UPDATE 1-Portugal to seek precautionary credit line in early 2014

LONDON Mon Oct 21, 2013 7:32am EDT

LONDON Oct 21 (Reuters) - Portugal is seeking to negotiate a precautionary credit line from its international lenders early next year, confident it will not need to resort to a second aid programme, its economy minister said on Monday.

Portugal must return to financing itself in debt markets when its current bailout plan expires in mid-2014. Many economists say it may need some kind of further support from the European Union.

"We still have some work to be done, some progress to be achieved. But our aim is to start negotiating a precautionary programme in the first months of 2014," Antonio Pires de Lima said in an interview with Reuters after hosting a breakfast roundtable with journalists.

The possibility of such a programme was acknowledged when Deputy Prime Minister Paulo Portas said last month that Portugal needed to end its "period of being a protectorate" under the current bailout, and that a standby loan would be a completely different arrangement.

Pires de Lima admitted Portugal has an "issue with perception" by the international community, but dismissed that pessimism as unjustified.

"I really don't think we will need a second (aid) programme," he said at the roundtable, adding that ending the existing programme on time is an "obsession" for his government.

Pires de Lima said he was confident Portugal will meet its budget deficit target of 4 percent of gross domestic product next year, even in the face of potential challenges from the Constitutional Court, which has rejected some of the government's measures to cut the budget.

"I really don't see it (the Court) as a problem," he said.

He also dismissed speculation that Portugal could instead consider a debt exchange later this year in order to capitalise on improved investor demand for its bonds and start tackling its 8.2 billion euros ($11.2 billion) of financing needs for 2014.

"No, no, no. We are completely committed to accomplishing the rescue programme that ends in June (2014)," he told Reuters.

Portuguese 10-year yields have fallen by more than a full percentage point in the last few months to 6.3 percent currently.

"There's still some progress to be done, and part of that progress has to do with the selling of the work we are doing right now in Portugal in the international markets," Pires de Lima said.

He was in London on the first stop of a European roadshow to drum up investment in Portugal. While the economy is recovering - he expects "small" growth in the third quarter to confirm the trend - investment remains well below pre-crisis levels.

The economy grew 1.1 percent in the second quarter, and he predicted rising exports would compensate for a levelling off in domestic consumption, sustaining a recovery.

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