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The Economic Reform of 1965

The reform of July 1965 consisted of thirty laws that formed the legislative framework for market socialism. An important goal of this framework was to allow enterprises to keep a larger share of their earned income, much of which was previously paid to the government. The five major components of the reform were: lower taxes; limited state control of investment allocations; removal of price controls and large adjustments to product prices, to bring domestic prices closer to world price levels; devaluation of the dinar and reduction of customs duties and export subsidies; and permission and credit for peasant landowners to buy farm machinery.

Economic performance in the 1950s and early 1960s was strong primarily because of consistently heavy investment policies. Between 1954 and 1965, gross material product ( GMP--see Glossary) increased by an average of 8.4 percent per year. In the same period, gross industrial output increased at a yearly average of 12.2 percent; industrial employment, 6.6 percent; social sector employment, 5.9 percent; exports 11.7 percent; and fixed investments 9.2 percent per year. In the mid-1960s, however, these rates began to fall because the 1965 reform caused excessive demand on resources, growing inflation, continuing balance-of-payments problems, and expanded unemployment. From 1965 to 1974, average annual GMP growth dropped to 6.4 percent, gross industrial output to 7.7 percent, industrial employment to 3.3 percent, social sector employment to 2.9 percent, exports to 5.6 percent, and fixed investments to 8.2 percent per year.

Data as of December 1990