US RECESSION? How has it affected the Philippine economy? 3

Overseas Filipino Workers (OFWs), remitting part of their dollar earnings to support their families in the Philippines, have become a significant factor in the Philippine Economy (US$ 14 billion in 2007).

Remittances have not been only for consumption expenditures (i.e., monthly household expenses) , but also for investments in housing and real estate. As a matter of fact, big real estate companies and banks in house financing have set up offices in the cities where OFWs are clustered (e.g., San Francisco & Los Angeles, Chicago, Hongkong, Singapore, Rome, etc).

As the job situation of OFWs are unstable (longest employment contracts are for 2 years, although contract renewals are frequent), these house purchases would be in the same category as subprime mortgages.

With the weakening of the dollar putting pressure on the OFW to send a greater portion of earnings for family support and for mortgage payments (US$ 1 = PhP 52 three years ago, US$ 1 = PhP 41 today) and the OFW’s own living expenses increasing, it is possible that arrearages and defaults in the mortgage payments will increase to a point where the US subprime crisis will have a counterpart in the Philippines. However, it will not have as deep & wide an effect as the US subprime crisis.

Already, there is an incipient glut in condominiums (built to take advantage of the OFW appetite for housing investments).

Images from Microsoft Clipart