Remittance policy of some countries in asia and lessons for vietnam

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Introduction 1. The necessity of thesis There is always the huge demand for the capital of the economic growth and the sustainable development such as poverty reduction in developing countries, especially in countries with low domestic saving rate. For these countries, domestic resources play a fundamental role, but external resources is also extremely important for the growth in order to catch up with other developed economies. In order to meet the capital need, many countries turn to domestic or international financial markets to issue government bonds and international bonds or absorb foreign direct investment (FDI) or receive official development assistance (ODA) but also less interested in the amount of money that individuals transferred from abroad to their relatives in the country, that is the remittance. Remittance tends to be more important for the countries with low and middle incomes. However, in some countries, remittance flows are limited by the internal factors of the remittance-receiving countries such as the management policy of the state, money transfer fees, domestic banking systems. This fact requires improved policies to optimize the role as well as the potential benefits of remittance flows to the economy. In the developing countries such as typical Asian countries: India, China, Philippines ... remittance inflows on domestic increase dramatically. Across the world, the largest remittance-receiving countries in 2013 are India, China, Mexico, the Philippines and France. In Asian countries, the three leading countries in attracting remittance were India, China, the Philippines and Vietnam ranked the fourth. For Vietnam, remittances become increasingly important. In recent years, remittance flows to 1 Vietnam increased both in absolute and relative terms to GDP. The figures show that, from 1993 to 2009, remittances have increased by 45 times, from $ 141 million in 1993 to 6.28 billion in 2009 and Vietnam in 2013 has reached more than $ 12 billion in remittances to attract from abroad. Implementing policies to open up the economy, Vietnam has applied the easing of remittance flows since 1989. Changes in foreign exchange management policy also create more favorable conditions for the inflow in general and in particular, remittances. However, policies relating to remittances still have many shortcomings, which lead to the fact that Vietnam cannot attract maximum remittances to promote the positive effects and to minimize the negative impact of remittances. Learning from the experiences in attracting and using remittances effectively to promote the economic and social development not only brings practical significance but also valuable theory. In this situation, the study of remittances policies of the three countries India, China, Philippines to get lessons for Vietnam is urgently needed. Therefore, I choose the topic "Remittance policy of some countries in Asia and lessons for Vietnam" to be the subject of the thesis. 2. Overview of current reasearch 2 Domestic reasearch: In recent years, the issues related to financial flows have lured attention from the research community due to the strong growth of remittances in Vietnam. A number of case studies on issues are such as works of Le Minh Tam and Nguyen Duc Vinh (1999), Nguyen Anh Dung & associates (2005), Dang Nguyen Anh (2005), Pfau & Jiang Qing Long (2006), Nguyen Thi Thuy Linh (2006), Nguyen Duc Thanh (2007), Do Thi Duc Minh (2007), Nguyen Minh Thao (2009). The research by Le Minh Tam and Nguyen Duc Vinh (1999) is suggestive on remittances. This research detected from the fact that Vietnamese migrants always send money to support their families and relatives to afford the living, education costs and investment business; Pfau and Long's study (2006) shows a shift in the distribution of remittances in recent years: gradually from urban to rural, from the Red River Delta and the Southeas to the North China and the Mekong delta. In addition, the authors also focus on understanding the purpose of the remittances. Nguyen Thi Thuy Linh (2006) studied the impact of remittances to economic development, especially in the household economy. The study results show that households receiving remittances tend using a larger share of increased income for the construction and home repair. Nguyen Duc Thanh (2007) with modeling techniques of general equilibrium (CGE) analyzes the impact of remittances on the economy of Vietnam. The results of this study reinforce that the impact of remittances on the economies of developing countries are complex and they are mixed among many different trends. 3 Do Thi Duc Minh and associates (2007) have also successfully built a general equilibrium model (CGE) to perform the first quantitative analysis of the impact of remittances on the Vietnamese economy. Other studies mostly considers the perspective of remittances as an item in the balance of international payments. Thus, they affect the state of the balance of payments, foreign exchange reserves and the status dollarization, inflation in these specific conditions. Remittance can be also as a factor in the process of financial liberalization ... Oversea reasearch: - Concept, nature of remittance / money transfer, remittances classification, measures to enhance the effectiveness of remittance (Tasneem Siddiqui, 2008). - Relationship between remittances, poverty and investment (Dilip Ratha and Samuel Munzele Mainmbo, 2005). - Role and importance of remittances, money transfer from abroad to developed and developing countries (Admos O. Chimhowu, Jenifer Piesse, and Caroline Pinder, 2005). - Research on the promotion, strengthening, improving infrastructure of the financial sector to improve receiving of remittances (David C. Grace, 2005). - Remittances (Nikos Passas and Samuel Munzele Mainbo, and Gina El Koury Abdusanlam Omer, Omer and Gina El Koury Abdusanlam, 