Portugal wakes up to rescue cuts and 2.0% recession

5th May 2011, Comments 0 comments

Portugal was on edge Thursday to hear details of how tough conditions of an EU-IMF debt rescue will hit living standards, the latest in a series of reforms to correct the budget.

The country is set for a recession of about 2.0 percent this year and next, but will recover in 2013, Finance Minister Fernando Teixeira dos Santos said, giving a first assessment.

He was presenting the terms of the rescue worth 78 billion euros ($116 billion), and officials from the European Union and IMF were to explain the findings of their audit and talks which led to the debt deal.

Time is short and the climate complicated.

The country holds an early general election on June 5. It was precipitated by the refusal of the opposition to approve another round of budget measures by the Socialist government, and by a deadline of June 15 when Portugal has to redeem debt of about 5.0 billion euros or face default.

"Portugal needs this agreement, party leader Pedro Passos Coelho said on Wednesday, describing the terms presented to him as "tough" but "necessary."

The EU, European Central Bank and International Monetary Fund have said that a broad consensus across the political spectrum is essential: a guarantee the conditions attached to the three-year debt rescue will be applied, whoever wins the election.

The media, which has had access to the draft agreement has published the main measures.

The public deficit of 9.1 percent last year -- three times the eurozone ceiling -- must be cut, albeit more slowly than had been intended, to 3.0 percent of output by the end of 2013.

Pensions exceeding 1,500 euros ($2,230) per month will be cut, spending on health services will be reduced and VAT sales tax on some products will rise.

Laws protecting the labour market will be reformed and the amount and duration of unemployment benefit will be cut.

There will be a vast additional programme of privatisations, and a fund will be set up to support banks if they need help.

But the programme does not require abolition of a thirteenth and fourteenth month of pay for civil servants as many had feared. There are also measures to help raise competitiveness in the economy, including a cut in charges on employment.

Economist Joao Cesar told AFP: "I am positively surprised."

He said: "These measures show that the situation is not so serious as in other countries. I am surprised that the troika recognised this."

But the measures have come under strong attack from some quarters, notably from trades unions.

"Living conditions for workers, for pensioners and for a large part of the population risk getting worse," said Manuel Carvalho da Silva, the general secretary of the main CGTP union federation, which has called for a strike by civil servants on Friday.

Also expected at any time is the crucial attitude of the leading opposition right-wing SDP party which, while saying it will not allow Portugal to topple into bankruptcy, has yet to give judgement on the EU-IMF medicine.

© 2011 AFP

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