Brussels, 17/11/2011 (Agence Europe) - The troika of lenders to Portugal (the European Commission, the European Central Bank and the International Monetary Fund) demanded, on Wednesday 16 November 2011 after their second fact-finding mission, that the structural reform programme be implemented in full. “Overall, the programme has got off to a good start. However, its success crucially depends on continued implementation of a wide range of structural reforms that will remove the rigidities and bottlenecks behind Portugal's decade long growth stagnation”, they explain in a press release. Portugal's finance minister, Vitor Gaspar, said the fact-finding mission had been a success and paved the way for the payment of an €8 billion instalment of aid (€2.7bn of it from the IMF) in December and January, once it has been rubberstamped by the Eurogroup. Gaspar said the government was clearly determined to meet their promises under the programme. On Wednesday, Portugal managed to roll over €1.12 billion of its debt, a section of it over 3 months (€350 million at 5.25%) and a section over 6 months (€773 million at 4.9%) at yields similar to easier bond emissions.
In 2011, economic growth in Portugal will be a little better than forecast, but in 2012, the recession should be stronger with a shrinking of 3% of GDP. The slowdown of world growth weighs on Portuguese exports, while budgetary consolidation and the shrinking of credit are putting a brake on domestic consumption. The economy will gradually resume with growth in 2013.
The troika explains: “Implementation of the 2011 budget has proven difficult. These unexpected budget pressures reflect in large part slippages in expenditure controls and insufficient corrective measures. Against this backdrop, the government is seeking to negotiate a voluntary agreement with the major banks to transfer part of the assets and liabilities of these banks' pension funds to the social security system, so as to allow meeting the 2011 fiscal deficit target of 5.9 percent of GDP.” In September 2011, the Portuguese government discovered that the island of Madeira had run up a huge budget deficit (EUROPE 10455).
The troika adds: “Implementation of the 2012 budget (Ed: of a deficit of only 4.5% of GDP) will need to be accompanied by flanking measures to address still rising spending arrears and to reduce other fiscal risks, particularly at the level of local and regional governments and the state-owned enterprises. […] The envisaged adjustment programme for the troubled autonomous region of Madeira will provide an opportunity to signal that errant fiscal behaviour at the regional and local levels will no longer be tolerated.” The troika describes the announced pay and pension cuts and increases in indirect taxation as appropriate.
Structural measures. Along with the problem of recapitalising and deleveraging banks, Portugal is urged to take speedy action to make its economy more competitive by cutting private sector pay (to match the pay cuts in the public sector) and increasing worker flexibility. The troika wants to reduce the financial cost of making people redundant, welcoming what it described as “progress” in freeing up the telecoms industry and demanding action to smash the automatic retainers and other incentives in the energy industry and regulated professions. The lenders agree with the Portuguese government that a new raft of structural reforms will be required. (MB/transl.fl)