MIGRATION AND DEVELOPMENT “THE PHILIPPINE EXPERIENCE” I. F. BAGASAO President and Executive Trustee Economic Resource Center for Overseas Filipinos (ERCOF) Geneva and the Philippines A Paper presented at the International Conference on Migrant Remittances: Development Impact, Opportunities for the Financial Sector, Future Prospects October 9 and 10, 2003 London, United Kingdom (The World Bank, DFID and IMP Program)   Introduction Before proceeding, let me first thank the World Bank, the DFID and the International Migration Policy program, for this privilege of sharing and learning with distinguished experts and resource persons, various important issues relating to migration, remittances and development. The current attention being given on the development potential of migration is a far cry from 1999 when our small study group started consulting Filipino communities in Europe on the ways by which they maximize their earnings and resources to improve their economic standing and the quality of life of their families. It is said that annual remittances to developing countries have more than doubled between 1988 and 1999. Officially reported remittances have been approximately 20% higher than official development assistance, with the gap still increasing. “Remittances are a more constant source of income to developing countries than other private flows and foreign direct investment, and decisions by migrants to submit a share of their income to countries of origin are affected less by international financial and market crises than the decisions of private investors and speculators.” (Gammeltoft) Today, international agencies, financial institutions, development agencies, academic and social institutions are supporting serious studies on the untapped potential for development that migrant remittances and other resources could generate for migrants’ countries of origin.    Related Information

Being considered the 2nd, if not now the highest migrant sending country worldwide, and the highest in Asia, with almost 9% of its 82.8 million population living and working overseas, and remitting close to 7 billion US dollars a year, the Philippines theoretically has a tremendous potential for translating these net inflows to increase its productive capacity. This paper will first briefly discuss data on Philippine migration and remittances, modes of remittance and their monitoring. It will attempt to examine the impact of remittances on the development of the country and its citizens, and then describe the concerns, issues and costs of migration, in so far as it is perceived to affect the ability of the country to leverage these remittances to contribute to its long term growth and development. It will then seek to assess how government as well as the private sector, including civil society organizations, have attempted to harness migrants resources for more productive use.

Present Stocks of Overseas Filipinos/Amount of Remittances.

As of December 2001, there was an estimated 7.4 million Filipinos working overseas. These are classified into those who have permanent status, temporary or contract based workers, and irregular workers or those who are working in other countries without the proper work documentation. Sea-based workers are estimated at 255,269, which is about a fourth of the worldwide merchant marine population. (Table 1)

From the USD103 million recorded in 1975 or about the time the Philippines started its overseas employment program, annual remittances as of 2002 have almost reached the level of USD7 billion. (Table 2) There seems to be no letup to the migration of Filipinos in large numbers, now recorded at more than 800,000 annually, or about 2,500 daily. With unemployment rates at a high of 12.4%, the huge demand from North America, Japan and the UK, for nurses, caregivers and other workers in the medical field, the wage differentials, and the widening perception that the only way to improve one’s quality of life is an overseas job, it is expected that migration will increase even more.

Monitoring Mechanisms for Remittances.

Formal Remittances

The Bangko Sentral ng Pilipinas(BSP) or the Philippine Central Bank, records and monitors formal remittances by virtue of their supervision over commercial banks, financial institutions and their subsidiaries. Unless moneychanging centers are subsidiaries of commercial banks, they do not fall within their monitoring mandate. Moreover, although remittances flow through commercial banks, the BSP is also not authorized to divulge the amounts that have been received by the individual banks, and neither do commercial banks show the willingness to divulge these amounts.

The BSP states that these amounts do not reflect remittances going through non formal channels, such as those amounts brought by migrants themselves when they come home, money sent through friends, and amounts that are sent through informal money channels. Informal remittances are not susceptible to an accurate count. Nevertheless, the Survey of Overseas Filipinos conducted by the Philippine National Statistics Office of 41,000 households, show that of the 822,000 Overseas Filipino workers (OFWs) interviewed who are sending cash remittances, 554,000 or 67.4 % used banks, while 27.6% used the informal channels or what is commonly known as “door to door” delivery channels. 2.4% remitted through agency or local office, while the rest remitted through friends, co-workers and other means.

