Portugal claims progress on reform

Posted on February 28, 2012

Portugal is making encouraging progress with fiscal consolidation and economic reforms, putting it on track to meet the terms of its €78bn bail-out programme, the government has said after receiving an assessment by international lenders.

Vítor Gaspar, finance minister said on Tuesday that officials from the so-called “troika” – the European Commission, International Monetary Fund and European Central Bank – had cleared payment of the next €14.6bn tranche of the rescue package after completing a third quarterly review.

Mr Gaspar said Portugal would not ask for any increase in bail-out funds, more time to meet fiscal targets or repay loans, or any other revision of the agreement. The troika is due to issue a statement later on Tuesday.

Lisbon planned to return to the debt market as envisaged in the rescue plan in time to finance a €9.3bn bond repayment that falls due in September 2013, he added.

“Our capacity to return to the international bond market depends on building confidence and credibility,” he said. “That means fully complying with the terms of the adjustment programme and meeting our fiscal targets in one quarterly review after another.”

Following disbursement of the upcoming €14.6bn tranche, due to be paid in the coming months, Portugal will have received €48.8bn in rescue funds, 62 per cent of the total bail-out.

Mr Gaspar said Portugal’s European partners had given repeated assurances of additional support if conditions beyond Portugal’s control made it difficult to access markets next year.

But he emphasised that any such support was “strictly dependent” on complying with the existing bail-out programme.

Some economists argue that Portugal’s debt burden will make it impossible for the country to access debt markets next year and force Lisbon to seek additional rescue funds.

Opposition, business and trade union leaders are also pressing the coalition government to seek more funds and time to implement the adjustment programme to alleviate the impact of tough austerity measures.

António Seguro, leader of the centre-left Socialists, the main opposition party, said on Tuesday the government’s success in implementing the existing rescue programme would result in “fewer jobs, more recession and destruction of the productive sector”.

The Socialists, who negotiated the bail-out agreement before losing a general election in June, have called on the troika to give Portugal “at least another year” to meet agreed fiscal targets.

Mr Gaspar said the 2011 budget deficit would be close to 4 per cent of gross domestic product, significantly below the official target of 5.9 per cent.

A partial transfer of bank pension funds to the state accounted for about 3.5 percentage points of the adjustment in the deficit from 9.8 per cent of GDP in 2010.

The structural adjustment achieved last year was nevertheless well above the eurozone average at about 4 percentage points, Mr Gaspar said.

Lisbon guaranteed that no further extraordinary measures would be used to reach the 2012 deficit target of 4.5 per cent of GDP, which will require fiscal consolidation equivalent to about 4 percentage points of national output.

The government believes the economy will return to growth in 2013 after two years of recession, with the turnaround expected to begin in the second half of 2012.

But it is warning that unemployment, already at a record high of 14 per cent, will continue to rise into early 2013.

In February, the European Commission revised its forecasts for Portugal, projecting the economy would contract by 3.3 per cent after shrinking 1.5 per cent in 2011. It had previously forecast a 2012 contraction of 3 per cent.

The Commission revised the overall contraction for 2011 and 2012 slightly from 4.9 to 4.8 per cent.

Mr Gaspar said a forecast downturn in its main European export markets more than accounted for these revisions and would have an additional negative impact on growth equal to 0.5 percentage points of GDP.

This was proof, he said, that the adjustment programme was not affecting the economy any more than initially forecast.

Economic reforms designed to open up protected sectors were already producing results, Lisbon said, citing lower prices and increased competition in pharmaceuticals and telecommunications.

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