[In This Economy] The economics of ‘zero remittance week’

Rodrigo Duterte’s arrest on March 11 (which already seems like years ago) has angered many overseas Filipinos (OFs), among whom Duterte continues to enjoy considerable support.

You see, since he ran for the presidency back in 2015 and 2016, Duterte has consistently pandered to OFs. Right before his arrest, in fact, he came from Hong Kong ostensibly to meet OF supporters there.

On March 25, a huge throng of people gathered in Malieveld Park in The Hague, railing against the International Criminal Court (ICC) and calling for the immediate return of Duterte to the Philippines. No less than Duterte’s daughter, Vice President Sara Duterte, was there with the crowd.

Now, various OF groups are coordinating a stoppage of remittances from March 28 to April 4, in what they’re calling a “zero remittance week.” The idea is that a stoppage of their huge remittances will impair the Philippine economy and make their grievances heard.

OF remittances are huge indeed. In 2024 alone, OFs sent $38.34 billion in personal remittances, 3% higher than in 2023 and also a record high. That’s also 7.4% of the country’s gross national income or GNI. Not an amount to sneeze at.

Remittances have played (and continue to play) a huge role in our economy. Apart from fueling the consumption spending of OFs’ families here in the Philippines, remittances are an important source of international reserves that ensure we won’t run out of dollars anytime soon to pay for our imports, international debts, and other foreign payments.

But there’s a risk of overestimating or overthinking the economic impact of the proposed zero remittance week.

You see, even if OF remittances keep on going up, as a share of the national income they’re actually declining (see graph below).

Back in 2005, remittances used to be 11.1% of GNI. But now we’re down to 7.4%. That’s a huge drop suggesting we’re no longer as dependent on remittances as before.

Even the growth rate of remittances has dwindled: in 2006, remittances grew by 14.5% from the previous year. In 2024, the annual growth rate was just 3%. Gone are the days of double-digit remittance growth.

Collective action problem

More importantly, to have any dent at all in the economy, zero remittance week requires the coordinated efforts of millions of OFs globally. To make their boycott or protest felt, a large-enough number should agree not to send back money to their loved ones, preferably for a sustained period.  

But the economic incentives are stacked against zero remittance week. OFs’ families will lose income if they stop sending money, so it’s not in the interest of any single OF to stop sending money.

Stopped or delayed remittances can mean families will have to reduce consumption, delay paying rent and utilities, postpone tuition fee payments, and suffer other inconveniences. Nobody stands to lose more from zero remittance week than the OFs’ loved ones back at home. Only the most affluent segments of the OF sector might afford the remittance stoppage, because they have enough savings or other sources of income like businesses or investments.

Mainly for this reason, OFs will want to free-ride on the boycotts done by other OFs. But if everybody thinks this way, only a very small proportion of OFs will stop sending money — making the boycott a dud.

This is a very good example of what’s called in economics a “collective action problem” or a “free-rider problem.” The best outcome is for everyone (in this context, pro-Duterte OFs) to coordinate and stop sending remittances. But self-interest kicks in, and the first to break free from the plan wins.

The free-rider problem explains why I’m not worried about zero remittance week. It’s bound to be an empty threat.

At any rate, as pointed out by other economists, if pro-Duterte OFs stop spending in one week, they will simply send the money some other week. Some remittances are likely to be delayed, but not totally stopped.

At the extreme, perhaps the most effective protest is for all OFs to stop sending remittances until Duterte is acquitted by the ICC. Or maybe they should stop remitting money permanently and just go back home.

To be fair, many successful OFs have indeed returned home permanently. But this is unlikely to be a viable option for the more than two million OFs around the world who still need to work hard for their loved ones.

We should also disabuse ourselves of the notion that all OFs are pro-Duterte. They’re by no means a monolithic group, and many OFs have spoken up in support of Duterte’s arrest. It just so happens that the most passionate Duterte supporters have joined the overseas protests and voiced their concerns — but they’re not representative of all OFs.

The question remains, though: Why do the Dutertes continue to captivate many OFs, despite the many atrocities of the Duterte regime before and during the pandemic? Why do many OFs continue to be out of touch with the realities on the ground, and remain ignorant about the abysmal governance record during Duterte’s time?

For many Filipinos (not just OFs), the Duterte magic isn’t quite gone yet. But why? – Rappler.com

JC Punongbayan, PhD is an assistant professor at the UP School of Economics and the author of False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them. In 2024, he received The Outstanding Young Men (TOYM) Award for economics. Follow him on Instagram (@jcpunongbayan) and Usapang Econ Podcast.