With regard to the source, the BSP also cautions that the “data are not truly reflective of the actual country source of remittance or country of deployment of migrants due to the common practice of remittance centers in various cities abroad to course remittances through correspondent banks mostly located in the US. Since banks attribute the origin of funds to the most immediate source, the US therefore appears to be the main source of remittances which may not actually be the case. “

Informal Remittances

Informal remittances consist of moneys sent by migrant workers and permanent residents through friends, relatives and visitors who are going home, or moneys brought by migrants themselves who are homeward bound. It also includes transfers made through agents who engage in what is commonly known as “door to door” transactions. The cost of goods or gifts sent by migrants to their families back home, as well as goods purchased by them from duty free shops upon their arrival at Manila, form part of informal remittances.

What may influence modes of remittances?

Cost, Speed of Transfer and Exchange Rates are the principal factors that affect the mode of remittance. However, Western Union, which uses Philippine commercial and rural banks, and even pawnshops as conduits, appears to be the transfer agent of choice, when time is of the essence, especially for medical or other emergencies, where migrants do not mind the high cost of transfer.

Legal Status of Sender. Undocumented migrants who normally are not willing to open bank accounts for fear of exposing their status, or who in some cases, may not even be allowed to open bank accounts in their foreign workplaces, are most likely to use the informal channels.

Is there a way to monitor informal remittances?

Aside from surveys, one may be given an idea how extensive these may be by simply watching the long lines of people transacting with money changers usually found in shopping malls and population centers. In addition, the amounts of duty free purchases of Overseas Filipino visitors who are given the privilege to shop free of duty within 48 h ours of arrival in the Philippines might also be a gauge of the extent of informal remittances.

Main Sources/Beneficiaries/Use of Remittances

Direct remittances by migrants to their families

The remittances captured by the BSP from formal channels emanate from contract based land and sea workers and go directly to their families. The amounts, frequency and intervals vary with their occupations and the level of their wages earned overseas. . For instance, domestic helpers in Europe receive higher wages than those in the Middle East while HongKong pays higher than Singapore and Malaysia. Computer programmers are paid five times more in the United States than their counterparts in Saudi Arabia, while accountants in Singapore are paid three times more than those in American Samoa. A 1988 survey by the Philippine Overseas Employment Administration also revealed that domestic helpers who earned the lowest wages also paid the highest placement fees. (Go)

Migrant families use these primarily for (1) Basic household necessities (2) Payments of debts contracted to underwrite migration expenses (3) Education of children (4) Medical expenses or emergencies (5) Purchase of land, or home construction or improvement (6) Purchase of appliances or other durables and (7) Savings and Investments in microenterprises. (Table 3)

17.4 of Philippine households have at least 1 overseas Filipino worker and based on 2000 statistics, these OFW households spent Php460 billion on durables. 64% of these households are located in urban areas and 36% in the rural areas. (de Vera)

Philanthrophy by the Philippine diaspora

Aside from remitting to their families, individual migrants as well as estimated 12,000 regional, social, civic and other migrant Filipino associations , have long been raising funds to underwrite small infrastructure projects and other humanitarian causes in the Philippines, such as building of schools, hospitals, churches, waterwells, conduct of medical missions, medicine, amelioration of victims of calamities, support of streetchildren and orphans, churches, and others. The Commission on Filipinos Overseas, a Philippine government agency attached to the Department of Foreign Affairs, has run a 10 year program called Linkapil, that has mobilized from overseas Filipinos in North America, Australia and Europe, the amount of over a billion pesos, that have gone into various community projects in the provinces, in accordance with a needs profiling system that they had devised. This is probably only a fraction of this ongoing philanthropy by the very extensive Philippine diaspora. (Tables 4 and 5)

