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Negative Effect of Remittances

  
Pinoys Abroad Thread, Negative Effect of Remittances in Working or Living Abroad; Alladin S. Diega 2008 - For three decades now, the government and the private sector have been announcing the positive ...
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Old 09-10-2009, 10:44 AM
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Default Negative Effect of Remittances

Alladin S. Diega 2008 - For three decades now, the government and the private sector have been announcing the positive impact of remittances. Aside from boosting the peso and easing the debt burden, remittances has somewhat tamed the inflation. In general, these have contributed to the rosy picture of the Philippine economy.

These remittances-related outcomes were by the government to push further its labor export policy. This can be glimpsed from the active marketing missions of trade and labor officials regularly sent by the Philippine government to potential OFWs receiving countries. The call to “super-maids” for employment in advanced countries compliments these missions.

Last year, the official amount of OFW remittances reached US$14.4 billion, more than 10 per cent of the country’s GDP. The Philippines is now the world’s third highest remittance-recipient country after India and Mexico.
But how much are we paying for the remittances?

Filipino migrant workers can be grouped into two major categories. These are the highly skilled and semi-skilled or non-skilled workers. Both groups however, represent the better-educated Filipinos.

The departure of the first group often causes disruption in the country’s economic activity. The stability of the labor market depends, to such extent, to the stable supply of labor force with needed skills and experience. The quality of goods and services will depend on the specific traits and training of replacement workers. This is particularly observable in the area of education and healthcare services in which the most experienced were the ones leaving the country to work abroad. As a consequence, the quality of education and healthcare in the country is fast deteriorating. Of course, the decline in the quality of these two important social services can be partly blamed to the cuts in their budgets, which in the first place, is one of the reasons why these experienced workers are leaving for more gainful employment abroad.

The departure of the second group underscores a lingering problem of unemployment. Because of lack of job opportunities in the country, those with limited work experience are forced to look for work abroad even with low salaries and inhumane working condition. For instance, Kanlungan Centre Foundation have clients who are twice or thrice victims of illegal recruitment or trafficking, yet they have no choice but to work abroad even with the possibility of again being victims simply because they cannot find jobs in the country.

It is interesting however, to consider the “positive” effect of remittances to the expenditures of Filipino households. A substantial portion of migrant workers’ earnings is remitted for household expenses. The immediate effect of remittances at this level is that it enhances family incomes. The expenditure capacity of families receiving remittances may decrease in the long run however, should the family members reduce their work effort. It is also on this level that the over-dependence of family members to remittances is effected. It seems however, that recipient families are comparatively better-off with remittances.

At the larger level in the community, inequality and poverty are said to be alleviated, but income inequality worsens if the main recipient of remittances are the richer families. Admittedly, the capacity of the beneficiaries to spend improves which in turn generate further spending. But it should always be remembered that creation of jobs and trading opportunities often results from investment and greater demand for goods and services. If the remittances are not harnessed along this line,the potential benefit of remittances will never be maximized.

Currently, remittances are a major source of foreign exchange, particularly for countries with fiscal deficits, external debts, huge trade imbalances and limited foreign-direct investment. However, these hard currency inflows may spur a real appreciation of the exchange rate which limits the development of export/import oriented industries. Huge amount of remittance money may also blurs the urgency for economic reform and better governance, while lulling OFWs family members, a greater portion of the Philippine citizenry, into complacency.

Admittedly, migration, and remittances in particular appear to benefit households, communities and even the economy as a whole by providing much needed cash, for finance fiscal, trade deficits, and payments for debt.

But these positive effects have considerable costs. Temporary and permanent migration demand from OFWs untold personal sacrifices. Migrants are also subject to geopolitical instability which affects their capacity to earn, or in many cases, their capacity to simply survive. For instance, European countries are now making it difficult for foreign workers to enter the region by restricting many jobs to foreigners and repatriating “illegal” migrants to their country of origin.

But few years ago, European Union had been very active in recruiting foreign workers which brings to the fore the fact that migrant workers are always subject to market swings. At present, this condition is expected to worsen because of the global financial crises.

Aside from draining the country of the much needed human capital requirements for its long-term development, remittances is a convenient way for the government to shy away form the much difficult task of economic reforms.

To be fair, other Asian countries have also used labor export to augment their employment needs, such South Korea and Thailand in the 1980s. But these countries have gone a long way from depending on remittances from their citizens. The Philippines officially started its labor export program in 1974, upon the creation of the Philippine Labor Employment Administration (POEA) but after three decades, the country does not show any hint of veering away from this palliative measure. In fact, it is now a regular practice of several government officials from the department of labor and other attached agencies to market Filipino workers in different countries.
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