BOO CHANCO: SPECIAL OFW EXCHANGE RATE POSES SERIOUS PROBLEMS
MANILA, SEPTEMBER 7, 2007 (STAR) DEMAND AND SUPPLY By Boo Chanco - Veep Noli was reported to have remarked that proof the economy is doing extremely well is the growth in the number of OFWs. This is one time I have to agree with Ibon, the leftist think tank, that Noli got it wrong. The fact that more Pinoys are becoming OFWs is proof that our economy is unable to generate jobs for them. That seems to be proof that high GDP growth rates aside, the economy can’t be doing that well if it cannot generate enough jobs for its people, forcing them to migrate to other economies.
What Noli probably wanted to say is that because the number of OFWs is growing, the economy can’t help but grow. For indeed, high GDP/GNP growth rates are being driven by OFW remittances. The same thing is true with the strengthening of the peso, which ironically enough, is working against the interest of the OFWs and their families.
That’s why I didn’t find it strange when news reports subsequently headlined that Veep Noli is supporting a proposal for a special exchange rate for OFWs. As a presidential adviser on OFWs, Noli is just supporting a clamor of his constituency.
But I found it strange that Noli spoke on something pretty technical and complicated. As a responsible high official, Noli should have checked with those in a better position to react on the proposal. Noli couldn’t have violated his own rule about careless talk. He always lived by the “no talk, no mistake” rule on matters like that.
Did media misquote him? I went straight to the Veep’s website to check precisely what he said. It turns out, the headline of his press release reads: VP NOLI LISTENS TO OFWs’ PETITION. He listened lang pala. The most he did to support his constituency was to “endorse their letter to the President and will monitor the progress of their request.”
The press release however also said that Noli “will look into the feasibility of the group’s second alternative of entering into a ‘Forward Contract or Currency Options’ with financial institutions.” He “also noted that as early as last year, he has been pushing for plans to alleviate the plight of OFWs by urging the Bangko Sentral ng Pilipinas to study his proposal to lower bank charges on OFW remittances.”
Just what exactly is the proposal presented to Noli by a group that calls itself the Center for Migrants Advocacy (CMA)? They presented a proposal addressed to President Arroyo seeking a fixed 10 percent premium above the exchange rate prevailing in the market or a flat rate of 50 to $1 to be given to legitimate OFWs. Some 15,000 OFWs supposedly signed the letter.
According to the press release of Noli’s office, the group’s senior action officer, Ronnie Abeto, recommended the following mechanisms to implement this ‘special exchange rate’ project: the government will put up a stabilization fund to address exchange rate fluctuation and enter into a collective “Forward Contract or Currency Options” with financial institutions. While the Veep’s press release didn’t say outright he supported the proposal, he did said that “the government should reciprocate OFWs’ sacrifices with more incentives and protection.”
Helping the OFWs maximize the benefits of their earnings in the light of the strong peso should indeed be given serious thought. The big question is, can we do this in a way that will not negatively affect the dicey investor sentiment for the country as a whole? Not an expert on the matter, I asked those in a position to know what’s what on it.
Conceptually these proposals are possible. But experts say there are some philosophical and practical issues surrounding them. For starters, the BSP has previously expressed concern on proposals similar to the first one, which calls for a non-market determined rate to be used when exchanging foreign remittances into pesos. The fundamental concern has to do with the introduction of distortions, a serious concern that economists echo.
There are such questions such as how would the exchange rate be set? For how long would the facility last? Who would ultimately bear the cost of the subsidy? And then we go into other practical issues like, when one sector is favored, how do we distinguish against another sector’s concern? In other words, shouldn’t the export sector also be given a similar facility? The claim has been made that 75 small and medium scale exporters closed shop after P1.5 billion in forex losses during the first half of the year.
The second proposal, where overseas Filipinos would collectively enter into forward contracts or currency options, may be more defensible as long as the rates at which these types of insurance are done are market-determined and therefore will not cause distortions. Anything that deviates from market determination also opens up problems with bureaucratic controls and corruption and will discourage global investors.
This is why BSP’s policy calls for a market-determined exchange rate, with occasional role for official action only to smoothen excessive volatilities in the market. This is consistent with BSP’s primary mandate of maintaining low and stable prices, which would ultimately benefit the whole economy.
Under this framework, the BSP has been able to build up our gross international reserves and this has allowed us to prepay our foreign debt, including all of our debt to the IMF. This is the secret in BSP’s recent winning streak and why its credibility is high in the international financial community.
Still, we have to be mindful of the concerns of our overseas Filipinos and assist them in their needs. Thus far, the BSP has focused its efforts on improving the remittance environment for OFW flows through: a) facilitating the flow of remittances through formal channels, which would increase protection and reduce losses and theft, b) encouraging banks to reduce remittance charges by improving competition among remittance centers; and c) encouraging beneficiaries to channel savings to investment instruments and enterprise activities through information and financial literacy programs.
According to reports, the flow of OFW money into the formal channel is now nearly 95 percent of remittances. On the remittance charges, we have seen a reduction in the charges over time.
I guess it is time for the experts in and out of government to think of plans to help our overseas Filipinos deal with the strong peso. If a special exchange rate is too disruptive and risky to the country’s overall financial credibility, there must be something else in the vast and complicated world of financial engineering that would address OFW needs.
Maybe, Veep Noli should accompany the folks who presented their proposal to meet with BSP officials and representatives of the local private financial sector to discuss this problem. If we put all our heads together, we should be able to come up with an appropriate and long-term solution to address the plight of our OFWs.
I got it wrong when I included Labor Secretary Brion in the list of Sigma Rho alumni. Secretary Brion, a reader wrote, is a member of the Fraternal Order of Utopia of the Ateneo Law School. It was in the Ateneo Law School where he graduated as class valedictorian and placed first in the BAR exams.
Mea culpa and my apologies. When I confronted my source with his mistake, his reply simply was: “For an Atenean, he sure moves and acts like a Rhosig.” He reassured me he didn’t mean that in a disparaging way because he was thinking of such illustrious names like Salonga, Enrile, Angara, Drilon, Villafuerte, Villaraza, Chavez, Carpio and Factoran… all honorable men.
Chief News Editor: Sol Jose Vanzi
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