Alternative Migrant Savings and Investments Program

Some Philippine civil society organizations such as the Asian Migrant Center, UnladKabayan and Atikha, help migrants through migrant reintegration programs, by preparing the migrant for their eventual return to the Philippines. These groups help organize migrants to form savings groups in places like Hongkong, Japan and Italy. The groups then invest the accumulated savings in enterprises of their choice within their hometowns. These programs, which prescribe value formation, the culture of savings, entrepreneurial skills and even the participation of migrants families in small enterprise, have attracted not only Filipino but migrants of other nationalities as well, in preparation for the migrants’ return to their home countries. (Dept. of Foreign Affairs/ILO study)

The Impact of Migration on Philippine Development

Impact on Families

Admittedly, the economic standing of many Filipinos have improved because their breadwinners had earned salaries overseas many times over what they could have earned in the Philippines. Over the years, a significant proportion of Filipino families have relied on foreign remittances or income from abroad as a main source or income. In 1997 the Family Income and Expenditures Survey revealed that 6.2% of Filipino families derived their main source of income from remittances. This translates to a total of 881,263 families who receive income from overseas (Go).

Impact to the country

Although economists have pointed out that remittances have gone more towards consumption than increasing the productive capacity of the country, (Lamberte) it must be conceded that even consumptive behaviour does have its multiplier effect, particularly when used on education, health and housing, which contribute to human development. Migration also eases the burden of government of the Philippines in dealing with a high unemployment rate which recently has hit 12.4%, whilst remittances act as a buffer to balance of payments deficits and the country’s reserves in times of crisis. Between 1990 and 1999, these remittances contributed an average of 20.3% to the country’s export earnings and 5.2% of GNP. (Go)

Problems and Issues relating to remittances and development

But there may be factors which affect the Philippines ability to leverage migrant inflows for growth and development or even de-motivate the country from addressing the basic growth fundamentals. These factors may be the result of the effects of migration itself, the country’s difficulty in solving its internal economic and political problems or improve its global competitiveness.

The Philippines has to deal with its own economic, political and social problems, foremost of which is lack of effective governance, a long festering secessionist war in the South, and unstable government policies that seem to favor the perpetuation of power groups and the elite. It is also of no help that a third of the Philippine budget is reserved for external debt service, and its products beaten in the marketplace by cheap imports.

Despite its gains, migration may also have perpetuated inequitable growth and spawned a culture of dependence on remittances. As Prof. Ranis warned, the inflows of remittances might again allow us to postpone painful but necessary reforms in governance, in improving income distribution through direct equity measures and in facing up to the need for population control. Migration thus becomes the raison d’etre of more migration, like a giant snowball that expands geometrically with its circumference. That is, until the opposite forces of economic growth at home reaches sufficient strength to oppose it. ILO studies indicate that the migration transition only occurs once a country crosses a threshold of about USD5,000 per capita. Unless therefore the Philippines slows down the growth of its population, its economy will have to grow at a rate of 10% a year over the next 23 years if it is to reach that threshold. Unfortunately, Philippine population is growing at twice the rate of growth of that for the Asian region, while the rate of savings remains half of that of its successful neighbours. (Abella)

The question also remains on whether the benefits of migration compensate for the costs to the sending country, such as brain drain and the social disruption of families. The drain of often the best and the brightest from a sending country reduces the country’s capacity for long-term economic growth and human development. For the OECD countries as a whole, there are around 3 million migrants with a tertiary education. It has been suggested that if it costs say USD20,000 to educate someone to this level, then the total wealth transferred from poor countries to rich is roughly now around USD60 billion. (Stalker)

Of the many occasions that labor has moved across national borders, the host country has only felt benefits. They not only made up the shortfall in skilled and unskilled labor, but they also contributed to the local economy as consumers and investors, taxpayers even. Despite such positive effects on the host economy, international labor mobility is severely curtailed. ( Durano)

What to Do?

