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Portugal opposition breaks ranks over budget goals
February 20, 2012 / 4:35 PM / 6 years ago

Portugal opposition breaks ranks over budget goals

LISBON (Reuters) - Portugal hit its debt targets at the end of 2011, data showed, as the recession-mired country’s main opposition leader broke with a political consensus over meeting a tough timetable for reducing the public deficit further.

Antonio Seguro, leader of the Socialist Party that secured Portugal’s bailout program last May, told a visiting inspection team from the ‘troika’ of lenders that the country needed more time to hit the fiscal goals set under the loan.

“We affirmed our conviction that it is desirable that Portugal gets at least another year to consolidate its public accounts,” he told journalists, citing the need to turn around an economy that is tipped to shrink 3 percent this year.

The comments marked the first time one of the main parties that signed up to Portugal’s EU/IMF bailout has publicly broken ranks over a program that envisages cutting the deficit to 4.5 percent of gross domestic product this year and 3 percent in 2013.

They also reflect concerns among investors, and echo a shift in perceptions among some euro zone policymakers on the best way of tackling the region’s long-running crisis.

Italy, Britain, the Netherlands and nine other countries called on Monday for Europe to shift its focus from tough budget cuts towards measures to create growth as the region looks headed for its second recession in three years.

As things stand, many analysts believe Portugal - the second weakest link in the euro zone chain - might be forced to follow default-threatened Greece and seek an extension of its bailout as recession deepens and the prospects of a return to growth in the short term dim.

“This is a poker play by the Socialist Party,” Adelino Maltez, political analyst at Lisbon Technical University, said.

“They know that the government will eventually have to ask for an easing of the bailout terms and they are playing in anticipation, to win popular support as they rise in the polls and later claim credit for the position,”

TOUGHER TARGETS

The centre-right government of Prime Minister Pedro Passos Coelho has vowed to stick to the bailout targets amid a tough austerity program.

Last year, Portugal met the 5.9 percent deficit target, but only thanks to a one-off transfer of banks’ pension fund assets to the state. Passos Coelho said Lisbon would not seek more emergency funding or extend its bailout.

This year it faces a sterner test.

“The current credit access conditions for Portuguese companies are acutely limiting their ability to invest and that is a tragic mistake,” Seguro said.

Earlier on Monday, the Bank of Portugal said that general government debt rose to 107.2 percent of GDP at the end of last year from 93.4 percent in 2010. The IMF expects Portugal’s debt-to-GDP ratio to peak in 2013 at 118 percent.

The country’s international lenders arrived in Lisbon last week to conduct a third review of Portugal’s performance in the context of the 78 billion euro bailout, which aims to allow it to return to long-term debt markets in 2013.

But Moody’s cut Portugal’s credit rating further into junk territory last week and data showed the economic recession deepened in the fourth quarter of 2011.

Yields on Portuguese government bonds have rolled back since hitting record highs in late January as fears that Lisbon might need more funding or could even default have receded, but yields are still too high for comfort.

International lenders are focusing on how Portugal is executing structural reforms aimed at making the Portuguese economy more competitive, including reforming the labor market and making state-owned companies more financially sound.

The Bank of Portugal data on Monday showed that public companies’ debt as a percentage of GDP rose to 27 percent in December, from 25 percent a year earlier.

Reporting By Daniel Alvarenga; Editing by Susan Fenton, John Stonestreet

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