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Portugal official says his country needs a bailout

By Barry Hatton

Associated Press

Published: Wednesday, April 6 2011 12:59 p.m. MDT

LISBON, Portugal — Portugal's finance minister said Wednesday his country needs a bailout because of its high debts and difficulty raising money on international markets.

Fernando Teixeira dos Santos said in written comments to daily Jornal de Negocios that "I believe it is necessary to resort to the financing mechanisms available in Europe."

Portugal would become the third financially troubled eurozone country after Greece and Ireland to accept assistance from Europe's bailout fund and the International Monetary Fund. Analysts expect Portugal will need up to €80 billion ($114.4 billion).

The move had long been expected as Portugal, one of the 17-nation eurozone's smallest and weakest economies, struggled to finance its economy ahead of what is forecast to be a double-dip recession this year.

Portugal's prime minister was due to make a televised statement at 8 p.m. (1900 GMT, 3 p.m. EDT).

Market confidence in Portugal's financial future has evaporated over the past year as investors bet the country will not be able to manage its debt load on its own. The yield on its 10-year bond, for example, rose to a new euro-era record of 8.78 percent Wednesday.

Even Portugal's short-term borrowing rates are much higher than what it would likely have to pay for bailout loans as the yield on five-year bonds is now 10 percent. By contrast, Irish average interest rates — currently under review for a decrease — are 5.8 percent for loans with longer maturities.

Over the past year, Portugal has insisted it doesn't want assistance because the terms of a big loan would lock it into austerity measures for years, lowering the standard of living in what is already one of western Europe's poorest countries. Athens and Dublin were reluctant to accept help for the same reasons.

But authorities have been cornered by the crisis. Rating agencies have downgraded Portuguese bonds to near junk status in recent weeks as new figures showed its debt load is worse than initially thought.

Added to that, the government quit last month after opposition parties rejected its austerity measures, and the country is in a political limbo until a June election, making it uncertain who might ask for help.

Investors, including the country's main banks, are balking at providing funds to Portugal out of fear it may not be able to settle its debts. As financing dries up, companies could have problems finding money to pay wages. The unemployment rate last year reached a record 11.2 percent.

Portugal's bankers had urged the caretaker government to ask at least for a bridge loan of at least €10 billion ($14.3 billion) to see it through the election.

The president of the Portuguese Association of Banks, Antonio de Sousa, said substantial financial support is "urgent."

"The banks have no more credit left to give," he was quoted as saying Wednesday by national news agency Lusa.

Portugal managed to raise about €1 billion ($1.4 billion) in a Treasury bill sale Wednesday but paid an unsustainably high interest rate to get the cash.

The government debt agency sold €560 million in T-bills that mature in October and €450 million in bills maturing in March next year.

But investors asked for high interest rates — 5.11 percent and 5.9 percent — to part with their money. In similar auctions last month, Portugal paid a rate of just under 3 percent on 6-month bills and 4.3 percent on 12-month bills.

"Portugal was able to issue debt once more, but the rates are prohibitive," Filipe Silva, debt manager at Banco Caregosa, said. "The big question ... is where the buyers will come from for future sales."

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