Incentives. Over the past 20 years, the Philippines has gradually built-up legislation designed to tap the resources of its extensive diaspora. These laws invariably contain incentives and privileges in cases where they invest, donate, purchase real property or open a local enterprise in areas that normally are reserved for Filipino citizens. The latest of these laws only approved this year are the laws allowing overseas Filipinos to participate in Philippine elections and to hold dual citizenship. Unfortunately no monitoring system has been designed to measure how effective these laws have been in attracting expatriate capital, neither do we also see extensive evidence showing that large numbers of migrants have taken advantage of these incentives. On the contrary, potential returnees have decided to abandon plans of retiring, working or investing in the Philippines after getting disenchanted with bureaucracy and unstable government policies. Incentives and privileges alone are insufficient, and nothing short of vision, leadership and programs that will provide the necessary infrastructure, political, economic and social reform that to ensure a suitable environment are necessary to attract both diaspora and foreign investments to enter and remain in the Philippines.

Need for Organised and Directed Savings and Investments from Diaspora. Nevertheless, the strong desire of overseas Filipinos to help is there and I still strongly feel that migrants could still play an important role in contributing to the development of the Philippine economy apart from the remittances they send to their families, especially from activities initiated by the private sector and civil society organizations, to work on a viable business, savings and investment environment. In order to have a significant impact on development, migrant savings, investments and philanthropy programs must have economies of scale and critical mass. This could be done only if such savings and investments are organized, directed, managed professionally and employed in industries or infrastructure that are urgently needed to improve productivity, address production and market inefficiencies and help producers improve and find markets for their products in the domestic and foreign market. This will also help improve the country’s savings rate, which at 20% is one of the lowest in the region. Savings and investment decisions made by migrants are usually made individually, and more often, are based on incomplete and unreliable data. Studies indicate that these usually result in a large number of small enterprises run by migrant family members that fail or have little significant impact on productivity.

Focus on Countryside. These programs should be focused on the countryside, where about 60% of the Philippine poor live and where coincidentally, most of our migrants originate. Most migrants save in big commercial banks, instead of rural based banks. This means that migrant money is used mostly to service big ticket accounts of the big banks.

Alternatives. There are some potential prospects that may address these imperatives, and where migrant remittances could be parlayed to serve as engines of growth. . I would not say that these are emerging best practices but they present a fresh alternative to the traditional trickle down approach and excessive dependence on foreign investment. Although it is work in progress, allow me to share some of these initiatives being undertaken by local government units and supported by civil society organizations. The Migrant Savings and Investment Programs, an OFW Trust Fund for Development, Migrant LGU bonds, and the tripartite partnerships by migrants, local governments and development agency that will be briefly discussed here, are at varying stages of development by the Economic Resource Center for Overseas Filipinos(ERCOF)

1. Local Government Unit (LGU) Initiatives

Promotion of Trade and Investments at the LGU level.

Certain LGUs are taking the initiative to lure their natives overseas and other basically non-residents, to visit and explore trade and investment possibilities within their territory. With the help of international institutions and agencies as well as NGOs and private financial institutions. they are engaged in building their capabilities and skills in promoting trade, investments and tourism to outside visitors, through the organization of trade and tourist promotions overseas and the passage of a local investments and incentives ordinance that is implemented by an investments office. This year, for instance, the province of Bohol organized more than 300 of their residents from North America who came to visit their hometowns and participate in an investment matching forum with substantial results. There are a number of other LGU units that have shown interest and are planning to replicate their model.

