Thursday, October 30, 2008

Centerstage / UPI Asia
Alexander Martin Remollino

Manila, Philippines, October 30 — UN Secretary-General Ban Ki-moon quite missed the point at the opening of the Global Forum on Migration and Development that took place yesterday here in Manila, when he said that "migration can and should be a tool to lift us out of (the) economic crisis."

Before making this point, he was talking about the reversal of migration flows, placing emphasis on net outflows from countries facing economic crises. He also admitted that several countries have already been experiencing slowdowns in remittance flows.

How migration can be a tool to help countries out of the global economic meltdown in the face of these realities, which Mr. Ban himself has helped put to light, is something that is known only to him.

Take the example of the Philippines — a country that is highly dependent on overseas remittances for propping up an economy that is perpetually ridden by deficit and debt.

The Philippines counts the United States among its biggest sources of remittances, with 51 percent of its remittances coming from Filipinos residing there. The United States is now in an economic crisis of a magnitude that has not been seen since the Great Depression of the 1930s.

To rescue itself from the effects of stock market over-inflation, especially in information technology-related stocks (i.e. the "dot com bubble"), the United States in 2001 blew a real estate and construction bubble. U.S. financial institutions offered low interest rates for home mortgage loans; even those with low income or virtually no collateral were encouraged to apply for home loans. Their loans, which became known as "subprime mortgages," accumulated in U.S. financial institutions, starting in 2001. To spread the risk exposure of banks for these subprime mortgages, there was a process of "securitization," in which home mortgage loan packages were combined with others, packaged and sold as bonds and securities called collateralized debt obligations. These were guaranteed in credit default swaps by insurance companies such as AIG and sold to other banks, financial investment houses and companies in the United States that deal in speculative investments for high returns.

However, beginning in the last quarter of 2006, borrowers — especially those with subprime mortgages — increasingly failed to pay their amortizations. This caused a ripple effect on the banks and financial investment houses holding both the mortgages and the CDOs, as well as those which issued CDS. This in turn led to a series of bankruptcies of banks and investment houses, which were touted as "too big to fall."

The effects of the subprime mortgage crisis have led to mortgage-credit losses of at least $400 billion, based on estimates by The Economist. The International Monetary Fund estimates a loss of some $945 billion worldwide.

The U.S. financial crisis has led to the closure of companies and the subsequent losses of jobs in a country that prides itself in being a symbol of the supposed successes of the capitalist paradigm.

The 4 million Filipinos in the United States are beginning to feel the effects of this economic crunch, as they are among those who are losing their jobs. Filipinos who took to the United States during their best years in search of greener pastures, and who were fortunate enough to establish lucrative careers there, are increasingly seeing the fruits of their hard work crumble to the ground.

Already, remittance flows from the United States are slowing down. We will surely feel the effects of this on the economy more and more acutely in the coming months.

The Philippines is now feeling the consequences of dependence on a labor-export policy crafted and implemented during the Marcos administration. This path was pursued instead of a national industrialization program, which could generate enough jobs domestically to prevent massive labor migration.

The Philippine experience should tell Mr. Ban that migration, rather than being a way out of economic crisis, can actually contribute to its adverse effects.

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