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‘Troika’ in Portugal for fresh review of bailout

Published on 16/09/2013

Portugal's creditors arrived back in Lisbon Monday to assess the country's progress under its 78-billion-euro bailout as a backlash against government austerity measures grows louder.

Payments of the next tranche of bailout loans of 5.5 billion euros to Lisbon will depend on a successful review by the “troika” of lenders — the International Monetary Fund, the European Commission and the European Central Bank — of Portugal’s progress in implementing economic reforms agreed in exchange for the financial aid.

But Deputy Prime Minister Paulo Portas plans to demand that the troika ease the country’s 2014 public deficit reduction target from 4.0 percent to 4.5 percent of GDP, a request which they have already indicated they will turn down.

The assessment by troika auditors comes as campaigning for local elections on September 29 is in full swing. The tough terms set by the three-year bailout programme Portugal agreed to in May 2011 have dominated the campaign.

“It’s upsetting and humiliating for an old nation of nine centuries to have to rely on those who lend it money when it is on the brink,” Portas, the head of the Popular Party, the junior partner in Portugal’s ruling coalition, told a campaign rally Sunday.

Portas was appointed deputy prime minister and charged with overseeing negotiations on the bailout in July after he resigned as foreign minister over the government’s austerity drive, pushing the governing coalition to the brink of collapse.

Unions, businesses and opposition parties have also railed against the tough reforms needed to complete the bailout programme, which is scheduled to expire in mid-2014.

“Portugal will survive only if it gets more time to balance its public accounts. This is what the troika must be told,” said Antonio Jose Seguro, the head of the main opposition Socialists which lead opinion polls.

“The austerity policies have widened the deficit and generated more debt, more inequality, more poverty. There are people who are hungry. The programme should be reviewed,” said Armenio Carlos, head of the CGTP union, Portugal’s largest, after meeting with Portas on Monday to discuss the talks with the troika auditors.

His appeal was backed by the head of the Portuguese Industry Confederation, Antonio Saraiva, who said it would be impossible to meet the deficit targets set out in the bailout programme.

“Someone has to explain to us how we are going to be able to go from a deficit of 5.5 percent in 2013 to a deficit of 4.0 percent in 2014. We have never seen such a strong reduction in the deficit,” he said after meeting with Portas.

The visit by the troika comes as Portugal borrowing costs have risen to levels near which it was forced to seek international aid two years ago.

The yield on Portuguese government 10-year bonds stood at 7.4 percent on Monday.

“I hope they show good sense,” President Anibal Cavaco Silva said of the troika mission during a visit to the northern city of Guimaraes.

“I hope this evaluation will not compromise the economic recovery observed during the second quarter when all indicators seem to show that the economy will continue to evolve positively in the third quarter.”

Portugal posted growth of 1.1 percent in the second quarter as exports soared, putting an end to more than two years of continuous contraction, while the jobless rate fell to 16.4 percent from 17.7 percent the first quarter.

Prime Minister Pedro Passos Coelho vowed to “go beyond” the bailout programme during campaigning for an early general election two years ago and since coming to power in June 2011 his centre-right government has imposed relentless spending cuts and hefty tax increases which many economists blame for deepening the country’s downturn.