Upon taking office, Lacalle sent parliament a tax reform bill which was immediately passed with the support of the Colorado Party. Sales tax were increased from 21% to 22% income tax was increased and a few other taxes were created. During his rule, he encouraged a free market program, participated in the Brady bonds plan to alleviate foreign debt obligations, and was a co-founder of the Mercosur, along with the presidents of Paraguay, Brazil, and Argentina, which came into effect with the Treaty of Asunción in 1991.