2005) - Migration, development and remittances issues (Rechard H. Adams Jr. and John Page, Devesh Kapur, Devesh Kapur, 2005) - The state of migration and remittances in Pacific-Asia (John Connell and Richard PC Brown, 2005) 4 - Financial instruments used in mobilizing foreign type (Dilip Ratha and Sanket Mohapatra Sonia Plaza (2008) - Analysis of the remittance system (Raul Hernandez-Coss, 2005) - Limit the prohibition policy of the host country for remittances (Mark P. Sullivan, 2009) - The impact of international migration and remittances on poverty (Richard H. Adams Jr. and John Page, 2005) 3. The purposes and the mission of the reasearch - Analyze and clarify the theoretical basis of remittances and remittance policies. - Assess and analysis of remittance policies of India, China and the Philippines, to learn theses lessons in attracting, managing and using remittances as an effective way to promote positive sides, limiting the negative impacts of remittance flows to the economy and society. - Assess and analysis the attraction of remittances in Vietnam in recent years, the thesis draws lessons from three countries India, China and Philippines in attracting, managing and using remittances in the effective way to make policies on remittances of Vietnam during the period of economic and social development. 4. The subjects and the scopes of the reasearch - Clarifying the rationale of remittances and remittance policy: The concept of remittances and remittance policies; The nature of remittances (remittance flows); The socio-economic factors which determine the foreign source for a country; 5 - On the basis of theoretical overview of remittances, the thesis analyze remittances of some Asian countries, of which I focus on three typical countries India, China and the Philippines . - From policy analyses of three national remittances, comparison of policies are made to attract remittances from third countries in order to get lessons for Vietnam in attracting and effectively using remittances for socioeconomic development of Vietnam. - To demonstrate the point of the thesis, the scope of the dissertation research sample typical three countries India, China and the Philippines in the period from 1995. 5. Methodologys - Using methods in the social sciences, including the method of dialectical materialism, historical materialism, statistical method, comparative method, synthetic method of analysis. - On the basis of the practice of remittance policies of India, China and the Philippines in order to analyze its impact on the socio-economic development. - In addition, the thesis will use statistical tools, charts, popular model to analyze and prove some claims and scholarly perspectives. 6. The contributions of the thesis - The synthesis of the common problems of remittances and remittance policy as a theoretical basis for the study assessed the impact of remittances for socioeconomic development of every country in the process of economic integration international. 6 - Comparison and evaluation of remittance policy in three countries India, China and the Philippines in order to draw lessons for Vietnam to attract, manage and use remittances efficiently. - The thesis also makes recommendations on policies of Vietnam remittances during the socio-economic development period in 2020 on the basis of assessment of the attraction and use of remittances in Vietnam period from 1995 to the present. 7. The structure of the thesis Besides the introduction, conclusion and reference, texture of the thesis is divided into three chapters: Chapter I: Rationale and practice of remittances and remittance policy Chapter II: Remittances and remittance policies of some Asian countries Chapter III: Lessons for the planning and implementation of policies remittances in Vietnam. CHAPTER I: RATIONALE AND PRACTICE OF REMITTANCES AND REMITTANCE POLICY 1.1 Overview of remittance 1.1.1 The concept of remittance International Monetary Fund (IMF) defines remittances "are goods and financial instruments for which workers live and work abroad for at least one year transfer into the country." According to World Bank (WB): "Remittances include cash transfers from foreign, which sourced from income of workers, migrants abroad, are shown in the balance of international payments is funds 7 transfers (net) ". Although the transfer of money (Remittances) can be international or domestic (between different regions of the same country) but the thesis refers only to the international transfer (international Remittances). According to Puri & Ritzema (1999), remittances (international Remittances) can be defined as "the income of workers abroad sent home." According to the Decision 170/1999 / QD-TTg of the Prime Minister dated on 08.19.1999, the definition of remittances has been explained: "Remittances are the freely convertible foreign currency which is converted into Vietnam under the form follows: transfer of foreign currency through authorized credit institutions; transfer of foreign currency through businesses providing financial services international postage; individuals who bring foreign currency into Vietnam. Individuals overseas when entering Vietnam with foreign currency for Vietnam households abroad must declare to the customs gate about this amount of foreign currency to beneficiaries in the country. Thus, the view of the definition of Vietnam remittances is consistent with the definition of the World Bank and based on this consensus view, this definition is the rationale for analysis. 1.1.2 The Overview of the global remittance flow Across the world, the largest remittance-receiving countries in 2010 are India, China, Mexico, the Philippines and France. According to the latest report of the World Bank (WB), remittances worldwide in 2013 was estimated at DOLLARS 534 billion and will increase to 685 billion dollars in 2015. Developing countries received 406 billion total remittances in 8 2012, up 6.5% compared with 2011. India is the leading in this list with 70 billion dollars, followed by China (66 billion dollars), the Philippines and Mexico (with 24 billion dollars), Nigeria (21 billion dollars), Greece (18 billion dollars), Pakistan and Bangladesh (with 14 billion dollars). 