For a long time since the re-construction period after the Second World War, the Philippines enjoyed economic dominance in Asia, second only to Japan, but the Philippines was basically agriculture based with limited industrial manufacturing facilities to make it export oriented.

The Philippine economy has historically been characterized by boom-and-bust cycles. Shortly after independence in 1946, the leadership chose a strategy based on import substitution rather than export promotion. This policy led to the building of narrowly focused, uncompetitive industries largely dependent on imported raw materials and capital equipment.

During the 1970s, the Philippines attempted to capitalize on local labor advantages for assembly functions-primarily of electronics and apparel but these operations have often been low-value added without much influence on or connection to the economy as a whole. Still, the Philippines was considered relatively prosperous from the 1950s until the 1980s, when it was dubbed "the sick man of Asia."

Investments in the Philippines dropped in the late 80s due to the lack of confidence with the Marcos administration. Despite the restoration of democracy in 1986, uncertainty prevailed even under the Aquino administration and this was further compounded with the barrage of labor unrest, an increase in the number of communist insurgents and the seven military led uprising.

The Philippine economy is played out against a backdrop of a number of limiting constraints. One of the most noticeable is the inadequate domestic power grid, which was neglected during much of the 1970s and 1980s. By the time Aquino took office in 1986, not only were the existing generating and distribution systems inadequate, but the deferral of maintenance had made the available capacity inefficient and unreliable.

Until very recently, the Philippines was unable to sustain even its relatively low level of industrial development, much less develop new industry, and the problem grew worse with increasing dependence on imported petroleum to coal-fired the generating plants. Government initiatives have begun to bring new capacity on line including coal and oil-fired, as well as hydroelectric and geothermal generators. Parts of the state-run power company are also being privatized in the interest of enticing new investment and achieving greater efficiency by the end of this century.

Another structural difficulty in the economy has been the Philippines' significant foreign debt. In 1994 total foreign debt-most of which was left over from the Marcos era, when a substantial portion of borrowed funds went into consumption or graft instead of investment-was roughly US$42 billion, equal to two-thirds of GDP. However, only about one-quarter of the Philippine foreign debt is short term (compared with more than three-quarters for Mexico, which experienced financial difficulties in early 1995).

In the late 1980s, foreign debt service routinely ate up more than one-third of all Philippine export-derived foreign exchange earnings. Through rescheduling, buybacks of debt at a discount, increased exports, and general growth in GDP, this debt service was reduced to less than 20 percent of GDP in the mid-1990s.

For many past decades, the Philippines maintained a relatively closed economy in which local monopolies and cartels operated by insiders or by the government were largely protected from both domestic and foreign competition. During much of the post-World War 11 period, the "system" operated in an often anticompetitive manner, with bureaucratic roadblocks protecting the status quo and derailing most attempts by outsiders to penetrate Philippine markets.

The government's attempts to deal with economic problems have met with the further difficulty of lack of funds for necessary investments or even for seeding the opportunities. Attempts to allow foreign investors to build industrial capability and imports to provide competition have often foundered because of local resistance.

Moreover, attempts to upgrade domestic industry through imports of capital goods and necessary raw materials have resulted in a growing trade deficit that might destabilize the economy in the short term because of the outflow of foreign reserves needed to pay for them. The government must rely largely on private investment to fund development.

In 1997, good fiscal management help shield the Philippines from undergoing a fall-out process with the Asian financial crisis that hit hard on neighboring Malaysia and Thailand. The Philippines maintained a good financial standing but the apparent lack of confidence in the leadership of popularly elected President Joseph Estrada in 1998 failed to equate into a positive impact on the economy. By 2001, the economy stagnated and even with the assumption into office of economist trained Vice-President Gloria Macapagal Arroyo as President, the economy suffered a set-back as against political bickering and uncertainty.

A final and significant aspect of the Philippine economy is that a lack of employment opportunities at home has caused substantial numbers of Filipinos to work abroad as contract labor or on some other guest worker basis. In recent years the estimated US$2 billion remitted annually by overseas workers has represented one of the country's largest single sources of foreign exchange.

However, the status of Filipino workers abroad is often problematic at best and marginal at worse, a fact brought into poignant light by the 1995 execution of a Philippine domestic worker in Singapore, an event that became a political cause. But despite the social disruptions caused by the absence of workers from home, a decrease in overseas employment could have a greater negative impact on the economy than its continuation because of the relatively few employment options at home and the importance of the hard currency earnings generated by these workers.