Raising Revenues for Rural Infrastructure

LGUs are improving their skills on local governance, and are beginning to learn how to raise revenues independent of the national government, a power granted to them by a 10 year old decentralization law. Today, about 10 LGUs, have raised funds through bond issues at the local level to build public markets, ports, wharves, resorts and convention centers, and other rural infrastructure. This was done with the help of a financial management firm that has pioneered in the use of LGU bonds for local development. While these bond issues were normally underwritten by commercial banks, a special bond issue is being designed with overseas Filipinos as potential investors in bonds issued by their own home provinces or regions in order to build urgently needed public projects such as processing plants, post harvest facilities, hospitals, farm to market roads, and other strategic infrastructure.

2. Campaigns for migrant savings and investments in microfinance banks and institutions.

The question has been asked: “Is there a role for microfinance institutions in linking informal remittances to development?” (Puri and Ritzema). The answer is ‘Absolutely’. Microfinance reaches out to more marginalized people and others in the informal sector whose only coping mechanism may be engaging in micro-enterprise. Migrants or their families could save or invest in microfinance banks or institutions and still manage a rate of return that is comparable to what commercial banks offer. Moreover, a one year investment of say PhP100,000 or the equivalent of about 1,800 euro, given the usual 2 microfinance cycles of 6 months each, could in one year, support about 20 micro-entrepreneurs. Third, linking migrants and their families to microfinance institutions provides migrant families the business mentoring and access to capital, which may precisely be what an absentee migrant needs to make sure that the money he or she remits is used productively and not wasted. The design of such a system and its marketing abroad is being put together with a network of microfinance institutions and rural banks. The Philippine government has relatively been supportive of the microfinance industry by exempting microfinance banks from the moratorium on the opening of new banks or branches, aside from other incentives.

3. Advocacy for a tripartite partnership between Overseas Filipino Economic Initiatives, LGUs and Development Agencies.

To facilitate capital and capability buildup, and improve local governance, advocacies and systems are being put together to pilot counterparting projects between potential Overseas Filipinos wishing to save, invest or donate to their hometowns, with LGUs putting up counterparts such as financial incentives, tax breaks or support services, and funding or development agencies sharing with an equivalent counterpart that may be used for capacity building or funding counterpart. Three of such projects, are being started upon the initiative of Overseas Filipinos or migrants that have returned. Furthermore, development agencies are beginning to show interest in putting up counterpart money to funds pooled by migrants for use in microlending, to be used in capability building or support for microenterpreneurs.

Conclusion

There are so many complex issues related to migration, and particularly about Philippine migration that probably could not be covered sufficiently with the time allotted. But I have decided to discuss the gut issues that confront us in the Philippines as a migrant sending country in the hope that the efforts of those who are working in the ground to address these inequities and dilemmas could be supported by the institutions represented here.

Relieving the burdens or costs of remittances of migrants would be a great help and theoretically increase their disposable income and possibly attract more migrants to the formal sector. However we still have to find out how these increased incomes could be harnessed or employed to impact significantly on the development of their home countries. Besides, there is a need to explore ways by which more irregular workers could be allowed to open bank accounts. Perhaps multilateral institutions and international agencies may coordinate with host country governments and learn from the Mexican example as described by our colleague Mr. Kapur, where consular identification cards issued by the Mexican government, have come to be accepted by banks as identity cards to open accounts and enabling them to remit formally. Ignoring realities would only make migrants resort to informal remittance channels and even make them vulnerable to consumptive behaviour. I had also earlier suggested in a Netherlands forum last March the adoption and administration by the UN with the support of multilateral institutions and development agencies, of an International Migrant Savings Card .(Bagasao) Such a card could be issued under the auspices of the UN after proper verification of the identity of the holder, regardless of their migrant status, and could be used for savings and remittance, provided that 10% of all remittances are retained as savings.

Let me state that while studies point to remittances as supporting terrorist activities at home or elsewhere as well as money laundering operations, I believe that the larger number of remittances are sent by migrants to support the basic necessities of their families. Unreasonable and arbitrary scrutiny may just eventually lead to higher remittance costs, lead more people to the informal sector and more importantly, result in delays that affect migrants’ families survival. The current attention spent on scrutinizing remittances sent home by migrants should not also divert the authorities’ attention away from inspecting with equal if not increased vigilance, the flight of money away from migrants’ countries of origin, by the rich or moneyed sector, seeking to launder or find safer havens for money that may or may not be ill-gotten but are nevertheless invested elsewhere than where it is earned.