1.1.3 The factors impacts to the remittance flow among countries Studies have shown that there are three basic groups of factors that may impact remittance flows: 1) group of elements influenced by emotional (altruistic); 2) group of microeconomic (micro-Economic) factors and 3) a group of macroeconomic factors (macro-Economic) From these basic factors affecting remittance flows, the cause formation of remittance flows between countries can be analyzed as follows: The first reason is the wages gap between rich and poor countries. The second reason is that people residing abroad wish to return home investment business with the desire to make a profit and contribute in the construction and development of homeland. The third reason is for migrants to send money home for his family. With this motivation, people abroad reduce anxiety for his family at home. The fourth reason is related to demographic analysis. As the aging population, the developing countries will have to find other sources of labor to boost the economy. The reason is that, without new labor force, the government cannot afford to pay pensions for increasing amount of elderly people. The fifth one caused by the receiving-remittance countries tend to increase incentives to attract remittances flow which are considered as foreign currency inflows from abroad. The sixth cause is for the payment of debts. Regularly, families have to 9 borrow money to cover the travel costs for exported labors or to study abroad. They hope that they will be able to pay a portion or all of the debt after a period of study or getting a job. This is essentially the same as an investment. The last motivation can be considered is the insurance policy. Migrants may invest on financial assets in the country they work in, but they cannot avoid the risk of financial market imperfections. Therefore, an effective solution to minimize this risk is to transfer money to their families. 1.1.4 The impacts of remittances to the social and economic development of developing country 1.1.4.1 Positive impacts of remittances to the social and economic development of developing countries The positive contribution of remittances to social and economic development can be seen in the following points: remittances provide the effective channel for strong foreign currency, increase foreign exchange reserves and finance the current account balance deficit; and contribute to promote investment and consumption. They are the engine of economic growth with stability and minimize credit risk and debt burden; contribute to improve the fledgling financial system or transfer both knowledge and technology. They also contribute to poverty reduction in developing countries as well as having positive impact on human resources. Remittances can help families receiving remittances invest more in human resources as the increase of spending in education and health. 10 1.1.4.2 Negative impacts of remittances to the social and economic development of developing countries The basic limitations of remittance flows are expressed such as: remittances increase dollarization and sensitivity to foreign currency in the economy; causes obstacles in determining the money supply which increases risk of inflation. The use of foreign currency from remittances unsettled; which impact on the labor market. Members of the family can receive remittances and depend on remittances or ignore labor efforts. 1.2 Overview of the remittance policies 1.2.1ThecConcept and content of remittance policies Remittance policy is a set of measures, macro and micro policies to attract, manage and use the resources of remittance effectively for the purpose of developing the country’s socio-economy. The content of remittance policy includes: *) Foreign Exchange Management Policy *) Policy to encourage foreign settlers and foreign workers to invest in the country *) Labor export policy *) The liberalization of the banking and financial services *) Remittance services competition 1.2.2 The policies to attract remittance flow to finance for the socioeconomic development of developing countries 11 The first policy is to develop and finalize the basis of international law through treaties, official bilateral and multilateral agreements and multilateral with countries and international organizations around the world. The second reason is to improve the legal framework so as to protect and create conditions for businesses, intellectuals, and oversea people to work and invest in their countries. The formation of professional associations is also encouraged and the cooperation in the community and with foreign countries is expanded. Thirdly, actively support the stability and development of residents abroad, preserve ethnic identity through the expansion of exchanges on many aspects such as culture, education, sports, donation ... between domestic and foreign communities. Fourthly, the specific situation of community of each country, each area should be evaluated in order to encourage and motivate timely positive factors, promote the community's strengths and limit the negative sides. It is also important to take advantage of remittances for the development of country. Fifthly, help overseas people to have access to the policies of socioeconomic development of the country quickly, accurately and properly. 1.2.3 Policies on managing and improving the effectiveness of the utilization of remittance Firstly the State implements policies to guide or motivate remittances to invest in the manufacturing sector and human such as education and public health ... to create long-term developmental effects for the country. 