My OFW Daughters and the Rising Peso

Today I am sharing with you the post of former Congressman and SBMA administrator Felicito C. Payumo in the Inquirer as it is very much related to my earlier post.

MANILA, Philippines- -MY THREE OFW daughters came home, briefly, for the wedding of their brother. Over breakfast, I asked Ani, who works in New York City doing structured finance for a financial guarantee company, if she thought that the United States is deliberately keeping the value of the dollar low. She said she didn't think so--not as matter of policy. "Because of the recession or its anticipation, the Fed is being
pressured to reduce interest rate to perk up the capital market. But as the interest rate is slashed, funds tend to leave the United States to seek higher interest rates elsewhere. As a consequence, the dollar falls, but it's not as if the United States has designed to keep it low."

"But isn't the recession caused by the deluge of manufactured goods from third world countries?" I countered. "China now swamps the US market with food, apparel, toys, electronics and hi-tech gadgets. This takes away jobs from Americans, so the United States now wants the dollar kept weaker vs. other currencies so that manufactured goods from other countries will be more expensive, that is, less competitive. So, it is
by design," I pontificated to end the argument.

"But if that is so, how come the Euro remains strong even though Chinese products are all over the stores in Europe," my other daughter, Ela, joined in. She works with a retail company in London, so she should know. I could only reply, "Maybe the Euro is getting strong because the dollar is getting weak."

All the while, my third daughter, Aileen, was listening but remained clueless in the discussion. She had dabbled in the theatre earlier but now works for a hip-hop magazine in Manhattan. All these were strange to her. "Ah, basta. What I know is my dollars now get me fewer pesos to buy gifts for my former yaya," Aileen, ended the argument...and the tutorial lessons.

I asked myself "if my daughter who has no dependents immediately felt the effect of the rising peso, what about the dependents of the rest of the 8.2 million overseas Filipino workers?" That's 10 percent of all Filipinos, and assuming they each have five dependents, they would number 41 million or nearly 50 percent of our total population. And the profile isn't pretty. Household and related workers category topped the list at 28 percent of land-based new hires. This was followed by construction workers (14 percent), and factory workers (14 percent). The rest are in the service industry with professional, medical and technical workers in the minority. An estimate of OFW money flows puts $11.2 billion (80 percent of total official remittance) for living expenses, medical and educational expenses, house construction and improvements, and consumables. The majority are unable to set aside for savings or investments. And this was before March 2004 when $1 exchanged for P56.36. Since then the peso has strengthened so that the OFWs and exporters have lost 26.5 percent of their income. Today, the value of the dollar is about P41. That means for every $100 they receive, OFW dependents now get P1,500 less.

But what about the cost of living? When I checked, the general price level had increased by 43.1 percent from March 2004 to October 2007, with year 2000 as a base. The sharpest increases were noted in fuel, light, water and services (79 percent), pushed obviously by the increase in crude oil price. Food and beverage prices which account for half of the consumer basket rose by 37 percent.

What do these all mean? It means that our OFWs and their dependents, which account for half of our population, are being hit by a double whammy of decreasing incomes and rising prices.

No wonder, everyone throws his two cents' worth on how to alleviate their plight--from having a fixed exchange rate for OFW remittances (in effect a subsidy, but who would bear the cost?), or a forward cover (which very few OFWs avail of), to prepaying and refraining from taking dollar loans and switching to borrowing in pesos, to suspending
collection of the EVAT for fuel, as suggested by Sen. Mar Roxas (which makes the most sense) as EVAT is directly borne by the end-consumers, that is, the masses.

The response from the government is, unfortunately, a tepid one—a one-percent reduction of the tariff on fuel imports by oil companies at certain trigger prices. Not only does it come too little, too late—it is misdirected. It is the oil companies who will benefit from the tariff reduction, as a militant labor group observed, so much so that President Macapagal-Arroyo will have to tell them to pass on the savings to the consumers. The Department of Finance opposes the suspension of the EVAT because that would mean P54 billion in foregone revenues. It fears that the budget deficit will increase and this may trigger increase in prices. But what can be worse as inflationary trigger than a direct tax such as the EVAT on rising oil prices borne directly by the masses? As to the concern on foregone revenues, the Bangko Sentral ng Pilipinas has lost that much amount already in defending the dollar!

Meanwhile, we can only cry with our OFWs. Yet we hail them as our heroes. But then, praise is cheap.