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Philippines Economic Growth: Harbinger of Hope or Symptom of Illness?

October 8, 2012

Last week, the Asian Development Bank raised its 2012 Philippines GDP forecast to 5.5%, an especially notable feat considering it cut most of its estimates for the rest of Asia including powerhouses like China and India.  While this may appear a promising sign of future prosperity, upon further examination it becomes evident this growth can not be attributed to labor reforms putting the unemployed back to work, or the creation of new markets.  The Philippines economic growth is attributed to the country’s most successful export - its people.

According to official government numbers, 9,452,984 Filipinos, about 9% of the population have left the Philippines for employment abroad as of 2010 with 4,324,388 characterized as temporary migrant workers.  These are  the Overseas Filipino Workers (OFW’s) who tend to be better educated, middle-income individuals driven by necessity to find employment overseas.  They work primarily as domestic workers (caregivers, maids, etc.), laborers, and nurses and are deployed most often to Saudi Arabia, Hong Kong, United Arab Emirates, Qatar, and Singapore.

Driven out by persistently high unemployment rates of 7%, and even higher underemployment rates of 22.7%, these workers are enticed abroad by the opportunity of having a better-paying job, and sending home their earnings.  In large part, the Filipino government has promoted this labor export calling the OFW’s the country’s “heroes” or “Baygong Bayani” in Tagalog, and even giving annual awards to model OFW families.

1980-2010 OFW Remittances as percentage of GDP

This government celebration is not merely adulation – the money sent back to the Philippines by its overseas workers, known as remittances, has totaled $20.8 billion so far this year, accounting for a staggering 10% of the Philippines’ GDP.  Remittances have been cited as the force behind the country’s powerful private consumption growth of 6.1%.

OFW Express Lane at the Airport with the comment to “Have a good trip!!”

Government activism to promote labor migration from the Philippines began in the mid-1970s as a temporary solution to the economic crisis spurred by growing foreign debt. The government encouraged the labor export of the country’s unemployed to the oil-rich countries in the Middle East. In 1982 this promotion became a permanent component of the country’s labor policy with the creation of the Philippine Overseas Employment Agency  (POEA) directly handling and overseeing the deployment of OFW’s.  Some forty-years later, millions of OFW’s have gone abroad and remitted billions.

Because of its significant population abroad, the Filipino government has taken steps to provide legal protections for its workers.  In 1995, the Migrant Workers and Overseas Filipinos Act was instituted to provide protection of migrant workers regardless of their immigration status.  This includes protection from labor, physical, verbal, sexual abuse, among others.  However despite these efforts, violence toward OFW’s is regularly reported in the media; and human trafficking remains a serious area of concern, especially when workers lack official documentation.

Children awaiting their mother’s return from Saudia Arabia

Critics of this labor export strategy claim that the government is turning a blind eye to the social costs such an arrangement puts on the families involved.  In the Philippines, migration is known as the “Filipino divorce.” Many OFW’s remain overseas for years at a time taking care of their employers’ children, only to turn around and spend that money paying for someone else to take care of their own children back home.  Or they spend money on cars and fully furnished homes in the Philippines that stand empty and unused for years.

While remittances have certainly played a crucial role in alleviating individual household poverty and elevating the standard of living, an economy that is so widely and heavily dependent on remittances is unsustainable and prone to stagnation.  While this type of labor export policy has seen success among developing countries transitioning from agricultural economies to industrialization: South Korea and Malaysia during the 1970’s and 1980’s; the Philippines is going down a different path.  The country has subsisted on exported labor for some forty-years, and only last month, the government announced it is considering a phase-out program on the deployment of domestic helpers.  If this proposal comes to fruition it is certainly a step in the right direction; however the government must follow through with serious reforms that can provide for sustained economic growth and the creation of more domestic employment opportunities.

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