12 Secondly, for the exchange rate policy: consider a flexible exchange rate regime through the relaxation of trading rate band and when necessary can be gradually adjusted the official exchange rate band, and reduction of interventions on the foreign exchange market. Thirdly, on fiscal policy: According the experience of many countries, while there is an increase of capital inflows, the government need to be quick and decisive in limiting spending, reduce the impact on total demand and inflationary pressures. Fourthly, the completion and development of related policies to attract overseas investment to strengthen business operations in the country Chapter II: REMITTANCE AND THE REMITTANCE POLICIES OF SEVERAL AISAN COUNTRIES 2.1 Remittance and the role of the remittance in Asian countries. According to World Bank’s report about remittance and global migration, the average amount of remittance transferred across national borders has bounced back and increased from 416 billion dollars in 2009 to 440 billion dollars in 2010. The report indicated that 7 of 10 countries which received the largest amount of oversea remittance respectively are India, China, Philippines, Pakistan, Bangladesh, Vietnam and Srilanka. Remittance contributed such an important part to the economy’s recovery after the crisis period. The amount of money transferred through the remittance is considered as the second important foreign money sources after the direct foreign investment of developing countries. Indian, China, Philippines are the most typical countries for receiving the remittance, hence 13 what are the impacts of these money flows to the development of socioeconomic of each country? What lessons that Vietnam could draw from the experience of the attracting and utilizing remittance policy of these countries? 2.2 The Remittance policy of India, China and Philippines. 2.2.1 In India 2.2.1.1 The remittance policy of India According to the report of World Bank about the reality of oversea remittance in India, in 2013, the remittance transferred back to India was 71 billion dollars. For the purpose of transferring the remittance as the valuable foreign currency used for the development of socioeconomic, India had implemented many policies for attracting and using the oversea remittance effectively: *) The policy for people settling abroad Based on the fact that the remittance is the money transferred by the Indian living abroad back to their countries, the Indian government had implemented many more opening and clearing polices for attracting their national residents living abroad. In 1998, India issued constructing bond only for Indian people living oversea. After that, Indian government enforced "quasi-citizenship" regulations stating that Indian national residents are received their rights as the domestic people including travelling in and out the India without visa, owing house and land in India and receiving the investment incentive only for Indian national residents living oversea. Additionally, New Delhi government has established the Department of Indian national residents’ matters for solving their question frequently, or found Non-Resident Indian - NRI City with modern 14 infrastructure and services around the country. Thanks to these continuous policies, India attracted so many knowledge specialists serving for the development of the country. *) The policy for consumer protection To increase the transparency and protect customers in the Indian market for transferring money, the providers of money transferring services need to: (a) approve a protecting charter for customers published broadly and (b) appoint the solving for appeal and state the detailed contents of the solving *) The innovating policy in the financing sector Innovation for the financing sector based on the liberazed trend changed the banking activities, created the chance to carry out the active role of banking system in the economy. The innovation in the banking system encourages the private investment in banking section, allows the state bank to sell the share to the free market, and provides the advantageous conditions for the development of banking system including the transferring for oversea remittance. The competitive ability of stateowned banks is improved while facing the adjustment of financing market and new domestic and foreign private competitors. *) The role of information department The in charge departments have the jurisdiction for transferring oversea remittance enforced consistency policy to protect the ultimate benefit of people transferring the remittance and ensure the transparency to create the truthfulness and attract much more oversea remittance transferred back to the country. 15 2.2.1.2 The impact of oversea remittance to the development of socioeconomic of India Firstly, that is the role of oversea remittance transferred from Indian living abroad as the valuable investment to several core sections, especially in technology. Secondly, the role of oversea remittance is reflected indirectly by the success of Indian business men living abroad contributing to the development of socioeconomic of the country. Thirdly, that is the role of oversea remittance in medical section, education and scientific research. Fourthly, the motivation for the development of India comes from the oversea remittance sent to the country for investment in infrastructure, for helping their family improve their living condition, for manufacture and trading in small scale, for approaching the modern services that they could not approach before. 2.2.2 In China According to WB, each year the remittance transferred to China is very enormous, accounting for 14% GDP of China. The remittance increased year by year, in 2000 the oversea remittance reached only 6 billion dollars and in 2010 China attracted 51 billion dollars which was 9 times higher than 2000 and based on the report of World Bank, the remittance of China in 2013 reached 60 billion dollars, ranked the second in Asian and the world only after India. 