(Updates with statement by lenders, Moody's, adds byline)
By Axel Bugge
LISBON, June 12 Portugal has decided to do
without the last payment from its international bailout program
after the country's constitutional court rejected a series of
austerity measures, the finance minister said on Thursday.
The measures rejected by the court were agreed under the
bailout that formally ended last month. Economists estimate they
have a fiscal cost of about 700 million euros, which would make
it harder to reach budget goals.
However, Portugal has easily managed to finance itself in
bond markets after the end of the bailout, which means it does
not need to rely on other financing as it was forced to do when
it sought financial support in 2011.
"The government thinks that it is not the time to make
decisions about substitute measures, a decision which has the
consequence that we will not receive the last tranche of the
programme," Finance Minister Maria Luis Albuquerque told
journalists after a cabinet meeting.
Portugal went through three years of austerity under the
bailout as it descended into its worst economic downturn since
the 1970s. The economy began a fragile recovery in the second
quarter of 2014.
The 'troika' of lenders to Portugal's 78 billion-euro
bailout - the European Commission, ECB and IMF - said in a
statement they "took note" of Lisbon's decision not to complete
the final review of the bailout.
"We welcome the government's firm commitment to identify the
measures needed to fill the fiscal gap created by the
constitutional court rulings, in order to reach the budgetary
targets agreed under the programme," they said. "We encourage
the government to continue with the ongoing process of
In order to receive the final payment of 2.6 billion euros,
the government would have had to present alternative austerity
measures to the European Union and IMF by the end of June. If it
had decided to receive the payment and not present alternative
measures by the end of June, the bailout programme would have
had to be reopened, the minister said.
The minister said the decision was taken because of a
"calendar incompatibility" - the government is still awaiting
decisions by the court on other measures. The measures had all
been agreed under the bailout programme, which formally ended on
"The government decided not to adopt substitute measures
before knowing the extent of the budget problem that it will
have to deal with," the minister said.
She reiterated the government's commitment to budget goals
agreed with the European Union. The government must reduce the
budget deficit to 4 percent of GDP this year and to 2.5 percent
next year, from 4.9 percent in 2013.
"We believe this decision reinforces the credibility of the
government," she said. "This in no way invalidates our assumed
German Finance Minister Wolfgang Schaeuble said the decision
by Portugal showed its bailout programme had worked.
"The decision by the government in Lisbon today shows the
reform efforts have paid off," he said. "Portugal is now
managing without European aid and can stand on its own two feet.
That's a big success."
"Market financing has been re-established," the Portuguese
finance minister said, pointing to a bond auction on Wednesday
in which the country sold 975 million euros in 10-year bonds at
the lowest yields in years.
Separately on Thursday, ratings agency Moody's warned that
the court ruling could make it more difficult for the country to
balance its budget by 2018, as planned, adding that it could
delay any further rating potential rating upgrades of
"The court's decisions raise question marks over whether the
planned fiscal consolidation path - achieving a balanced budget
by 2018 - can be achieved if important spending categories
cannot be reduced," Moody's said.
(Additional reporting by Daniel Alvarenga; Editing by Larry