions and documents; and (ii) BSP’s organized handlingof applications for electronic banking products. 10

Card-based products, especially stored value and/or prepaid cards, are expectedto be popular with Filipino remitters and their beneficiaries, particularly those whodo not have access to bank accounts. 10

The PPC (Philippine Postal Corporation) has embarked on a 5-year modernization program (2002-2206), which will introduce information technology,

computerization, and mechanization to its business operations.

10

As to entry of nontraditional players, the World Council of Credit Unions isentering the Philippine remittance market with a forthcoming remittance productcalled IrNet, which promises low remittance costs for transfers made for UScredit unions to those in the Philippines. 10

The NATCCO (National Confederation of Cooperatives), a large network of cooperatives in the Philippines, forged a partnership with NTUC IncomeInsurance in Singapore for the use of NTUC software in servicing remittancerequirements of OFWs in Singapore. 10

VIII. PROJECTS TO LEVERAGE REMITTANCES

A number of projects with an objective of leveraging remittances are launched asthe remittance market flourish. There are the Philippine Incentive-BasedPrograms, enhancing the efficiency of the government agencies, governmentpractices on leveraging remittances, civil society practices on leveragingremittances, assistance of role of rural banks, cooperatives, microfinance, and



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other grassroots institutions on remittances, functions of investment channelsand involvement of leveraging foreign currency flows. 10

Philippine Incentive-Based Programs.

One of the earliest initiatives of the government after the abandonment of mandatory remittance was the homecoming program as the Balikbayan program.Supported by a massive promotional campaign overseas, the program brought in

– and continues to bring in – droves of overseas Filipinos, who come as ordinaryvisitors, tourists, retirees, or permanent settlers. On 29 August 2003, the DualNationality Act (Republic Act 9225) became law. Before this act was passed,former Filipinos who lost their citizenship for various reasons were allowed toreacquire Philippine citizenship. The Dual Nationality Act enables them to adoptPhilippine citizenship without abandoning their foreign citizenship. 10

Enhancing the efficiency of the government agencies.

In Philippines, at least 10 government agencies are involved in the migrationprocess and five main agencies have primary responsibility for managingoverseas deployment, welfare protection, and reintegration. DOLE implementsthe Migrant and Overseas Filipinos Act (Republic Act 8042), which is therepository of policies, rights, and obligations, and sanctions and regulations thatgovern overseas employment. Two attached agencies under DOLE – POEA(Philippine Overseas Employment Administration) and OWWA (OverseasWorkers Welfare Administration) - also are involved in key aspects of themigration process. The BSP, meanwhile, records remittance flows. POEAhandles the documentation of land-based and sea-based contract workersrecruited mostly by private, fee-charging recruitment agents, usually working for

foreign principals. POEA also handles the licensing and regulation of recruitmentagencies, and collects and compiles data of migrant and remittance flows toassist policy formulation. While POEA organizes predeparture orientationseminars for direct-hire workers, OWWA handles the orientation of OFWs under accredited recruitment agencies. OWWA is also responsible for promoting thewelfare of OFWs and dependents through the implementation of welfareprograms for migrants and dependents. These programs consist of health or repatriation assistance, livelihood loans, skills training, scholarships, anreintegration initiatives for returned workers. Proceeds of an OWWA –administered trust fund, created from contributions by OFWs before their departure overseas, finance these programs. The DFA (Department of Foreign

Affairs), which is involved primarily in conducting foreign relations with other

countries, also has a duty to protect the interests and welfare of Filipinos. Whilethe protection functions of DFA, DOLE, OWWA, and POEA overlaps, the MigrantWorkers Act calls for these agencies (and other players, such as commercial andagricultural attaches) to operate under a “country team approach” to minimizeredundancy. CFO (Commission on Filipinos Overseas) - another smallGovernment agency attached to DFA, documents and monitors Filipinos leavingthe Philippines as immigrants or permanent residents. CFO also links overseasFilipino associations to humanitarian and infrastructure projects in the



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Philippines, particularly rural areas, according to profiling system it devised tomatch remittances with needs. 10

Government practices on leveraging remittances.

