Portugal qualifies for next batch of bailout funds

By Barry Hatton

Associated Press

Published: Wednesday, Nov. 16 2011 10:40 a.m. MST

Brokers work in the trade room of a Portuguese bank Wednesday, Nov. 16 2011, in Lisbon. Portugal's interest rates were steady in a debt auction Wednesday that raised euros1.12 billion ($1.5 billion), bringing some relief for the ailing country amid nagging market fears about the eurozone's fiscal health. Portugal is one of the eurozone's frailest members and needed a euros78 billion ($105 billion) bailout earlier this year.

Armando Franca, Associated Press

LISBON, Portugal — International lenders said Wednesday they have approved the next batch of bailout funds for Portugal after determining the country is making progress on cutting its heavy debt load and improving its economic competitiveness.

Inspectors from the International Monetary Fund and Portugal's European partners said they would release a further €8 billion of the €78 billion ($105 billion) rescue package they awarded the country earlier this year.

One of the eurozone's frailest members, Portugal must abide by a three-year program of austerity measures and economic changes in order to qualify for the aid which is released in batches.

Its financial near-collapse fueled the eurozone's sovereign debt crisis which has infected an increasing number of countries.

"Overall, the program is off to a good start," the bailout lenders said in a joint statement. However, they stressed that many changes will be needed to "remove the rigidities and bottlenecks behind Portugal's decade-long growth stagnation."

Finance Minister Vitor Gaspar acknowledged that the government's deficit reduction efforts had gone "off track" this year but said one-off measures, such as a 50 percent tax on Christmas bonuses and transferring banks' pension funds to the Treasury, will ensure Portugal achieves its 2011 budget deficit goal of 5.9 percent. That is down from 9.8 percent in 2010.

"The government has been clear in its determination to make good on its promises," Gaspar said.

He said "a very significant amount" of new measures is planned for next year. They include the privatization of the state's whole or partial stakes in energy company Galp Energia, flag carrier TAP Air Portugal, airport management company ANA, and rail freight company CP Carga.

The sale of stakes in energy company Energias de Portugal and grid operator REN is to be concluded in January.

Among austerity measures, the Portuguese will next year pay more sales tax, income tax, corporate tax and property tax. At the same time, welfare entitlements are being curtailed.

The government also wants the Portuguese to work more hours. It is in talks with the Catholic church and trade unions about scrapping four of the country's 14 public holidays, and it aims to grant employers the right to require staff to work an extra 30 minutes a day without overtime pay, adding to the current 40-hour working week.

Meanwhile, Portugal is groping for new sources of economic growth. The country is in a double-dip recession which is forecast to worsen next year. The European Commission predicts the Portuguese economy will contract by 3 percent in 2012 — the worst performance in the eurozone.

"Despite the progress made in implementing our structural transformation, we still have a long way to go," Gaspar said.

As domestic consumption shrinks, Portugal is hoping to do more business with emerging nations.

Prime Minister Pedro Passos Coelho was due to leave later Wednesday on a two-day official visit to Angola, a former Portuguese colony that is cash-rich due to its huge offshore oil reserves.

Foreign Minister Paulo Portas announced Wednesday the closure of embassies in seven mostly European countries — Malta, Andorra, Latvia, Estonia, Bosnia and Kenya — and the opening of new delegations in Asia and Latin America.

The government got some relatively good news Wednesday when its interest rates, which reflect market faith in the economy, held steady in a debt auction that raised €1.12 billion ($1.5 billion). By contrast, other eurozone nations' interest rates have been rising.

Portugal's government debt agency said it sold 3-month Treasury bills at a rate of 4.895 percent, down from 4.997 percent two weeks ago. It raised €350 million from 6-month bills at 5.250 percent, the same as an auction last month.

The center-right coalition government also has to contend with rising unrest.

The unemployment rate rose to 12.4 percent in the third quarter, up from 12.1 percent in the previous quarter, the national statistics agency reported Wednesday.

The government expects the unemployment rate to reach a record 13.4 percent next year, when it hopes the recession will bottom out.

The country's two main trade union confederations have called a general strike for Nov. 24 to protest cuts they say are causing widespread hardship.

Pilots at TAP Air Portugal voted late Tuesday to strike on eight days, from Dec. 9-12 and Jan. 3-6. The Civil Aviation Pilots' Union is demanding a say in the airline's privatization.

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