Moody’s downgrades Madeira debt

Moody’s credit rating agency has downgraded by two notches the long-term debt of the Portuguese island of Madeira for failing to declare some 1.6 billion euros in debt.

The agency criticised Madeira’s “poor governance” and said the undeclared debt could complicate the budgetary goals of debt-strapped Portugal, which is under pressure to impose austerity measures as conditions for its EU-IMF bailout.

The agency cut Madeira’s rating from “B1” to “B3” and also placed the island’s debt on negative outlook, meaning that it could cut the rating again after further analysis.

The decision “reflects concerns over the poor governance and management of the region, as well as the weaknesses in implementing the budget,” the agency said in a statement released overnight.

Portugal’s central bank and the national statistics institute last week announced that Madeira, which was granted autonomy after a 1974 revolution that unseated dictator Antonio Salazar, had hidden debts of 1.6 billion euros ($2.17 billion) run up between 2008 and 2011.

The revelation has made waves in Portugal, a eurozone member which has been rescued from a debt crisis and is fighting for growth while it enacts deep budget cuts to avail a 78-billion-euro loan.