‘Remittances may fuel corruption’

MANILA, Philippines - The steady flow of remittances to the country may fuel more corruption in the government, an International Monetary Fund official said.

“In a sense, remittances create a fiscal space that the government can benefit from... [But] there is work that suggest that that space generated by remittances can actually lead to more corruption,” Ralph Chami, division chief at IMF’s Middle East and Central Asia Department, said in a podcast.

“Because the government thinks that if your relatives can subsidize your education, why provide education [and] if the remittances abroad can provide you with better health care, why provide health care,” Chami continued.

Money sent home by Filipinos living and working overseas help increase tax revenues for the government and this may also be considered as “windfall” profits, Chami said.

“The government can choose to do good things with it, or they can choose to do other things with it. It can fuel other kind of wasteful behavior on the side of the government,” Chami explained.

But he noted, “the individual may be aware the government is not providing the [social] services but feels less compelled to hold the government accountable to it because that individual is being insured by someone from abroad.”

Cash remittances from Filipinos abroad jumped 5.6 percent to $10.7 billion in the first half of the year from the same period in 2012. The central bank has forecast an annual five percent growth for remittances this year.

Chami said that what remains as the big challenge is shifting the use of remittances from mere consumption to become investments.

Most families or individuals receiving the remittances use the funds for household expenses, medical needs, education, and so on, and only a few divert part of the money to a savings account.

“So the issue then becomes remittances alleviate poverty but at the same time, we want them to be a source of capital for development. We want to change the nature from alleviating poverty... to making them a sort of like a private capital,” Chami said.

“The one-million-dollar question is how do we change the nature of remittances from basically trying to help your family at home to becoming a source of capital for development, making it a growth story,” he added.