* Possible standby EU loan focal point of troika talks
* Portugal due to exit bailout in mid-May
* Bond yields near 8-year lows; auctions resume on Wednesday
* Auction result seen reinforcing case for "clean exit"
By Andrei Khalip
LISBON, April 22 Portugal's international
lenders started on Tuesday their last evaluation of its
performance under its bailout, with further reforms on the
agenda and the question of a standby loan when it exits the
programme next month still unresolved.
In a sign of the review's forward-looking bias, the
inspectors from the European Commission, European Central Bank
and International Monetary Fund held one of their first meetings
with the main opposition Socialists. Opinion polls put the party
on track to win next year's general election.
The IMF has said a political consensus on not raising
expenditure after the rescue programme ends is vital.
The fund said on Monday the recent return of economic growth
had boosted Portugal's near-term prospects, but more needed to
be done to free up the jobs market to cut labour costs and
The Socialists agree the course of fiscal discipline has to
continue, but reject further austerity, which the centre-right
coalition government will continue to apply this year and next
on top of huge tax hikes and spending cuts already implemented
under the bailout since 2011.
Economic growth that ended Portugal's worst recession since
the 1970s, stoked by exports and more recently a recovery in
consumer demand, has improved the country's chances of moving on
from its bailout without the need for a standby loan.
But that is is still unclear, and likely to be a focal point
of discussions during the review.
The government has promised to define by May 5, when the
euro zone's finance ministers are due to meet, whether it will
follow Ireland by making a clean exit from its 78 billion euro
bailout or request a precautionary loan from the European Union
to support its debt market funding.
"The negotiation that matters is with the European component
of the troika (of lenders) about the (possible) precautionary
loan," said Filipe Garcia, head of Informacao de Mercados
Deputy Prime Minister Paulo Portas said on Monday the
government was still mulling its exit strategy, while pointing
out the country's bond yields were very close to where Ireland's
stood about a month before it exited its rescue programme last
Portugal's benchmark 10-year bond yield hit its lowest level
in eight years of 3.68 percent on Thursday and was trading at
3.74 percent on Tuesday. Ireland's yields were at just over 3.5
percent in late November.
On Wednesday, Portugal will also hold its first regular bond
auction in three years, which analysts see as the last remaining
element in its transition back to the debt market. If
successful, as analysts expect, the sale is likely to reinforce
Portugal's case for a clean exit.
"I think it won't be necessary to formalise a loan," Garcia
said. "The market just wants to know that Portugal has a 'rich
uncle'. Europe has said it will stand by Portugal if it keeps
working towards meeting its goals and reinforcing this informal
support may be just enough."
Portugal has to cut its budget deficit to 4 percent of
economic output this year after beating its target with a 4.9
percent gap in 2013, and then to 2.5 percent in 2015.
It has to keep reducing the budget gap to keep the
structural deficit below 0.5 percent by 2017 under the EU budget
discipline pact, which was endorsed by the Socialists.
Analysts say that regardless of the composition of the next
government it will have few options but to stick to the European
targets, although the return of economic growth last year
suggests further doses of austerity after 2015 could be much
lighter if the economy keeps growing as projected.
The bailout programme is due to end formally on May 17, but
the analysis of the last evaluation, which should last until the
end of April, and tranche payments will go on until the
(Reporting By Andrei Khalip; Editing by John Stonestreet)