Portugal to investors “have faith in us”

By Barry Hatton

Portugal’s finance minister on Wednesday urged investors to have faith in his plans to reduce a ballooning national debt, saying his country could not be likened to Greece where a budget crisis has shaken the European Union. Portugal’s budget deficit is expected to have reached a record 9.3 percent of gross domestic product last year — way above the 3 percent allowed for countries using the euro, according to government figures. Presenting the 2010 state budget late Tuesday, Finance Minister Fernando Teixeira dos Santos said his cuts would bring the deficit down to 8.3 percent this year. The government’s goal is to bring the deficit to below 3 percent by 2013.

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“We are starting down a path, which is deficit reduction, based on a package of important money-saving measures,” Teixeira dos Santos said Wednesday. “We don’t want to be associated with Greece. Our situation has nothing to do with the one in Greece.” Teixeira dos Santos estimated that public debt will climb to 85.4 percent of GDP this year, up from 76.6 per cent in 2009, as the government invests in the economy and increases welfare payouts amid rising unemployment. The center-left Socialist government intends to cut government jobs and freeze civil servants’ pay as part of its measures to curb the rising debt, he said. Greece’s deficit stands at more than four times the 3 percent limit while its debt reached 113 percent of annual output for 2009 and is expected to hit 120.4 percent this year. Portugal’s government expects a raft of privatizations to yield euro960 million (US$1.35 billion) which will be used to pay off debt. It gave no details of the companies slated for sell-off. Moody’s Investor Service said last month that Portugal and Greece may face a “slow death” as they spend increasingly more on paying off their debts, and Germany’s Commerzbank AG recommended avoiding Portuguese government bonds. Markets and credit rating agencies “are unlikely to be fully reassured” by the governments plans, researchers at London-based Capital Economics said in a report Wednesday.

However, the report said, Portugal’s debt is still lower than that of Greece and Italy. The state budget sees GDP growing 0.7 percent this year after contracting 2.6 percent in 2009. The jobless rate is expected to reach almost 10 percent this year, roughly the EU average. “There will be no increase in taxes,” Teixeira dos Santos told a news conference which started close to midnight Tuesday. “We will focus our efforts on containing and reducing expenditure with a policy of financial discipline.” The government’s budget proposal brought howls from public sector trade unions who traditionally are Portugal’s most vocal and militant protestors. The United Front of civil service unions described the cuts as “scandalous” and said strikes were likely. The main opposition Social Democratic Party and the right-of-center Popular Party have said they broadly agree with the budget proposal and will abstain from the vote in Parliament, ensuring it will pass despite expected protests from the Communist Party and Left Bloc.

Portugal, a country of 10.6 million people, is western Europe’s poorest country despite receiving billions in European Union development aid since joining the bloc in 1986. Its economy was faltering even before the current global economic downturn, growing on average less than 1 percent over past 10 years in its worst performance since the early 1900s.

One of the founding members of the euro currency now used by 16 nations, Portugal has twice before — in 2005 and 2007 — broken the eurozone’s budget deficit rules.

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