Portugal wants to end 'protectorate', may seek standby loan

LISBON Mon Sep 16, 2013 11:12am EDT

LISBON (Reuters) - Portugal may seek a precautionary loan deal when its bailout ends next year, assuming it passes a creditor review that is currently underway, Deputy Prime Minister Paulo Portas said on Monday.

Inspectors from the European Union and IMF started their latest review of the bailout on Monday, with Portuguese officials calling on them to further relax Lisbon's deficit goals so as not to compromise a fledgling economic recovery.

The program is due to end in mid-2014, after which Portugal is supposed to return to financing itself in markets.

"If Portugal gets through the (combined) eighth and ninth review in a positive way, it will be significantly closer to the end of the lending program," Portas told journalists.

Lisbon wants to "end the period of being a protectorate" and would seek to avoid following Greece into a second rescue, he said. But it may seek to negotiate a precautionary lending program as Ireland plans to do ahead of its own bailout exit.

"There's no possible comparison between the two things," Portas said. "Portugal would be able to finance itself autonomously as well as benefit from a precautionary program, which is not a second bailout."

The review is expected to be more difficult than previous inspections after a major government reshuffle in July which left Portas, who has challenged some austerity measures, in charge of negotiations with the lenders.

He reiterated that Lisbon would at least try to persuade them to ease its 2014 deficit target to 4.5 percent of gross domestic product from the current 4 percent, after the issue was first raised during the previous review. This year Lisbon has to cut the gap to 5.5 percent from 6.4 percent in 2012.

"This difference (on the target) between the government and the troika is not from today, it was expressed in April. It would be strange if the government did not mention this in the name of national interests," Portas said.

Lisbon still has to cut more than 4 billion euros of public spending by the end of 2014 to reach its goals. Business leaders and unions say that if implemented in full, the cuts would throw the economy back into its worst recession in decades after it showed signs of life in the second quarter.

Speaking on Monday, President Anibal Cavaco Silva acknowledged that "we can't always get what we want and Portugal's position in the international negotiations is not very strong because we cannot give up international financing". But he said he hoped the lenders would show they understood the sacrifices made by the Portuguese.

"I hope this evaluation doesn't compromise the economic recovery that started to crop up ... All indicators point to the economy continuing to evolve positively in the third quarter," Cavaco Silva said. "Basically, I hope that they learn about the country's economic and social situation and show common sense."

Portas said growth was still feeble and it was not guaranteed that it would continue. Rising exports helped the economy expand 1.1 percent in the second quarter after dipping 0.4 percent in the previous three months but the government still forecasts it will shrink by 2.3 percent this year.

The head of euro zone finance ministers, Jeroen Dijsselbloem, said on Friday Portugal should stick to deficit reduction goals already agreed. [ID:nB5E8KL01I]. Portugal's goals have already been eased twice since the bailout began.

(Reporting by Axel Bugge and Andrei Khalip; Editing by Catherine Evans)

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