The Venezuelan economy has been directed by government policy since the 1970s. The iron and petroleum industries were nationalized in 1974–75, and the electrical generating industry was also a state enterprise. The government operated the salt and match industries; set the prices of pharmaceuticals, petroleum products, milk, meat, and other consumer goods and services; and controlled rents. The terms of Andean Pact membership also obligated the government to keep a tight rein on foreign trade and foreign investment.
Development policy from the 1950s through the late 1970s stressed import substitution, industrialization, and foreign investment. A new policy, inaugurated in 1979 and formulated in detail in the sixth national development plan (1981–85), was intended to eliminate price controls and reduce protectionism. The government also sought to reduce Venezuela's dependence on oil by industrial diversification, to pay more attention to agriculture, and to devote greater resources to social development, particularly housing, education, public services, and health. The economic crisis of the early 1980s led to a partial abandonment of the new policy. An economic adjustment program aimed at decreasing inflation, limiting imports, and cutting government spending was announced in 1983, and further austerity measures were imposed in 1984. In late 1986, the Lusinchi government announced a three-year plan to stimulate the economy through government spending.
Venezuela's economic reform program, initiated in 1989, focused on transforming the country from a traditionally state-dominated, oil-driven economy, toward a more market-oriented, diversified, and export-oriented economy. However, the financial crisis persisted and the administration assumed direct control over the banking system. Much of the liquidity created by the support for the financial sector was soaked up by the Central Bank. The government confirmed its commitment to selling off state enterprises. The bolivar was in free-fall before the government announced exchanged controls.
In 1996, the Caldera administration adopted an economic stabilization program with the backing of the International Monetary Fund (IMF). The fundamental goal of the plan was to reduce inflation by maintaining a surplus in consolidated public sector finances. The program also encouraged real growth in the non-oil economy. Deficit reduction through fiscal policy was also defined as a goal. The government increased general sales taxes, improved tax administration, and increased fuel prices. The program also called for the elimination of price controls on most goods and services.
The 1999–2000 economic plan called for reduced inflation, increased privatization, and higher taxes on foreign operations in Venezuela. An increase of the public budget was supposed to reduce inflation, as in the 1996 plan, but the traditional overspending of the government (one report claimed $24,000 per month for pension plans in the state-run oil company) might undermine this plan. The dividends tax on foreign investment in Venezuela offsets any privatization plans by reducing the flow of capital from other countries. The country remains dependent upon oil revenues.
In April 2002, Hugo Chávez was temporarily ousted from power as president by the military; he returned to office two days later. Popular demonstrations against his presidency mounted throughout 2002 and into 2003. Beginning in December 2002, the opposition led a general strike in an attempt to force Chávez to resign. The strike shut down the oil industry for two months, but by mid-2003, oil output was almost back to normal. Nevertheless, the economy contracted by 29% in the first quarter of 2003, largely due to the effects of the strike, and it was forecast to decline by 12% over the course of the year. In February 2003, Chávez imposed foreign-exchange controls, and the country became short of dollars. Political opponents claimed the move was taken to curtail the private sector, and some say it continued the country's deindustrialization (six out of ten of the manufacturing businesses in existence when Chávez took power in 1998 had shut down by 2003). Inflation in the first five months of 2003 stood at 13.8%, and it was forecast to increase.