Arroyo launches hedging facility for OFWs
By Joel Guinto
INQUIRER.net
First Posted 06:09:00 01/28/2008
Filed Under: Remittances, Insurance, Overseas Employment
DUBAI, United Arab Emirates – President Gloria Macapagal-Arroyo launched a hedging facility for Overseas Filipino Workers (OFW), to cushion the impact of the strengthening peso and the weakening dollar on their remittances.
Speaking before the Filipino community here on Sunday night, the President also announced that long-term negotiable certificates of deposit will be available to OFWs, through the Land Bank of the Philippines (LBP) by March.
During the same gathering at a packed ballroom of the Jumeirah luxury hotel here, the LBP also launched the OFW Cash Card, which allows Filipinos abroad to remit money back home through their cellular phones, using the Smart Communications Inc. network.
While the strengthening of the peso is a sign that the economy is recovering, the President acknowledged that this has caused the value of dollar remittances to go down.
"We recognize that the strong peso has reduced the buying power of the remittances sent home by many of our Overseas Filipino Workers," Arroyo said in a speech.
"But having said that, we know that we have to cushion the effect, the impact of the strength of the peso on our overseas Filipinos' earnings. So our administration is addressing the strong peso, or maybe, better said, addressing the weak dollar very aggressively," she said.
While the stronger peso has reduced the value of remittances, Arroyo said, that in the long run, OFWs would benefit from economic growth.
She said the strong peso brings down interest rates, cushions the impact of rising oil prices and holds off transport fare increases.
"So we are committed to this, so that when you go back home, you can have a country that you can come home to with pride," she said.
There are two options under the hedging facility, which is being handled by the Development Bank of the Philippines (DBP): peso insurance and forward.
An OFW can chose to avail of a peso insurance, wherein a "protection rate" will be set. The more pesos an OFW wants for every dollar remitted, the higher the cost of the peso insurance.
For example, if an OFW wants to set a protection rate of P41:$1, for his $10,000 remittance, he or she has to pay an insurance fee rate of 1.42 percent of the money remitted or $142.
The protection rate can be set for a minimum of one month up to a maximum of 12 months. The insurance rate fee varies every time the OFW hedges, depending on the prevailing exchange rate.
Under the forward option, an OFW will not pay to ensure a certain exchange rate, but he or she will agree to a market-determined rate, regardless of whether or not the dollar appreciates or depreciates at the time of maturity.
Like the peso insurance option, an OFW can hedge using the forward for a minimum of one month up to a maximum of 12 months.
The hedge facility will be available at the Overseas Workers Welfare Administration (OWWA) where the OFW is based.
The LTNCDs will be issued in P20,000 denomination with five and a half and 10-year tenors. The notes will yield 6.25 percent for the five and a half-year tenor, and 6.88 percent for the 10-year tenor.
If an OFW avails of a P20,000 LTNCD, it will earn P8,056 in five and a half years or P12,760 for 10 years.
The President also encouraged OFWs to invest in the government's "Tindahan Natin (Our Store)," which promotes products from the different regions.
Before the President's speech, officials from the Philippine Stock Exchange briefed the OFWs on how they can invest in the equities market.
"The Philippine Stock Exchange is with us to promote financial literacy among OFWs and their families so that you can turn your hard-earned money into capital and as I said, become overseas Filipino investors, aside from being overseas Filipino workers," the President
said.
To remit money via SMS (short messaging service), an OFW must avail of the Land Bank OFW Cash Card. The package includes a cash card and a SIM card for the OFW, and a cash card for his beneficiary.
A menu is preloaded in the OFW's SIM so there is no need to memorize key words, Smart spokesman Mon Isberto said in a presentation.
To send money, he has to load his cash card and follow the instructions on the SIM menu. An acknowledgement receipt will be sent to him through SMS, confirming the remittance. Afterwards, the beneficiary can withdraw the money from any ATM machine, on all ATM networks, Isberto said.
Each transaction costs P5 and a roaming fee of P20. Another P2.50 is charged to the sender's airtime load.
Arroyo related to the OFWs gathered at the hotel how their employers were all praises for them.
"All the emirati that I met during my trip salute you. Sabi nila sa akin, kayo ang pinakamagaling, pinakamabait at pinakamalinis [They say you're the most efficient, the kindest and the cleanest]," she said.
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