‘Troika’ in Portugal for new review of bailout
Portugal's EU-IMF creditors began a review of the country's 78-billion-euro bailout programme Wednesday with unions and business leaders united against more austerity measures.
The arrival of a team from the “troika” of lenders — the European Commission, the European Central Bank and the International Monetary Fund — comes s week after parliament approved a budget for 2014 which aims to save 3.9 billion euros ($5.3 billion).
The savings, to come partly through the cutting public sector salaries and pensions, have provoked street protests and drawn warnings that they put a fragile economic recovery at risk.
Portugal secured the bailout in May 2011 under a programme that is slated to end in June next year.
The payment of the next instalment of loans depends on a successful review of the country’s progress in implementing reforms agreed in exchange for the aid.
While all three of Portugal’s main political parties backed the original bailout deal, Prime Minister Pedro Passos Coelho’s centre-right government now faces a growing backlash.
“It is not by reducing salaries, as some elements of the troika suggest, that we will revive the economy,” the head of the Portuguese Industry Confederation, Antonio Saraiva, warned ahead of the visit, adding that such measures would lead to “a brutal drop in household consumption”.
IMF experts have backed a reduction in Portugal’s minimum wage of 485 euros for youths to encourage companies to hire workers and reduce a jobless rate that stood at 15.6 percent in the third quarter.
“A policy of lower salaries is unacceptable. We hope that the government will make this point to the troika,” Lucinda Damaso, the head of Portugal’s UGT union said Monday during a meeting with officials.
In a rare break with the creditors, Finance Minister Maria Luisa Albuquerque agreed, saying wages had already fallen enough.
“On this issue, we have a difference of opinion with the International Monetary Fund,” she said.
Nearly four in ten workers, 39.4 percent, have seen their revenues decline in both 2011 and 2012, according to a Bank of Portugal study.
“It is by rewarding people that we will create competitiveness in the modern economy which Portugal is building,” Economy Minister Antonio Pires de Lima said.
Portugal on Tuesday swapped 6.6 billion euros in bonds expiring next year and in 2015 for longer maturities, in an exchange analysts said boosted the country’s position ahead of the inspection.
“Portugal is now in a better position to negotiate with the troika because the debt swap showed markets are satisfied,” said David Schautz, credit strategist at Commerzbank.
Portugal must return to financing itself on debt markets when its the bailout expires in June. Many economists say it may need some kind of further support from the EU.
Portugal has so far received 71.4 billion euros of its bailout and the government has repeatedly insisted that it will not need more help beyond the current plan.
But doubts remain over the government’s capacity to put in place the austerity measures set for next year.
The 2014 budget still needs approval from the Constitutional Court, the high court that already triggered a political crisis by rejecting tax measures intended to meet bailout terms.
It is due to rule in the coming weeks on the proposed pension cuts in the 2014 budget.
If the measure is rejected by the court, the government will need alternative ways to make savings.