The Government also practices leveraging remittances by savings mobilizationthrough social security and housing programs. If OFWs want to enroll in or continue their social security coverage while abroad, they can do so and remittheir payments through the overseas offices of the SSS. SSS members areentitled to housing and livelihood loans at low interest rates. The Pag-IBIG Fund(or Home Development Mutual Fund) entitles regular member to housing loans atlow interests while the contributions pay returns vary depending on the currencybeing paid. 10

The civil society practices on leveraging of remittances through the migrant non-government organizations and Filipino associations overseas. The Philippines’legal environment is supportive of nonprofit organizations, a classification that

includes NGOs (Non-Governmental Organizations) or foundations engaged incharitable, educational, religious, or humanitarian objectives. Nonprofitorganizations subject to certain requirements might be entitled to tax incentives,such as exemption from income taxes and tax deductions claimed by recipientsof donations. The largest NGO network in the Philippines, the CODE-NGO(Caucus of Development NGOs), is one of the leading advocates on importantnational issues that affect the socioeconomic development. 10

While a migrant’s savings ultimately will depend on the maximization of earnings,the reduction remittance costs theoretically could increase disposable income.Whether remittances pass through banking channels or not, they eventually end

up in the country of origin with family members, who often have much discretionon how these amounts are spent. Relatives who lack the proper business attitudeor appreciation for the hard-earned income often are asked to manage smallenterprises, which eventually fail. 10

Thousands of FAOs (Filipino Associations Overseas) raise and send cash or goods to the Philippines for humanitarian causes and infrastructure. In the grant-making community, this phenomenon is called “diaspora philantrophy.” Commonmanifestations include (i) medical missions and book drives; (ii) shipments of medical equipment and medicines; and (iii) public infrastructure, such as water systems, schools, hospitals, parks, sports facilities, churches, waiting sheds, andpublic markets. 10

FTH (Feed the Hungry, Inc.), a US-based charity in the state of Virginia, is thebiggest donor to CFO’s Link to Philippine Development. 10

Many FAO’s – even CFO itself – have complained that difficulties in mobilization,documentation, shipment, and release from Philippine customs have hinderedmore donations to the Philippines. The imposition of VAT (value-added tax) ondonated goods, which the donor ultimately must shoulder, also discourages such



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flows. CFO had submitted to the Department of Finance draft legislationrecommending the exemption from VAT of legitimate donations from FAOs. ThePhilippine-based Ayala Foundation offers a solution by forming and registering a501 (c)3 nonprofit foundation in the US. Ayala Foundation USA coordinates thedocumentation, shipment, and release from Philippine customs authorities of thedonated goods, sparing the donors of these tedious processes. Donors can claimthe value of their donations as deductions on their US tax returns. 10

Assistance of role of rural banks, cooperatives, microfinance, and other grassroots institutions on remittances.

With more than two thirds of remittance-receiving families residing in thecountryside, rural banks could play a significant role in reducing remittance coststhrough more direct links, and in providing beneficiary families with access tofinancial products and services that normally would be available only in urbanareas. 10

Rural banks, which serve as conduits for huge money transfer agencies such asWestern Union, do not service remittance payments directly. Rural banks have toadvance payments to remittance beneficiaries. The basic requirement tointerconnectivity to the main banking clearing systems is unaffordable or uneconomical to rural banks. 10

In the meantime, the RBAP (Rural Bankers Associations of the Philippines)leadership has designed and is advocating a software project that would servicepayments in countryside. 10

Meanwhile, Cooperatives also play a vital role in poverty reduction as they

enable citizens of little means to come together to put up enterprise and activitiesthat address basic needs, and enable them to access factors of production,especially those needed to sustain agricultural or small enterprise projects, whichthey would be unable to afford individually. Cooperatives are spread across theregions of the Philippines with remittance-receiving households, could helpidentify programs that enhance remittance distribution, introduce households tofinancial services, and decrease the number of financially unserved migrantfamilies. 10

In addition, there are also institutions engaged in microfinance lending that servethe capital requirements of thousands of poor families that set upmicroenterprises to escape poverty or at least improve their living standards.

Microfinance NGOs serve as conduits for microcredit. Microfinance reaches outto more marginalized people and others in the informal sector, whose only copingmechanisms might be microenterprise. A portion of remittances could beinvested in microfinance banks or institutions, and still manage a rate of returnthat is comparable to what commercial banks might offer. 10

Functions of investment channels.