Commercial banks through which 70% of formal remittances of migrants are channeled, should also be cautioned and occasionally made to explain the length of time, usually from 7 days to a few weeks, within which they finally deliver the proceeds of the remittances to beneficiaries. It is common knowledge that banks “float” or hold on to these remittances for an inordinate period of time. A BSP official that I interviewed just before this conference reported that they had recently called the attention of the Bankers Association of the Philippines regarding this. If Western Union could send a remittance in a few minutes, there should be no reason why banks could not do the same. What is the real cost of remittance? How long does it take for receiving banks to release remittance proceeds? The answers to these questions must be made more open to the public.

Finally, let me state that novel programs such as grant awards for innovative ideas(PDIM)being introduced in the Philippines on good governance, transparency and accountability by multilateral institutions such as the World Bank and others, in partnership with other foreign and local development agencies, are a welcome development. Initiatives such as these facilitate the delivery of much needed funds to intended beneficiaries. The Philippines as well as other less developed countries should have more of such programs which minimize intermediaries and allow institutions to be in closer and direct touch and therefore are able to personally know the real needs, concerns and issues relating to poverty alleviation

Huge amounts of Official Development Assistance (ODA) from donor countries lie idle because government could not come up with its counterpart due to budget or balance of payment deficits. Perhaps donor agencies might consider freeing up these idle funds for development by considering remittances as counterparts for the development of much needed infrastructure.

We in civil society share the vision of our distinguished colleagues here that there is indeed a link between poverty and migration, and that our individual and collective efforts would lead to the empowerment of migrants and give recognition to their contributions to the development not only of their countries of work, but also to their countries of origin.
 

Bibliography

1. Peter Gammeltoft, Remittances and other Financial Flows to Developing Countries, CDR Working Paper 02.11.

2. Stella Go, Migration,Poverty and Inequality:The Case of the Philippines, September, 2002.

3. Peter Stalker, Proceedings on the NOVIB Experts Meeting on Migration, Globalisation and Development, March, 2003, the Netherlands.,

4. Marina Durano, Finance and Development:Issues Arising from the Asian Crisis, A View from the Philippines, March 15, 1999.

5. Puri and Ritzema, Migrant Worker Remittances, Microfinance and the Formal Economy, Prospects and Issues, ILO 1999.

6. Manolo Abella, “Filipinos are bound to be a global People”, a Speech delivered during the Outstanding Overseas Filipino Awards, Manila, November, 2002.

7. Commission on Filipinos Overseas(CFO) Linkapil Manual, 2003.

8. Survey on Overseas Filipinos(SOF), Philippine National Statistics Office.

9. Bangko Sentral ng Pilipinas(BSP)

10. OFW Journalism Handbook, 2003, OFW Journalism Consortium.

11. DFA/ILO Final Report on Empowering Overseas Filipinos(2002)

12. Mario Lamberte, Investments of OFWs in Rural Banks, A presentation delivered at the ERCOF International Conference, Davao, Philippines, April 2002.

13. Josaias dela Cruz, a Paper on OFW Savings and Investments in Microfinance presented at the ERCOF conference in July, 2003, at Silang, Cavite, Philippines.

14. Robert de Vera, a Paper on Overseas Filipino Remittances, presented at the ERCOF Conference in July 2003, at Silang, Cavite, Philippines.

15. Conference on Programs to Harness the Resources of Overseas Filipinos for the Development of Local Economies, Silang, Cavite, Philippines, July, 2003.

16. I. F. Bagasao, Paper presented to the NOVIB Experts Meeting, March 2003, the Netherlands.
 

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