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EU, IMF agree Portugal fresh debt aid

The EU, ECB and IMF ‘troika’ of Portugal’s creditors on Friday gave the green light for an 11.5 billion euro second tranche of debt aid as part of Portugal’s bailout plan.

“The programme is in our view on track,” the three said in a statement. “The approval of the conclusions of the current evaluation justifies the unblocking of the 11.5 billion euro ($16.4 billion) tranche.”

The European Union, European Central Bank and International Monetary Fund statement comes as fears grow that the eurozone debt crisis, coupled with similar problems in the United States, could put the world economy back into recession.

After snaring Greece, Ireland and Portugal, the crisis has spread to Italy, Spain and now even more seriously to France, the second largest eurozone economy after Germany.

The three partners in the bailouts said they now had confidence that Portugal could pull through under the current programme by maintaining strict budget discipline.

At the same time, new measures agreed last month by eurozone leaders at an emergency summit will help reduce its borrowing costs and aid repayment burden.

“We are fully confident that Portugal can return to the (financial) markets at the end of this programme,” Poul Thomsen, head of the IMF delegation, told a press conference.

The ultimate aim of the EU-IMF bailouts is to stabilise the public finances which should reduce the countries borrowing costs and thereby allow them to return to the markets to raise funding there as before the crisis erupted.

The troika noted that prospects for Portugal have been enhanced by July summit, with its partners who “and, most importantly stand ready to provide financing until market access has normalised.”

“The government underscored that it wants to anticipate key reforms,” the troika said, while warning that the “most difficult challenges are still ahead.”

In return for the EU-IMF bailout, Portugal’s new centre-right Social Democrat party (PSD) agreed to slash spending and raise taxes to stabilise the public finances.

The troika said it was “confident” that its targets would be met and added: “Our overall assessment is very positive.”

Investors have been not been so reassured by the measures, unconvinced that they would allow debt plagued single currency nations under financial duress find their way to long-term solvency, with the country downgraded to junk status.

The latest tranche of funds will probably be paid to Lisbon next month, after final agreement by eurozone finance ministers and the IMF board.

Portuguese Finance Minister Vitor Gaspar said “it is with satisfaction that I note the positive evaluation of the mission.

“The mission highlighted the government’s determination to implement the programme adopted in May,” he said.

Portugal has already received 19.8 billion euros of its three-year 78-billion-euro bailout agreed in May.

The centre-right government has pledged to cut the public deficit to 5.9 percent of gross domestic product this year from 9.1 percent in 2010, and to three percent, the EU ceiling, in 2013.