Views from the World
Philippines-Japan relations and OFW prospects
Arnold S. Tenorio, Business Editor, The Manila Times
(Keizai Koho, May 2011 issue)

IN late February, news broke out about leaks in the entrance exam questions at Japan’s most prestigious universities. This came a week after the Philippines won a respite from the execution of three overseas Filipino workers (OFW) caught trafficking drugs into China.
Both incidents, while seemingly unrelated, underscore the huge problems each of our countries — two longstanding partners in Asia — face more than 10 years into the new millennium.
The exam leak scandal happened a week before the National Police Agency released fresh data showing a sharp rise in the number of suicides among jobless fresh graduates in Japan.
With a record one-third of university graduates hard-up landing a job, these data suggest that Japan’s most promising youth are worried about a bleak future in a country that has struggled with deflation for more than a decade.
Early this year, Standard and Poor’s served notice that Tokyo’s outlook has soured amid its rising debt, which is the highest among developed countries as a percentage of gross domestic product (GDP). The credit rating downgrade came on the heels of data showing that China already surpassed Japan as the world’s second biggest economy.
Japan’s fiscal constraints coupled with falling prices and a shrinking and ageing population have dampened the country’s economic prospects.
Pessimism about their prospects at home also infects Filipinos who risk life and limb as so-called human mules, carrying illegal substances across borders. Estimates place the number of OFW detained around the world for drug trafficking at 600.
But if we count those who are illegally abroad — the so-called undocumented OFW — then the number of Filipinos who skirt the law just so they can eke out a living abroad rises to nearly a million, or one out of every 10 Filipinos working abroad.
This sense of desperation stems from the fact that the Philippines, much like Japan, is at a critical juncture in its development — something my people are acutely aware of.
In February, the Philippines celebrated the 25th anniversary of the Edsa People Power, the world’s first peaceful uprising that ended more than two decades of Martial rule.
Peaceful elections in May last year witnessed the highest participation in any presidential race, which also saw the victory of the son of a key leader of the 1986 People Power uprising.
I can imagine this has brought relief to some Japanese executives, who, during my 2009 visit to Tokyo for a presentation before the Keidanren, had expressed concern over the candidacy of ousted President Joseph Estrada.
Well, the Filipino people have spoken, and have chosen, for better or worse, the son of democracy icon Corazon Cojuangco-Aquino as our new president. Despite a growing number of gaffes on the foreign relations front, President Benigno Aquino 3rd has enjoyed record satisfaction ratings among Filipinos.
But a quarter of a century since the country returned to formal democracy, a third of the Philippine population remains in the grip of poverty, sending millions overseas to find higher-paying jobs, if not better lives as migrants.
Philippine government officials who visited Japan last month crowed about our so-called ‘sweet spot’ — a combination of low inflation and record economic expansion, which they attributed partly to investor confidence in Mr. Aquino’s election.
Philippine GDP chalked up another record growth of 7.3 percent — its fastest in 34 years — even as inflation and interest rates stayed near all-time lows.
There is truth to that. Leading last year’s economic expansion was the recovery of industry, which more than offset the mild contraction in agriculture brought on by an El Nino dry spell during the first half and a string of typhoons thereafter.
On the demand side, government pump-priming, election-related spending, and the rebound in exports led the economic expansion.
It is also true that successive years of tariff liberalization and the return of banks’ bad assets to pre-Asian crisis levels contributed to the low inflation and interest rate regimes.
But the unsung heroes responsible for the Philippines’ ‘sweet spot’ however were primarily, the OFW and to a lesser extent, the sunrise business process outsourcing (BPO) industry. Higher incomes in both sectors kept up personal consumption expenditures, which remains the main driver of the domestic economy.
The foreign exchange both sectors generate had helped fuel not only the peso’s appreciation, but also the surge in domestic liquidity, making possible the low inflation and interest rate regimes, and opening more credit lines to businesses as well as households.
The OFW, and to a lesser extent the BPO sector, likewise contributed to the Philippines’ sustained balance of payments surplus, and to record gross international reserves last year. This strong external payments position and ample forex buffer have kept the Philippines liquid for the duration of the recent global financial crisis. Where other countries were gripped by a credit crunch, the Philippines’ domestic liquidity was growing by double digits.
As a result, car sales not only returned to pre-Asian crisis levels, but hit a new record, with a big chunk of the vehicles sold in the Philippines either assembled in, or shipped to our country by Japanese companies such as Toyota, Mitsubishi, Honda, Isuzu, Nissan, and lately Suzuki.
2010 also was the year when the Philippines’ main merchandise export — semiconductors and electronics — set a new record growth. Many Japanese companies that maintain operations in various economic zones across the Philippines took part in this renaissance.
Besides pent-up demand in advanced markets, electronics firms, including household Japanese names such as Sony, Toshiba, Panasonic, and Fujitsu, likewise enjoyed brisk sales in the Philippines, as Filipinos — no doubt financed by OFW and BPO money — were not to be outdone by their more affluent neighbors and splurged on the latest electronic gadgets and appliances.
Therefore, the OFW phenomenon — and recently but to a lesser extent the BPO sector — has gone beyond being a safety valve for the Philippines, letting off steam that otherwise could have fueled social unrest.
Rising affluence among families benefiting from remittances has whetted the appetite of other Filipinos to venture abroad. The advent of the Internet and social networking only made vivid the possibilities for advancement beyond Philippine shores.
The potential dividends for industry — including the Japanese firms that operate in the Philippines — are clear.
It is against this backdrop that we view with concern the unfolding conflict in the Middle East and North Africa, a region that hosts about 6 out of every 10 OFW.
That region also accounts for a tenth of remittances sent to the Philippines, but experts suspect the percentage to be higher given the correspondent relationships between banks in the Middle East and those in the US, which on record make up more than half of total OFW money.
The Middle East also is the Philippines’ main oil supplier. Any price spike or supply disruption would hurt a net importer like the Philippines. In fact, if not for the huge inflows of OFW money, then Philippine fuel prices would have risen sharper than they have done so far.
Yet while the OFW option has been an aspiration for a growing number of Filipinos, the same cannot be said of the Philippine government, for which the OFW remains a vague policy area. The belated official response to the troubles in the Middle East betrays this ambiguous position.
Let me part, however, by citing a possible model that can be used to improve the policy environment for the OFW, and by extension for the industries that benefit from this phenomenon.
With respect to your country, we have the Philippines-Japan Economic Partnership Agreement (PJEPA), which provides for the export of labor specifically in the health sector. This trade accord blazes the trail in so far as it makes explicit rules covering trade in services that could benefit both countries. Unfortunately, the gains from this agreement have been limited so far.
Last year, Japan was in need of at least 15,000 nurses. As of January this year, the Philippines had more than 200,000 jobless nursing graduates, a growing number of whom end up working for, among others, the BPO sector. Under the PJEPA, we have a potential solution to this serious gap on both sides.
In spite of the huge demand for health care professionals required by Japan’s ageing and shrinking population and the fiscal repercussions of allowing this to continue, Filipino nurses have yet to make headway into your market for one reason or another. The agreement calls for a review later this year, which I hope would address the kinks that have prevented both sides from gaining the maximum benefits the accord had promised.

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