Brussels, 24/08/2011 (Agence Europe) - Portugal's institutional creditors say that the country's economic adjustment programme, implemented by the government in return for financial aid of €78 billion, is “on track”. This positive assessment, announced after the first fact-finding mission in Lisbon on 1-12 August, paves the way for the payment in September of the first batch of aid (€11.5bn, 3.9bn of which from the International Monetary Fund).
The European Commission, European Central Bank and IMF say that the country's economy is developing in line with the aims set out in the austerity programme and heading for a contraction of GDP of some 2.2%. This forecast was repeated by the government on Tuesday during a debate at the country's parliament. Portugal's economy is not expected to return to growth before 2013. On the budget front, the firm commitment by the government to rein in public spending should restrict the deficit to 5.9% of GDP this year, but the creditors say they will continue to back the government to ensure the momentum is not lost. The introduction of a new finance bill setting out that the aim is to cut the deficit to 4.5% of GDP next year will be a “key test”, they say. The creditors welcome the outcome of the eurozone summit last month, which decided to cut interest rates and extend the maturity of the EFSF loans, which will substantially cut the cost of servicing the Portuguese debt.
Portugal's banks are continuing to raise new capital to meet the new rules (as set out in the austerity programme). The creditors say that getting the banks back into a healthy state means removing imbalance and ensuring the banks can properly fund the real economy.
Portugal's creditors say the success of the austerity programme will require above all else the introduction of structural reforms to privatise part of the economy. Abolition by the state of its special shares in certain enterprises operating in competitive industries is a step in the right direction, they say, as is legislation to give permanent workers the same rights as temporary workers. The creditors say that the reforms have got off to a good start, but problems lie ahead and the government's determination will be sorely tested. The trade unions in Portugal will be holding an anti-austerity day of action in October. (M.B./transl.fl)