Why Duterte’s Gambit on the Kuwait OFW Ban will Boost USD Peso!

Why Duterte’s Gambit on the Kuwait OFW Ban will Boost USD Peso!

During the Libyan crisis in 2014, the previous government mandatorily repatriated OFWs located there.

Then, I quoted the media… [Where is the Boom? OFW’s in Libya’s Choice: Die as Heroes or Die in Hunger August 5, 2014, Before It’s News has a copy of this]

Despite the danger, many Filipinos in Libya have ignored the government’s order for mandatory evacuation, DFA spokesman Charles Jose told reporters on Monday.

“The usual reason we hear from them is that they would rather take the chance. They think they have greater chances of surviving the war [there] than of surviving uncertainty [without jobs] here,” Jose said.

Fast forward today.

Because of some instances of employer abuses, the incumbent regime banned OFW deployment in Kuwait

And yet, despite incidences of abuse, some OFWs would rather stick it out in Kuwait.

Some excerpts from the Inquirer (Abuse or unemployment: Stark choice for many Filipino maids, February 20, 2018)

For them, the sometimes brutal conditions and the hide-and-seek with Kuwaiti police are outweighed by the need to provide for their families at home…

Despite the hardships and risks overseas, she is willing to give it another chance. “If there is no stable job here [in the Philippines], and if there is someone who will take me, I would go back. I have three kids in school, the oldest in college,” said Obedencio, who labored six years in Kuwait.

Reason? (bold mine)

The money they earned over the years had already been sent back home. Some said they had only been getting about 80 Kuwaiti dinars ($267) a month, which went to pay household expenses and school tuition in the Philippines.

Filipino workers are attracted overseas by salaries unavailable at home, where even skilled workers like computer engineers earn only about P49,300 a month, according to government figures.

Overseas workers are widely hailed as national heroes for their contribution to the economy, and reports of their mistreatment abroad often become a political issue domestically.

Loreza Tagle, 37, said she had been overworked and underfed by her employer. She labored illegally in a restaurant for five years to support her four children and her poorly paid husband back home.

But as she pondered an uncertain fate after leaving Kuwait, tears welled up in her eyes.

“It is frightening to come back to the Philippines with no guarantee of finding a job,” she said through sobs.

“Over there, no matter what, even if you are in fear of getting caught by the police, somehow you can find a job … over here, you may not be afraid but you won’t have a job.”

See the dissonance?

It seems like living in two different worlds: a supposed boom and economic survival.

Haven’t these OFWs been told that an economic boom has been happening in their homeland? Haven’t their families been telling them? Countless numbers of statistics have been spouted left and right to project of such prosperity. Don’t they have Facebook pages with news feeds?

So why would these OFWs adamantly take on the burden of personal risks for economic survival?

Yet, in three years, the aversion to returning home has barely changed for many OFWs.

Importantly, why has a significant segment of the Philippine population failed to partake of the supposed blessings from the BSP’s “trickle down” policies?

Why have jobs and income been elusive and wanting for many?

Because the few who control mainstream communications had been the main recipients of the BSP’s boom? Because the so-called boom is just about statistics?

A growing number of OFWs, as I have repeatedly emphasized, have not been signs of a prospering economy.  

The peso’s devaluation since the 1960s has promoted labor exports, instead of exports of goods and services. The peso’s slomo crash has accrued, not only for the loss of purchasing power of the citizenry but more importantly, it brought about economic privations.

Thus, domestic residents were forced to look for greener pastures elsewhere.

One the major irony in the mainstream’s tautology about OFW remittances is that such are supposed to signify as economic growth!

It is sad how politics has mangled reality.

The ban will only foster unintended consequences!

If the root of the problem is unresolved, populist solutions like the Kuwait OFW ban will only translate to social-economic disaster. What such prohibition would do instead is to create or spawn a black market for OFWs.

With OFWs operating underground, accounts of abuses will only bulge or multiply!

And curiously, the Duterte government intends to expand the OFW ban to cover other nations where reported abuses exist.

And as I have been saying here, mounting interventions only translates to an enlargement of the government which would come at the expense of the private sector.

This serves as additional proof that the Philippines is transitioning to a corporatist-state capitalism model

Moreover, restricting the deployment of OFWs would entail to a diminution of access to the supply of US dollars.

So the profusion of the peso will chase even smaller amount of US dollars!

Or, as the BSP and the banking system churn out humungous amounts of the peso, the supply of US dollars as the international reserve currency of the domestic financial system shrinks!

That said, the OFW ban would boost the USD-peso. On top of this, strains experienced by domestic consumers would only escalate!

Such mounting imbalance would be a testament to the twin bubble: a government bubble piggybacking on a credit bubble. The government bubble is a mosaic of public spending, political interventions, and prohibitions on the economy and social aspects, and taxations wrapped up and sold to the public as a political-economic elixir.

 

In the past, the falling peso boosted the OFW remittances. At present, fumbling remittance growth has accompanied the peso’s weakness. (updated for the full year 2017).

After peaking in 2014, OFW remittances have been on a downtrend (annual above, monthly below)

And as the peso tanks, the incentive to work overseas should get magnified! (For the same reasons above: lower purchasing power and shriveling economic opportunities)

It would be nice if the downshift in OFW remittance growth has been about a surge in domestic jobs and income. But as the anecdotal accounts show, this decline must be more about diminishing returns, specifically,

1) The Philippines have sent too many people overseas, such that each marginal increase leads to lower percentages.

2) Overseas employers can hardly absorb more OFWs (perhaps due to the economic conditions and or due to domestic politics such as labor protectionism/ anti-migration sentiment) and,

3) Overseas employers may be having a difficult time with their businesses to increase wages of present OFWs.

The 2015 Libyan crisis repatriation could have been a marginal factor.

This means that once a global economic slowdown/recession/crisis emerge this will most likely send a significant number OFWs packing home.

As an aside, the coming global downturn will likely have multiple hotspots and will be unlike the Great Recession, centered on the US

And such inauspicious circumstances would most likely expose the monumental imbalances in the domestic or Philippine economy.

And naturally, once such malivestments will have been forced out into open, a major ramification would be massive job dislocations

And once this scenario comes to fruition, the sad thing here is; massive job losses here will be compounded with returning unemployed OFWs. And the gush of unemployed people will signify a crucible of social tumult.

And that’s when the government bubble goes parabolic, as public expenditures grow exponentially to contain such social strains!

At the end of the day, the USD PHP should function as a critical insurance against policy failures.

And each intervention amplifies the risk of failures.