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Philippine banks are successful in introducing their products to the beneficiariesand their families. By lowering the beginning and maintaining balances for savings accounts, Philippine banks are in a strategic position to tap the savingspotential of OFWs and their families. Savings accounts and other bank products,such as insurance, housing loans, educational loans, and microloans, areintroduced to the prospective remitters. Banks also market stable securities, suchas Government treasury bills, treasury bonds, foreign currency deposit accounts,and other savings and investment instruments specifically designed for overseasworkers. Other investment channels with programs specifically designed toencourage remitters and their families to set up small businesses could lessenthe risks of failure, while minimizing the management burden for the remittersand their families. 10

Involvement of leveraging foreign currency flows.

Another means is the involvement of leveraging foreign currency flows throughsecuritization. A normal securitization transaction begins with the selection of a

pool of assets or flows such as OFW remittances. The originator (local bank)sells these assets to a special purpose vehicle (a remittance trust company),which in turn sells these assets directly to the capital markets. Securitizationdrivers include funding benefits (cost-effective funding, diversity of funding),capital and asset yield enhancements, and credit risk mitigation. 10

Here in the Philippines, several banks (Citibank, Credit Suisse First Boston, andMorgan Stanley) have been offering securitization transactions to local banksand the Government based on dollar flows from overseas workers remittances.Several structures have been put on the table, including those that use system-wide flows with the Government as the borrower. Local banks, on the other hand,

are open to securitization as long as the funding costs will enable them toreinvest the proceeds of the securitization with acceptable returns. 10

In an ideal structure, according to securitization experts, the originator should bethe local bank with the actual remittance flows, as occurred in Latin Americatransactions. However, an investment grade rating is necessary to tap the capitalmarkets at attractive rates. This creates an opportunity for multilateral institutionsto provide credit enhancements to the transaction to achieve the desiredinvestment grade rating. In return, multilaterals can encourage the local financialindustry to participate in development projects by requiring the local banks toreinvest proceeds in targeted development initiatives, or in MFIs (Micro FinanceInstitutions). The MFIs also can use its own receivables from microborrowers for

risk mitigation. 10

IX. PHILIPPINE DEVELOPMENTS THROUGH EMERGINGREMITTANCES

A. The Making of an OFW Bank



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The OFW Bank, when in operation in 2006, will be “fully owned and patronizedby OFWs themselves… it is envisioned to be the ‘sweetest fruit and nectar’ of thesweat, and sacrifices of Filipinos who ventured to work outside of their mother country because of economic hardships.” -- That’s the vision founders of OFWNet Foundation and OFW International Holdings shared to invited guests andcommunity leaders in Jeddah who attended its first meeting.

With some seven million overseas Filipinos (documented and undocumented),and considering the amount of money they are sending back to the Philippinesannually, the OFW bank will also serve as “economic and political empowermentof Overseas Filipinos worldwide.” The Holdings is eyeing just one percent of thetotal annual remittance of OFWs as potential equity for the bank. 11

One of the founders explained that the idea to put up an OFW Bank was hatchedafter overseas Filipinos, who got acquainted with each other through the Internet,formed the OFW net foundation. The core group consists of Filipinos from theUnited States, Singapore, Australia, the Netherlands, and other countries.

By investing in the bank returning workers can avail of many of its servicesincluding loans, microfinancing programs, and even educational loans for dependents. However, skeptics point to various initiatives in the past that either flopped prior to take-off, or those that were nipped in the bud due to in-fighting or discord among its founders – mainly due to mismanagement of funds thatresulted in heavy loss.

The concept of an OFW bank, while viable and attractive, had stirred up variousconcerns. One of the issues raised by a legal mind was licensing. A bank ownedby OFWs (with an existing huge market and prospective investors) might not be

granted a license to operate considering its potential to dominate the market. TheManila founders are aware of the situation - at present, there is a moratorium onbank licensing imposed by the BSP; however, it has been lifted favor of micro-financing banks. Micro-financing banks only require a capitalization of 5 millionpesos. The foundation has in its coffers (held in escrow by Manila founders), 2million pesos ready tapped.

Juxtaposed with the money issue is the legal ownership the investors haveinitially contributed. While the initial five incorporators of the Holdings legally ownthe amount, they have filed a memorandum of understanding with the PhilippineSecurities and Exchange Commission disclosing that the money receivedbelongs to various investors, and the document fully indicates the names of

investors and the amount of they contributed.

Another concern voiced out is management, accountability, and control of funds.There had been various attempts by other organizations in the past with similar purposes but they failed because of lack of control and transparency. “Theconcept is good, but there must be very stringent controls. There must be clear

11The Making of An OFW Bank by Raffy B. Osumo



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cut policies in the powers of those who will manage the investment. There mustbe stern policies to minimize or check possibility of abuse.

