IF THE PHILIPPINE ECONOMY HAS SO FAR weathered the impact of the global financial crisis better than most of its neighbors, it?s because of one unique element: Massive remittances from millions of overseas Filipino workers (OFWs). The country is now the third largest recipient of remittances in the world, behind India and Mexico. The Bangko Sentral ng Pilipinas reports that overseas Filipinos sent back $16.4 billion of remittances last year, growing 13.7 percent over the 2007 level even with the global economic slowdown. This surprising continued double-digit growth propelled Filipinos? consumption spending (and some investment spending as well) enough to offset the drop in our export sales and thereby helped keep our economy growing.

Will our luck with remittances hold up through 2009? Is it true that overseas Filipinos? earnings and remittances are mostly immune from the global slowdown? Or are we simply seeing a time lag in its effect? Will there be an inevitable reversal this year that could put our economy in peril of recession?

Economic impact

Last year?s $16.4 billion in remittances translated to about P800 billion in the pockets of Filipinos. This is 10.7 percent of our total GDP of P7.5 trillion last year. Roughly, this means that remittances funded one out of every 10 pesos spent on the goods and services produced in our economy. Without those remittances fueling Filipinos? spending, our economy would have shrunk by 6 percent instead of growing 4.5 percent as reported by government statistics.

This is, of course, an oversimplification. Every dollar of remittance actually leads to more than its peso equivalent in additional production, due to the multiplier effect that it generates. The multiplier effect is stronger when the remittance is received by a rural household (more likely the case), which tends to consume more domestically produced goods than an urban household. It is argued that there could also be an offsetting effect, where remittances reduce the recipients? need to work, thereby dampening overall economic activity. A 2003 IMF paper found that for a sample of 113 countries, remittances affected income growth negatively due to this adverse incentive problem. However, a study by Geoffrey Ducanes and Manolo Abella showed this not to be the case in the Philippines. So, in light of the multiplier effect described above, the implication is that a fall in remittances can have more profound impacts on our economy than the numbers would directly suggest.

Where from?

About one in every four OFWs deployed is a seafarer, while the other three are land-based workers. In terms of money sent home, sea-based OFWs contribute roughly one in every five dollars remitted (18.5 percent). Of the land-based workers deployed in 2007, 60 percent went to the Middle East, 27 percent to other countries in Asia, 5.6 percent to Europe, and 3.4 percent headed for the Americas.

Nearly half (47.6 percent) of last year?s remittances came from the United States, although these include amounts sent through US banks that may have originated elsewhere. OFWs in Europe sent 16 percent of total remittances, while those in the Middle East and Asia sent 15 and 12 percent, respectively.

The US, European, Middle Eastern and the more affluent Asian economies (i.e., Japan, Hong Kong, Singapore and Taiwan) together account for about 90 percent of all remittances. These are already suffering not just slowdowns, but actual recessions (i.e., contraction) that are projected to get even deeper this year, and last for some time to come. If such contractions in host economies are reflected in OFWs? earnings, then remittances would naturally decline, and we would be in for tough times ahead.

Who from?

But that is the big question: Will these contractions in fact be reflected in OFWs? earnings? Or are the jobs held by OFWs mostly recession-proof?

The seafarers, who account for a fifth of all remittances, will surely be hit by the significant drop in world trade and tourism, maybe not just yet, but in due time. There is clearly a time lag in feeling this impact fully as ships already at sea can take months to complete their voyages and seamen?s contracts will last till then.

The so-called ?recession-proof? jobs refer to those in health care (nurses, caregivers and doctors) and education (teachers). The published data leave much to be desired, but if reported deployments in recent years are any indication, then 15-20 percent of land-based workers would be a liberal estimate for these jobs. The bulk is classified as production workers, professional and technical workers and other service worker jobs not generally considered recession-proof. Domestic helpers and other household workers make up the single largest group (16 percent). Whether or not these jobs are recession-proof is debatable, but there is growing anecdotal evidence that they are not.

The December 2008 data in fact already showed a 5.8-percent decline in overall deployments, and this could very well signal the end of the lag effect. I say we should all pray for the best, but prepare for the worst.

Comments welcome at chabito@ateneo.edu