Efforts to transform the Philippine economy from a primarily agricultural producer of crops for subsistence and export to a more diversified growth economy led by manufactured exports commanding more favorable terms of trade like its Asian tiger neighbors have been repeatedly hindered by natural disasters and external economic shocks. In 1990–91 the islands suffered the triple blow of earthquake, super-typhoon, and volcanic eruption. In succession, there has been the even more devastating typhoon of 1995, the Asian financial crisis of 1997, and the global economic slowdown of 2001, continuing into 2002. The United States Central Intelligence Agency (CIA) estimates that in 1998 almost 40% its labor force was engaged in agriculture, with only 15.6% in manufacturing and construction. The Philippine government's survey of labor and employment for 2001 and 2002 suggests that agriculture's dominance has become greater, not less, in recent years. The government's preliminary results show 61.3% of employed persons engaged in agriculture in 2002, up slightly from 61.1% in 2001, whereas the percent employed in industry (including manufacturing, construction, mining and quarrying, and power production) decreased from 10.2% in 2001 to 9.5% in 2002. The manufacturing sector, though expanded and diversified since political independence, depends on imported raw materials and cannot supply internal needs. Electronics and telecommunications exports, which had been growing by double digits before 2001 and had accounted for at least 75% of export revenues in 1999, proved vulnerable to the worldwide slowdown in consumer demand in the recession of 2001, and the contraction by half in foreign investment as a result of the 11 September 2001 terrorist attacks on the United States.
The Philippines has great potential as a tourist destination. However, since the early 1990s the tourist industry has, in addition to natural disasters and high fuel costs, been afflicted with political difficulties, particularly with the emergence of the Abu Sayyaf (Bearers of the Sword) Islamic fundamentalist group, empowered, ironically, like Osama bin Laden, by the US government support in the 1980s as "freedom fighters" in the Cold War end game in Afghanistan and known particularly for the beheading of hostages that are not otherwise released for large ransoms. On 27 May 2001 ASG kidnapped twenty people including three Americans from the upscale Dos Palmos resort in Palawan, causing a large exodus of foreign tourists. Tourism receipts peaked in 1997 at close to $3 billion, but in 2000 were less than $2 billion.
Though the Philippine economy, according to IMF data, had a real GDP growth rate in 2001 of 3.4%, down from 4.8% in 2000, this positive showing was due primarily to a 4% growth in agriculture, and in spite of a 15% fall in exports, and 61.1% decline in its trade surplus (to $2.6 billion) compared to 2000. For the first three quarters of 2002, the government reported growth in all three sectors, with services leading at 5.1% increase over 2001, industry second, at 3.8% growth, and agriculture at2.3%. The improvement in services is ascribed to liberalization and deregulation that have encouraged innovations in telecommunications, retail, transportation and financing. The Malampaya natural gas project is central to industrial performance, while agriculture suffered from adverse weather conditions.
Widespread unemployment and underemployment plague the labor market. The government figures for January 2002 reported an unemployment rate of 10.3% and an underemployment rate of 15.9%. High rates of labor migration abroad provide some relief and accounts for a substantial portion of the country's foreign exchange earnings.
Throughout the 1990s the shortage of electric power has been a notorious constraint on the economy. In Manila, the industrial hub, power outages lasted from four to six hours per day. In 2000, in its Philippine Energy Plan (PEP) the government set as a goal 100% electrification by 2004. As of March 2002 it reported the project 85.6% complete. Consumer price protection was provided by the Price Act of 1992 through the stabilization of the price of basic necessities and prime commodities and by measures against undue price increases during emergency situations. In 1993 the inflation rate continued to decline and real economic growth accelerated through the beginning of 1997, before the onset of the Asian financial crisis in August. As measured by the consumer price index (CPI), inflation peaked in 1998 at 9.7%, but had declined to 4.4% in 2000. Though there was an increase to 6.1% in 2001, IMF staff projections for 2002 are for a new low of 4% CPI inflation. Between 1993 and 1999, the Philippine government liberalized telecommunications, deregulated transportation, privatized water, and resolved the power crisis.
Real GDP growth averaged 3% from 1988 to 1998, peaking at5.3% in 1997 and bottoming out in 1998 at .4%. From 1999 to 2002 real growth has averaged close to 4%.