November 2007

Philippine overseas workers sent $14.6 billion in annual remittances back home to their families last year, according to a report by the United Nations’ International Fund for Agricultural Development.

That kind of money has attracted the attention of politicians and business elites eager to get a crack at the boodle. This past May, for instance, Philippine President Gloria Arroyo gave a pep talk to Filipina maids gathered at Tokyo’s posh Imperial Hotel. Ms. Arroyo urged her so-called “super maids” to invest some of their remittance money in the Philippine stock market, real estate, government bonds and small businesses ventures.

But a reality check reveals many reasons why the remittances are extremely inefficient for stimulating economic growth.

For one, the cash mainly props up consumer spending in the same failing economy that drove these workers abroad in the first place (the impressive-looking 7.5% growth in the Philippines’ second-quarter gross domestic product was fueled by the remittances and a surge in government spending before the May elections). Much of that money—estimates range as high as 80%—usually ends up in the pockets of shopping-mall owners. SM-Shoemart, for instance, the biggest mall operator in the Philippines, profits greatly thanks to relatives who go on shopping sprees with remittance money (the street term for this economic phenomenon is the “lazy relatives syndrome”). As for investments, Shoemart recently announced plans to develop new shopping malls—in China.

Bankers and other middlemen who take a cut of the money transfers are also happy. Most remittances are cash-to-cash transfers from overseas workers who are considered unqualified for bank accounts. “As a result, remittance recipients cannot save, borrow or build up credit histories through these banking institutions,” the U.N. report noted. In Asia’s backward economies, bankers’ bottom lines may depend upon money collected from some of the poorest people in their economies—but they lend to the rich. Which further makes investment and business ventures difficult.

Overseas workers know how difficult it would be to stay home and become entrepreneurs. According to the World Bank’s latest doingbusiness.org survey, starting a business in the Philippines requires obtaining 15 permits in a process that takes an average of 58 days. By contrast, in Hong Kong it takes just five permits over 11 days to start a business. Singapore, the easiest place to become an entrepreneur in Asia, requires only five permits in five days. You’d think that the Philippines would seek emulate Hong Kong and Singapore, but it hasn’t.

If the oligarchs have little incentive to support serious economic reforms, so too do the bureaucrats. Remittances often wind up in the hands of corrupt immigration officials in airports who extort bribes from departing and returning workers. “The workers are squeezed dry in each turn and twist of the migration process, from exorbitant placement fees during the application period, to expensive passport and consular fees at the job sites, to petty and big-time extortion upon arrival,” observes Arnel De Guzman, a Philippine activist who has been advocating better treatment of overseas workers for more than a quarter century.

And what are the workers who have escaped the miseries of their native country to work in world-class financial centers such as Tokyo, Singapore and Hong Kong supposed to think of Ms. Arroyo’s notion that they should start risking a portion of their salaries in Manila’s chronically underperforming bourse? When it comes to talking about unwise investments, the workers could point to the track record of a Philippine government agency known as the Overseas Workers Welfare Administration. The OWWA has accumulated a kitty of hundreds of millions of dollars, collected $25 at a time from departing overseas workers. Unfortunately, the OWWA bureaucrats have a long history of investing the workers’ money in various failed real estate ventures and other dubious financial transactions. And the Philippines being, well, the Philippines, politicians sometimes seem to have a difficult time keeping their hands off the money.

Is it asking too much for the politicians to consider doing two things before they ask overseas workers to risk their hard-earned money by investing it back home? First, they could stop treating these economic heroes and heroines in a scandalous manner. And then, they might get serious about enacting real economic reforms that would give desperately poor citizens who want to feed, clothe and educate their families incentives to do just that—without having to leave their own native countries.

Mr. Rushford edits The Rushford Report, an online journal that covers trade politics and diplomacy.

Mr. Rushford is editor and publisher of the Rushford Report, a Washington-based newsletter that specializes in the politics of international trade