Corporate policies, levels of authority and management controls, are beingdeveloped in Manila, subject to approval by the world wide founders, theforemost among the concerns eyeballed by the founders was to ensure “checksand balances” are in place before they go any further.

The US founders have invited investment bankers to join their ranks. 11

The political empowerment of OFWs, which the Foundation and the Holdingshope to package with the project, includes absentee balloting and the dualcitizenship law. The Manila and USA founders have been lobbying the Philippinecongress for this. 11

In the exchanges among OFWs in the Internet, some had also raisedapprehension of a fledgling OFW bank being eaten up alive, considering the dog-

eat-dog competition that had seen even big banks such as PCI Bank and Far East Bank being swallowed by their rivals. 11

But there are also many who believe that overseas Filipinos already have thenumbers and the capital, which, put together could give those alreadyestablished a run for their money. 11

B. New ID System Launched for OFWS

A new online computer system, tested at NAIA (Ninoy Aquino International Airport), proved effective in tracking down overseas contract workers that have

been issued special identification cards.

12

The aim of the project is to give the ID card to all legitimate contract workers sothat they could avail themselves of benefits or assessment of grants without thehassle of verifying voluminous documents since a quick look at the OFW card willreveal the date of his departure and arrival in the Philippines and it will alsoautomatically serve as the OFWs contract record. The POEA estimates thatthere are 3 million overseas Filipino workers (OFW) while 4 million others areconsidered undocumented aliens and are working illegally in various countriesabroad. If all these legitimate OFW’s would be issued their ID card, the owner can transact business with the Overseas Workers Welfare Administration(OWWA) regarding claims for benefits without much delay, according to OWWA

administrator. The ID card will only cost P10 to be deducted from their POEA feeand OWWA membership fee.

At the airport, a departing or arriving OFW will have to swipe his ID card and thecomputer simply stores the record in a databank to be accessed later.Documented workers who are OWWA members and contributors would have to

12New ID System for OFWs Launched to Eliminate Red Tape by Recto Mercene



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renew their contract yearly if they were contracted on a yearly basis and everytwo years if their contract is “perpetual”. OWWA members are eligible to apply atthe agency’s programs and services that include insurance coverage,scholarship program, loan assistant, medical assistance and others. 12

C. US Official Express Support

The national government’s borrowing strategy for 2005 will continue to beopportunistic and sensitive to market developments such as the level of OFWremittances, foreign investments flows and US dollar interest rates,” the DBCC(Development and Budget Coordination Committee) said. 13

It was noted that key US agencies and groups were particularly impressed withFilipino professionals, especially nurses, computer specialists and engineers.

Also despite conservative US policy and its quota on foreign workers, the officialshave indicated the possibility of increasing the numbers of Filipino professionalsgetting accepted in US jobs, including teaching. In the past three years there was

an uptrend in the acceptance of Filipino workers with high-end skills in the UScomputer field. While Filipino nurses in the US have not increased so much, theycontinued to be preferred despite expiry of the program covering their deployment.

D. Hiring Filipino Workers Through POEA14

The POEA is the central government authority under the Department of Labor and Employment in charge of regulating the employment of Filipino workers andprofessionals overseas.

The POEA administers a host of services to promote and facilitate theemployment of qualified Filipino manpower in many parts of the globe. As apublic employment service institution, it maintains an in-house recruitment and

job placement facility known as the GPB (Government Placement Branch).The GPB serves as an alternative facility in the hiring of Filipinos for overseasemployment.

Foreign employers dealing with the GPB take advantage of:• a ready pool of pre-screened applicants or a network of nationwide

sources;• highly professional recruitment and client service officers;• a one-stop recruitment, processing & worker orientation center located in

the heart of a major business district, easily accessible to the airport,Embassies, airline offices, banks, hotel, restaurants and shopping centers;

• a network of reputable medical clinics authorized by the Department of Health or DOH;

13 US Officials Express Support for RP’s Bid to Deploy More OFW’s abroad – DOLE

14http://www.poea.gov.ph/html/gpb.htm



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• a network of reputable trade testing centers authorized by the TechnicalEducation & Skills Development Authority or TESDA;

• a network of most widely read job advertisement publishing companies;• suitable interview rooms and facilities;• comprehensive guide to a Recruitment Agreement;

• comprehensive guide to an Employment Contract;• a comprehensive pre-departure orientation for selected workers;• problem and conflict management services;• hotel reservations, airport and shuttle assistance services;• electronic, web page & facsimile access.