2.2.2.1 The remittance policy of China 16 Firstly, China government used the remittance for manufacturing development through supporting the enterprises in small scale not having enough condition to have a loan at the banks or credit institution with the funds namely TVEs (township and village enterprises). Secondly, China had many efforts in renovating the trading policy to be more transparent and liberalization i.e. in multiple commitment on legal framework and regulations mechanism, as well as commitment on opened market for goods and services. As such, the oversea Chinese could expand their business and invest to home country. Thirdly, China government enforced many preferential programmes about land, recruiting for civil authority system to attract Chinese people living abroad. Fourthly, China applied the green card system in recent years. The foreign talent people would be invited to migrate eternally enter and exit the country and reside temporally with their passport without visa. Fifthly, the government issued diaspora bond – a kind of debt issued by the government in domestic currency and was sold to the Chinese people living abroad for having the funds to invest into the specific projects. This could raise the loving country from the migrated people wanting to have the contribution to develop the country. 2.2.2.2 The impact of oversea remittance to the development of socioeconomic of China There are many reasons for the success of economic and social development of China, including the contribution of remittance flows. 17 Firstly, remittances contribute significantly to the economic growth of China. Secondly, through remittances from relatives moved back home, it has emerged in Mainland movement using remittances to invest in housing, education and improve the living standard and thus help to economic boom. Thirdly, China has implemented strategies to promote the potentials of the oversea Chinese in developing the economic through attracting brainpower, attracting investment and take the oversea Chinese as a bridge to bring goods to international markets 2.2.3 In Philippines 2.2.3.1 The remittance policy of Philippines Philippines is the fourth country attracting remittances in Asia. In 2013, Philippine remittances reached 17 billion dollars. To attract, manage and effectively utilize their remittances, the Philippine government has adopted the following policies: Firstly, professionalizing the labor export policy and turning this area into a new industry, targeting the national markets requiring high-quality human resources or the country with a population of aging. Secondly, the Philippine government grasped the world economic situation and implemented policies to mobilize varied and flexible remittances to allow for domestic money remittance easier and less costly. Thirdly, the growing presence of banks as well as non-bank remittance organizations of the Philippines also contributes to the increasing number of remittances of this country. Fourthly, in the field of labor export, Philippines is particularly interested in specialized vocational training, and has all the responsibility 18 for their country labors. Therefore, those labors have the chance to integrate into other countries, including developed countries 2.2.3.2 The impact of oversea remittance to the development of socioeconomic of Philippines Remittances have a significant contribution to the socio-economic development of the Philippines: improving investment environment, strengthening of spending ways. Philippines has been creating an surprising economic growth in the global economy crisis; Filipinos living and working overseas send money to their home country to help improve the lives of people in the country. Remittances help stimulate domestic consumption which significantly contributes to the improvement of living standard of Filipino; remittances contribute to the reduction of poverty. 2.3 Conclusions drawn from the analysis of Remittance policy in India, China and the Philippines Remittances have significant impacts to social and economic development of all three countries receiving inflows by India, China and Philippines. Remittances have a positive contribution reducing poverty for families who receive remittances or can help households avoid falling into poverty. Remittances provide opportunities for investment in new businesses or expand existing businesses. Remittances can help families receiving remittances invest more in human capital in the form of increased spending on education and health. Remittances become an important source 19 of foreign exchange, especially for countries which have fiscal deficits, foreign debt, often lose the balance of trade and lack foreign investment. All three countries have adopted various policies to attract remittances effectively to help the socio-economic development of the country; each country has distinct points depending on the conditions for developing socio-economy. In summary, an overview of the remittance countries in Asia shows that remittance flow is the biggest benefit that labor-exporting countries receive from the global labor mobility. In recent years there has been a rapid growth of remittance flows in relation to other financial flows. It is clear that while other financial flows are unstable and tend to decrease even after 2000, remittances have increased steadily. Remittances can have positive or negative impacts. Remittances can affect issues such as the problem of poverty and inequality in income, consumption, investment and household savings, labor markets, human resources and macroeconomic variables other. All three countries have adopted various policies to attract remittances effectively and help the socio-economic development of the country. Each country has distinct points depending on the conditions of economic development economic conditions of each country. Chapter III: LESSONS LEARNED FOR PLANNING AND IMPLEMENTING THE REMITTANCE POLICY I OF VIETNAM 3.1 Lessons learned from the remittance policies of the three countries India, China and the Philippines. 20
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