BSP says no to sp’l instruments for OFWs

BSP says no to sp’l instruments for OFWs
By Des Ferriols
The Philippine Star 01/09/2006
http://www.philstar.com/philstar/NEWS200601090703.htm

The massive inflow of remittances from overseas Filipino workers (OFWs) should be mobilized for investments but the Bangko Sentral ng Pilipinas (BSP) bucked the idea of creating special investment instruments with special tax perks for OFWs.

OFW remittances have been fueling the country’s economic growth but monetary officials said OFWs and their families should be encouraged to invest their money.

BSP Governor Amando M. Tetangco Jr. said over the weekend that much of the OFW money being sent into the country has been going into consumer spending.

"That’s not bad for the short-term but over the long term, these funds would do more for the families and the economy if they are invested rather than just spent," Tetangco said.

The BSP had initially considered supporting programs aimed specifically at mobilizing OFW remittances but officials said this might actually create more problems than it will solve.

Tetangco said the Philippines is now the third biggest recipient of workers’ remittances and OFW remittances are now equivalent to 10.5 percent of gross domestic product (GDP).

Compared to foreign exchange receipts, remittances are equivalent to over 20 percent of the value of the country’s exports of goods and services.

"In fact, remittances are about 1.8 times the value of net exports of electronics, our number one export product," Tetangco said.

"It’s an offshoot of the combination of two factors: the lack of opportunities at home and the demand for labor offshore," he said. "Remittances are likely to remain strong due to the continued expansion in the global economy and the aging population in some advanced nations."

So far, however, Tetangco said OFW investments have focused on housing development because homeownership is usually the first objective of OFWs and their families.

"You can see this in the pick-up in investments in housing developments," he said.

According to Tetangco, over $100 million of the foreign direct investments recorded in 2005 were actually investments in residential housing developments made by OFWs.

After acquiring a house, however, Tetangco said longer term investment options should be made available to OFWs who would continue generating income from abroad.

However, Tetangco said offering specialized instruments directed mainly at OFWs would only create distortions in the financial and equities market at a time when regulators are trying to homogenize the taxation of all financial instruments to remove distortions.

According to Tetangco, banks should instead go heavily into the promotion of traditional investment instruments and, eventually, more sophisticated products that OFWs could invest in.

"Some of the banks heavily involved in remittances are already going to workstations to conduct financial education campaigns," Tetangco said. "OFWs are actually very sophisticated individuals who need only to be aware of their options."

According to Tetangco, the BSP expected to see a gradual increase in investments in such instruments as trust funds, mutual funds and other financial instruments.

"As we make the market safer for investors, we also have to teach them not just their options but their rights as well," he said. "It’s a slow process but it will happen."