Caracas Chronicles

Photo: El Carabobeño, retrieved.

On February 16th, 1989, shortly after taking office, President Carlos Andrés Pérez gave a public speech explaining the coordinates of the new economic model that would rule in the country, substituting the one used since 1946 of Industrialization by Imports Substitution (ISI). For those who hadn’t read the Government Plan presented by Pérez in his 1988 campaign, namely most Venezuelans, the so-called “Economic Package” was a surprise; especially for those who voted for Pérez believing that the country would magically return to the time of “fat cows” of his first term.

The change in the economic model was substantial. Interest rates were determined by the Central Bank of Venezuela before, but now they would be released to be determined by the market. The state was the great corporation, diverse builder and trader before, but now any public service companies that could be in private hands offering a more efficient service would be privatized. Gas was subsidized before but now its price would be increased to match international prices. The state subsidized the private industry before, covering the margins they couldn’t reach for various reasons, but now those subsidies would be scrapped. The national industry was protected by setting high tariffs on imported products before, but now the tariffs would be eliminated and the markets would be completely open, forcing Venezuelan companies to compete in equal conditions with foreign companies wanting to establish their presence in the country or bring their products.

The so-called “Economic Package” was a surprise; especially for those who voted for Pérez believing that the country would magically return to the time of “fat cows.”

The series of economic measures followed the design of an orthodox liberal economy, perfectly compliant with the measures that the International Monetary Fund (IMF) demanded of countries that wanted to request a loan, as Venezuela did. The previous government of Jaime Lusinchi (1984-1989) had depleted International Reserves and, in order to try out a model of market economy, it was necessary to have a higher number of reserves to allow a free economic game. Despite the logic of these proposals, the truth is that Pérez had claimed in his campaign that he wouldn’t appeal to the IMF. The design of the Economic Package indicated the opposite, which quickly disappointed many voters who had heard his campaign speeches but hadn’t read the Government Plan.

Deep down, what the change of economic model sought was a revolution of the state’s role in economic dynamics, handing the initiative to the private sphere because oil prices had dropped noticeably and it was impossible for the state to fulfill its paternalistic role without resources. As has happened on several occasions, Venezuela was forced to change course around the dynamics of oil prices. The modification also came with a general change in the world, given that, the same year, “real socialism” was disappearing with the fall of the Berlin Wall. There was a general, almost unanimous conviction that socialism was incapable of generating wealth and many countries dismantled their statist systems. Venezuela was no exception.

The measure that most sensibly and immediately hit people’s pockets was the increase in gas prices, which affected the cost of public transportation. The first protests broke out in Guarenas and Guatire in the morning of February 27th, but they soon spread across Caracas and other cities in the country. By the afternoon, lootings had started and TV stations repeated the scenes of vandalism and violence. The situation became a national emergency by night and the government sent the Armed Forces to restore order. Constitutional guarantees were suspended, a curfew was imposed, and both the Army and the National Guard heavily repressed looters, leaving a sad balance of hundreds of people dead including many innocents who weren’t involved in vandalism.

Never before had we experienced a situation like this in the country, which also compromised the plans of a government that was just starting. There has been much speculation of whether this was a spontaneous explosion or something induced by a plan. Some radical left-wing militants from those years have taken responsibility for the upheaval, but the facts indicate that spontaneity was present. Perhaps, as it’s typically the case, it was a combination of spontaneity with minimum planning. In any case, the result was the same: a great social revolt that put the government in a very difficult position to implement a new economic model which required great sacrifices from the people.