History, Privatization Measures
new economic plan, joint exploration, purchasing gold, economic slump, Venezuelans
In September 1994 Caldera announced a new economic plan, designed to pull the country out of its economic slump. The standard of living of the country’s middle class had fallen. The percentage of the average household’s income spent on food had increased from 28 percent to nearly 70 percent in 25 years. Caldera’s new plan called for reducing inflation and the deficit, an increase in foreign investment and foreign currency holdings, a reduction in the dependence on oil tax revenues, improvements in tax collection, and a rise in the domestic price of oil. Public unrest over the government’s handling of the crisis continued periodically throughout 1994 as demonstrators protested price increases.
In 1995 a bill was approved by the National Congress that allowed foreign oil companies to carry out joint exploration and production ventures with Venezuela’s state-owned oil company. Although the government decided to allow private investment in the oil industry, agreements with investors stipulated that the state would take close to 90 percent of the industry’s profits.
Foreign investment was also encouraged to exploit the gold deposits discovered near the country’s western border. Taxes on mining companies were cut, and the central bank’s monopoly on purchasing gold was ended.
Also in 1995 the government restored the civil liberties suspended the previous year and drastically reduced government subsidies for automobile fuel. In 1996 the sales tax was also raised from 12.5 percent to 16.5 percent. These measures were meant to slow inflation and foster balance and growth of the economy. However, Venezuelans saw the cost of living double in 1996, while wages remained steady. In February 1997 the government gave in to public pressure and granted a 77 percent raise to government workers.
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