Applicants aspiring for jobs with GPB employers take advantage of well-screenedemployers and verified job-sites as well as carefully negotiated terms andconditions of employment, most suited to their qualifications. The GPB does notcharge workers placement fee.

Foreign employers interested to avail of GPB services may submit the following:• A briefing about their company-nature of business, ownership, nationality,

location, branches, subsidiaries, mother companies, size of workforce,relevant company policies and other related information;

• A description of their manpower requirements-position titles, jobdescription, qualification criteria (education, experience, age, gender, skillscertification, etc.) and number of persons needed per position;

• Information on salary offer and other benefits• Information on medical examination and trade testing requirements of the

country and the company as the case may be;• Hiring timetable-target dates involved in the short-listing of applicants,

interview, selection and arrival onsite;• Information on visa procedures & work permit.• Other information as may be necessary.

Foreign employers are likewise required to sign a Recruitment Agreement withthe GPB as well as Employment Contract with each individual worker hired. TheGPB welcomes inputs to the Guide Recruitment Agreement and EmploymentContract from foreign employers for negotiation within the laws and policiesobtaining in each country.

The GPB maintains the most competitive service fee, a fixed amount per hired

worker set by government and charged by GPB to its foreign employers to cover the overhead cost of its services. In addition, the GPB ensures that the followingcosts are borne by the foreign employer:

• Roundtrip airfare• All fees related to visa and work permit• Worker’s membership fee with OWWA (Overseas Workers Welfare

Administration)• Job advertisements



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• Hotel accommodation of company representatives doing interviews• Other fees specially prescribed by host government

The GPB encourages its foreign employers to offer reimbursement of costsincurred by the workers hired in connection with their application such as, but not

limited to, the costs of passport, trade test and medical examination.

X. PHILIPPINE VIEW OF FINANCE AND DEVELOPMENT ISSUESARISING FROM ASIAN CRISIS

It is said that it is appropriate for the United Nations to discuss finance anddevelopment issues arising from the financial crisis triggered by the series of devaluation of Asian currencies since Philippines can no longer pursue itsdevelopment goals alone and separate from the world economy. 15

The development bind that the Philippines find itself can be described as aweakness in a domestic resource mobilization in both the private and public

spheres and inadequate access to and use of foreign resources. Any successfulattempt to mobilize domestic resources must be done in a global environmentcharacterized by: 15

• Debt cancellation• Symmetrical treatment of capital and labor • Promotion of greater South-South trade and financial flows• Greater equality in international power relations

There is a mismatch in savings and investment in that the Philippines has lowsavings rate compared with its neighboring countries. This low rate has been tothe very low deposit interest rates and is actually negative while inflation rate is

accounted for, thus removing any incentive to save. 15

Tax generation is subjected to leakage in terms of evasion and corruption. Thevalue-added tax helped ease administrative problems but it can only bedescribed as regressive punishing the poor even more by taxing their consumption. Meanwhile, property taxes and capital gains taxes are poorlyimplemented. Given the current crisis, a tax system designed to draw heavily onthe real estate and financial asset price bubbles would not only help penalizespeculative behavior in the non-tradable sector but also increase governmentrevenues. 15

In an open economy, shortfalls in domestic saving can be made up for by foreignsavings in the form of trade surpluses, foreign direct investment, short-termportfolio flows, official development assistance, and public and private externaldebt. 15

15 Finance and Development Issues Arising from the Asian Crisis: A View from the Philippines by MarinaFe B. Durano



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Given low savings, poor revenue generation, and import-dependence, it is notany wonder that the Philippines find itself hungry for foreign capital. ThePhilippines lifted many restrictions to foreign exchange inflows and outflowsleading to large increases in net foreign investments as well as remittances fromoverseas workers. 15

Things seem to tie up quite nearly as various economic policies converge to keepthe country from reaching its development goals. A high interest rate policyencourage the private sector to invest in financial instruments rather thanproductive capacity; attracts portfolio funds wanting to cash in on the interest ratedifferentials; buoys up the exchange rate by increasing demand for domesticcurrency. 15 The overvalued exchange rate feeds back into the balance of tradeby eroding export competitiveness. The signals are clear to speculators who seeheavily taxed foreign exchange reserves due to unsustainable policyenvironment.

