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Applicants looking at job offers displayed on a glass window of a recruitment agency in Manila, Philippines.
Remittances We’re Watching: OFW superheroes, Central America flows, Ukraine war
The Philippines: From remittances to migrant worker superpower?
Being an Overseas Filipino Worker is nothing to sneeze at. When OFWs, as they're popularly known, go home for Christmas carrying huge cardboard boxes of gifts, they have a dedicated customs line and huge billboards thanking them for doing such a good job. Why? Because the remittances they send make up almost 10% of GDP. What's more, the Philippine labor diaspora is among the world’s biggest at 10% of the population — and a prized voting bloc. That’s why President Ferdinand Marcos Jr. spent almost as much time visiting OFWs in the US and the Gulf as he did on the domestic campaign trail. It paid off: Marcos killed it with OFWs, who helped him last May win a plurality of the vote for the first time since his authoritarian dad was in charge. Now, Marcos Jr. wants OFWs to play an even bigger role in his administration. For one thing, he’s asking them to go beyond remittances and actually invest in crucial business sectors such as tourism. For another, Marcos thinks the Philippines can punch above its tiny diplomatic weight by leveraging the power of its huge expat workforce to achieve political goals like trade deals. If a pandemic-era deployment ban on Filipino nurses worsened a global shortage, imagine what would happen to the shipping industry if Manila called back a quarter of the world's seafarers.
How pandemic and inflation impacted remittances to Central America
Lockdowns in the US had a disruptive effect on many Latin American countries that rely on remittances from the US to keep their economies afloat. Border closures and a stagnant US economy in the first half of 2020 caused remittances to drop, with outflows to Mexico, Guatemala, and Honduras contracting (year on year) in April 2020 by 3%, 20%, and 28% respectively. That trend reversed course in the second half of 2020 as the US entered the “we have to learn to live with it” stage of the pandemic. Remittances strengthened further in 2021 as the US economy came roaring back. Surging demand coupled with the Biden administration’s $1.9 trillion stimulus package led to record levels of remittances to Latin American countries, where pandemic-related economic disruptions remained rampant. Remittances to Mexico grew 27%, while Guatemalan migrants sent 35% more back. Payments to Honduras and El Salvador, meanwhile, grew 26%. We’ll be watching to see whether these outflows recede as the US Federal Reserve doubles down on efforts to rein in soaring US inflation. What’s more, inflation in the receiving countries – the annual rate in August was at 8.7% in Mexico, 10.4% in Honduras, and 8.4% in Guatemala – means that whatever is sent home will be worth less.
Ukraine: War and remittances
The war in Ukraine has sent a shockwave through the normal patterns of remittance flows in Eastern Europe and the former Soviet Union. To start with, consider that Ukraine counts on remittances for 10% of its GDP, most of that coming from Poland and the US. Russia, meanwhile, is home to millions of migrant workers from countries in the Caucasus and Central Asia, some of which depend on remittances for nearly a third of GDP. When the war started, remittances to Ukraine skyrocketed as Ukrainians living abroad sent money home to loved ones in danger and global platforms cut fees for money transfers. Since then, flows have tailed off, in part because millions of Ukrainians have fled, meaning transfers now reach them in other countries. At the same time, Western sanctions on Russia reverberated into Central Asia. First, the hit to Russia’s economy pushed hundreds of thousands of migrant workers to head home. Second, financial sanctions complicated Russian banks’ ability to send money across borders. In Kyrgyzstan alone, for example, remittances fell by 20% after the war started, and the World Bank has warned that the decline could push the poverty rate to 38% of the population, up from 20% in 2019.China has deployed a huge flotilla of "fishing" vessels to intimidate the Philippines in the South China Sea. It's a major escalation of Beijing using its "little blue men" militia to do the navy's dirty work in these contested waters.
China makes a big move in the South China Sea
The Philippines on Monday demanded China withdraw a massive fishing fleet — presumably commanded by the Chinese navy — from waters that Manila has exclusive economic rights over in the South China Sea. Beijing, unsurprisingly, denied any involvement. But there's more to the latest milestone in China's increasingly aggressive strategy to assert its claims in one of the world's most disputed waterways.
"Little blue men." One of China's preferred tactics to win control of the South China Sea without a fight is by deploying its armed maritime militia to do the dirty work for its navy under the guise of "fishing." Their members have been dubbed China's "little blue men" because their role is similar to that of Vladimir Putin's famous "little green men," the Russian soldiers without official insignias who invaded eastern Ukraine on behalf of Moscow in 2014.
Having members of the Chinese navy masquerade as fisherfolk in the South China Sea is nothing new. What's different this time is the sheer scale of the flotilla: a whopping 220 vessels, no match for the ill-equipped Philippine navy and coast guard, not to mention the local fishing boats who have long complained of China chasing them out of their own waters.
China is winning in the South China Sea. For decades, China has claimed indisputable maritime rights to almost the entire South China Sea, the main commercial and navigation gateway to East Asia. About one-third of global shipping passes through these waters, which are also believed to be immensely rich in fisheries and (largely untapped) hydrocarbons. That's why the Chinese will do whatever it takes to control these waters, parts of which are also claimed by Brunei, Malaysia, the Philippines, Taiwan, and Vietnam.
As China's power has risen in recent years, so too has Beijing's determination to assert its dominance over the South China Sea. All attempts by other claimants and the US navy to challenge its provocative actions — such as building military facilities on artificial islands, disrupting freedom of navigation operations, and depleting local fish stocks — have all failed to deter China.
The US, the only individual nation with the military muscle to pose a threat to China, is no longer a major player in the dispute. Last summer, Washington recognized a 2016 international ruling — in response to a lawsuit filed by the Philippines — that struck down China's sovereignty claims (Beijing rejects the verdict). But both sides know that Americans have little appetite to go to war with China, let alone over a body of water halfway around the world.
Duterte and China. The latest incident with China in the South China Sea has put Philippine President Rodrigo Duterte in a bind. The otherwise tough-talking leader is notorious for his soft-spoken deference towards China, arguing that the Philippines is too weak to risk a confrontation with such a mighty rival.
Many Filipinos who view China with growing distrust oppose Duterte's perceived kowtowing to Beijing in exchange for Chinese investment to fix the country's dilapidated infrastructure. The promise of that much-needed cash explains his reluctance to raise the 2016 ruling with Beijing, and consent to jointly explore for oil and gas in disputed areas.
But this time Duterte has at least two reasons to show he's not Xi Jinping's puppet. Although his personal approval ratings remain high, the government has faced strong criticism for its dismal pandemic response, and for delaying the country's vaccine rollout by prioritizing Chinese-made COVID vaccines over others. Also, relations with China will likely become a major campaign issue in the May 2022 election (where Duterte himself could be on the ballot as a candidate for vice president to skirt the presidential one-term limit).
What happens next? The ailing Philippine economy is so dependent on Chinese trade that it seems unlikely Duterte will take any significant action to counter Beijing's latest swipe, no matter the political risk. And with Washington having more pressing issues to sort out with Beijing these days, China's "little blue men" are set to rule the waves in the South China Sea.