No Relief in Sight
For the coming year, the exchange rate will continue to be volatile. However, the flattening of growth of OFW remittances could mean that the pesos appreciation will level off. Growth rates of remittances have fallen from a peak of 25% in 2005 to 15% in 2006. But its hard to say when and at what level; varying estimates have pegged the eventual level from between P37 to P41 per dollar.
Another factor that could fuel volatility is when the real situation of the countrys unresolved financial crisis surfaces, precipitating capital flight as hot money speculators flee the country in search of more profitable markets and as they get less confident about governments financial standing.
Addressing these concerns requires more than the mitigating measures government has so far implemented, such as the special hedge fund set up by the Development Bank of the Philippines to secure the earnings of OFWs, and the recently-launched fiscal stimulus program, whose funding will reportedly come from the sale of government stakes in San Miguel, Food Terminal Inc, etc.
Reining in hot money and speculative behavior is an important part of any genuine attempt to address the countrys exchange rate problems. This could be done by establishing a narrow peso-dollar band and using accumulated foreign exchange reserves and monetary policy to keep the exchange rate at reasonable levels.
Capital controls should also be instituted, such as those imposed by Thailand in December 2006 to rein in a surging baht. Initially, speculative flows should be taxed to temper their volatility as well as generate revenues.
But apart from such measures, government should realize the folly of its labor export policy, which now proves to be unsustainable as a development strategy in the long run. Indeed, the looming US recession has already threatened a slowdown in OFW deployments and remittances.
Even if the US economic slowdown does not materialize, a slowdown in deployments and remittances is inevitable simply because an increasing number of Third World countries are pushing their workers to go abroad. This expands the stock of cheap global labor, reducing opportunities as more workers compete for a limited number of jobs and consequently pushing down wages and salaries.
According to the 2003 Family Income and Expenditure Survey, the main income of 1.3 million families nationwide came from abroad. What will happen once fewer OFWs can find work abroad, especially with local jobs increasingly scarce? IBON Features
IBON Features is a media service of IBON Foundation, an independent economic policy and research institution. When reprinting this feature, please credit IBON Features and give the byline when applicable.
