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Portugal should renegotiate bailout: advisory body
November 5, 2012 / 4:11 PM / 5 years ago

Portugal should renegotiate bailout: advisory body

LISBON (Reuters) - Portugal needs to cut the cost of servicing its bailout and find a better balance between pro-growth policies and austerity if its economy is to recover any time soon, a national advisory body said on Monday.

“We fear we may be entering a process of pain without adjustment,” the head of the Economic and Social Council told journalists.

The government is obliged to consult on labor and economic policy with the council, which comprises trade unions, business associations and civil society groups.

In September, its international lenders gave Portugal more time to meet tough budget goals than initially set under the 78-billion-euro bailout deal.

But council head Jose Silva Peneda said the country needed to go further and negotiate fast with the EU/ECB/IMF Troika to cut the interest rate on the package as well as extending repayments.

Fellow bailout recipient Ireland is lobbying the lenders for additional support to smooth its return to bond markets before its rescue package ends next year.

Presenting a report on the budget to parliament, Peneda also said Lisbon needed to focus fiscal policy more on trying to end the country’s recession, the worst since the 1970s.

Portugal’s parliament approved on Wednesday the biggest tax increases in modern history that the government insists are vital for keeping the bailout on track.

“We need more balance between austerity and growth, and have new measures which would induce a return to growth and job creation,” he said.

The interest rate on the bailout package is just above 3 percent, according to Finance Minister Vitor Gaspar. The loans’ average maturity was 7-1/2 years when the deal was first struck last year.

“We recommend the negotiations to take place as quickly as possible so it can be reflected in the 2013 (budget) targets,” Peneda said.

Many economists fear the government’s base scenario that the economy will contract 3 percent this year and 1 percent next year is overly optimistic.

Portugal targets a public deficit of 5 percent of GDP this year and 4.5 percent in 2013. Last year, the country met its 5.9 percent deficit target but only thanks to one-off revenues from transferring bank’s pension funds to the state.

Reporting by Filipa Cunha Lima and Daniel Alvarenga; Editing by John Stonestreet

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