EDITORIAL - May 20 - 26 Issue

Remittances Foil Asia Crisis Repeat,
World Bank Study Says

By ISAGANI DELA PAZ

Across the East Asia region sweeps the wind of prosperity and cash remittances. Knowledge capital by migrant workers has helped economies become more robust a decade after a devastating crisis.
Aside from the Philippines, the World Bank (WB) cited remittances from workers overseas also helped other countries like Vietnam and Mongolia to beef up cash reserves. Hence, remittances could soften and may even foil a repeat of the 1997 Asian crisis if there would be one in the future.
"A decade after the financial crisis that devastated East Asia in 1997-98, the region is far wealthier, has fewer poor people and a larger global role than ever before. Led by continued strong growth in China, Emerging East Asia now has an aggregate output of over $5 trillion, double the dollar value just before the crisis," the WB report "Ten Years after the Crisis" said.
The economies affected by the crisis: Indonesia, Malaysia, Philippines, Korea, and Thailand, posted real per capita incomes "significantly" exceeding pre-crisis levels, the report noted. The first three economies achieved real per capita income growth of 3-3.5 percent, "with per-capita growth in Korea and Thailand averaging 4-4.5 percent" in the four years ending 2006.
The cause, in particular with the Philippines, is consumption or the purchase of consumers by what the country’s factories produce, retailers sell, and businesses import-for-sale from abroad.
"Consumers in the Philippines increased real expenditures by 5-6 percent, supported in part by a 20-percent rise in remittances from abroad," the WB said.
Compared with Thailand’s 3.2-percent consumer-demand growth last year, the Philippines posted a 5.5-percent growth from just 4.9 percent in 2005. Both countries are regarded as developing economies compared to the four newly industrialized economies of Hong Kong, Korea, Singapore and Taiwan.
Remittances, coupled with the strong performance of the Philippines’ electronics exports, "far outweighed the impact of higher imported oil prices on the current account".
The Philippines current account –available cash for loans, payment of debts, for investments, and others flowing in the system- jumped to a US$5-billion surplus last year from US$2 billion in 2005.
The percentage increase (to US$12.8 billion in 2006) in remittances underscores the vital role played by money from Filipinos working abroad, WB report said.
"Through these flows [remittances and transfers for the balance of payments], which account for over 13 percent of GDP [gross domestic product], large trade deficits were transformed into current account surpluses. A trade deficit would mean the Philippines buys more products from other countries than what it sells or exports.
Remittances may be one of the reasons why the Philippines, along with Korea and Malaysia, quickly "regained their pre-crisis level of per-capita income by 1999, while this took longer, till 2003, in Indonesia and Thailand," according to the WB report.
According to eco-nomist Fernando Aldaba, an up tick in exports, support sentiments that remittances could help avert a crisis that could come from a slowdown in the United States economy.
"I would agree that factors for another Asian crisis are not present or, if there are, the countries in the region have wizened up," Aldaba, who teaches economics at the Ateneo de Manila University said.
However, Aldaba wouldn’t single out remittances from Filipinos working temporarily or permanently abroad as a single instrument that could help avert another crisis.
"The 1997 crisis was marked with capital flight, and even at that time the shock to the Philippines was relatively less compared to Thailand since our money was no longer pegged to the dollar," he explained.
Still, awash with cash from remittances, the Philippines could have the elbow room to maneuver, Aldaba said.
"Remittances could mitigate the impact of a crisis that would engulf the region if the economic slowdown in the US hit," he added.
Likewise, Aldaba said, the right fiscal and monetary policies would still be the main weapons that the country could wield considering that the economy and the market are relatively small.
With the right mix of reining inflation and control of money supply, he explained, the Philippine economy may weather shocks from a US economic slowdown even with a decline in remittances, Aldaba pointed out. The flow of money from Filipinos overseas hasn’t reached its peak despite the strengthening of the peso against the greenback.
"The outflow of workers hasn’t declined. Unless this occurs, remittances may decrease. But the decline wouldn’t happen in the next five years," Aldaba said.
Even the WB notes such view, but cautions since the record-high 1.026 million Filipino workers who left for employment overseas last year, "in part reflects the lack of domestic employment opportunities."
That challenges the WB posed remain as the Philippines joins her East Asian neighbors in marking year 2007 as a time of prosperity a decade after a debilitating crisis. /MP