Coping will move out of the public sphere and into private lives, that is, Filipinos

adversely affected by the crisis will have to rely on the extended family system.The most important source of supply will be overseas Filipino workers.Remittances have help counteract the outflow of foreign capital and softened theblow of higher inflation and unemployment. This means, however, that theoverseas Filipino workers themselves are feeling the impact of the crisis as theyreduce their consumption and draw down on their savings. North America hasbeen the main source of support as remittances have gone down from Hongkongand Singapore. 15

In a highly integrated world, international economic and political relations mustachieve greater symmetry. Two of the most important symmetries that must be

attained are that between the international mobility of capital and labor andpower relations between and among the developed and developing countries. 15

As we work together to build a world economy that promotes equity anddevelopment, power relations must be equalized. Developing countries must beable to determine rules of the game and not just be trained to play it. A stronger voice and more active participation in the ongoing efforts to restructure rules onworld finance is needed. Proposals for self-regulation by financial institutions canonly be described as naïve and foolish. 15

XI. IMPACT OF SPIN OF PHILIPPINE ECONOMY IN THE GLOBALIZEDWORLD

The Philippines is one of the world’s biggest suppliers of labor and Filipinosworking abroad send home the third-highest amount of money, next to Mexicansand Indians. Still, Filipino workers are most coveted for their resourcefulness,easy trainability, and dedication to their work. 16

16Remittances: Spinning the Economy by Joel Trinidad



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OFWs remittances are made as one significant component in the compilation of the Philippines’ balance of payment (BOP) and taken into consideration as apercentage of the total amount to be paid on the country’s maturing obligations. Itis an ever-reliable surrogate in relieving the burden of being an export-driveneconomy. The Philippine government is understandably and gratefully at theservice of OFWs, though at times services it renders come like a needle in ahaystack. Benefits for them are myriads which they can always avail of. 16

A major bulk of their remittances is being contested by players of the entirebanking industry by offering different services to facilitate their transfer to their families back home. But all does not end well with our living testimonies toFilipino ingenuity, flexibility, resilience, and resourcefulness. Like any other sectors, they are also confronted with some cases of Waterloos of their own.Their remittances are allegedly being used in money-laundering activities andother oxidants which corrodes the country’s foundations. 16

The BOP is the systematic record of all transactions between residents of the

country (households, firms, and the government) and the rest of the world. It iscomposed of current account and capital account transactions. OFW remittanceis a part of unilateral transfers in the current account receipt. 16

No exaggeration intended, but it is those bundles of greenbacks and other foreign currencies that keep the country on its feet when crisis beckons on thehorizon or when it enters the nation’s doorstep like the 1997 Asian financialcrisis. Although the Philippines is affected through a series of historically highpeso devaluations, the degree of damage is not as much as what our neighborshad to endure like South Korea, Indonesia, and Thailand, which all had no choicebut to swallow the World Bank’s bailout and the IMF’s debt-restructuring

programs. It is money really earned from blood, sweat and tears that cushion theeconomy from the impact of this alleged speculators – brain child of crisis. It alsoboosts our gross international reserve and local banks’ foreign-currency depositunit. It, along with portfolio investments, influences the exchange rate andcontributes to growth by pushing up consumer spending specially during theChristmas season. 16

Year 2004 deployment has grown. The BSP attributes this projected growth rateto the return to robustness of the US economy despite its ballooning budgetdeficit, the reinvigorated oil industry in Kuwait and Saudi Arabia and theperceived stability of Iraq in the near future; but it is quick to emphasize that the2004 percent growth would be difficult to surpass. 16

The DOLE, through the POEA - OWWA, boasts some visible positive resultsderived from remittance such as streamlining of OFW services, systems andprocedures through implementation of international standards, and determinedefforts to eliminate bureaucratic red tape; easy-to-go policies and sanctions for violators of recruitment regulations, who include those charging excessiveplacement fees; operationalization of the OFW One-Stop Shop ProcessingCenter, which has resulted in savings in terms of time, money, and effort during



transactions with government agencies; development and setting up of anelectronic system for contract processing, including shared database betweenPOEA and OWWA; and improvement of pre-employment education andinformation, research and development, and marketing, including the conduct of pre-departure seminars (assigned to OWWA) and accreditation of foreignprincipals (assigned to Philippine Overseas Labor Offices). 16

Effects of Remittance

Documents