(Updates with voter turnout in seventh paragraph, Portuguese president’s comment in eighth.)
June 5 (Bloomberg) -- Portuguese opposition leader Pedro Passos Coelho led Socialist Prime Minister Jose Socrates in polls heading into today’s election with seat projections showing he may be able to forge a majority with another party.
The new leaders will have to enact budget cuts required in a 78 billion-euro ($113 billion) international bailout even as unemployment climbs and the economy shrinks. Polls open at 8 a.m. and close at 7 p.m. in mainland Portugal. Exit polls will be released at 8 p.m. Lisbon time when voting ends in the Azores islands.
Socrates’ minority government fell in March after lawmakers rejected deficit-cutting proposals as he struggled to avoid a bailout. With debt and borrowing costs surging, Portugal followed Greece and Ireland in seeking a rescue, bringing to 256 billion euros the aid provided to stamp out the sovereign debt crisis. Another minority administration may threaten Portugal’s ability to cut spending and receive rescue funds.
“Portugal needs an absolute majority in these elections,” Passos Coelho said in Oporto, northern Portugal.
The Social Democrats led by Passos Coelho, 46, and the People’s Party, the biggest and second-biggest opposition parties, have said they support the rescue, while blaming Socrates, 53, for having to seek it.
The newspaper Jornal de Negocios estimated that if results reflect opinion polls, the Social Democrats and People’s Party combined would be enough to form a majority in the 230-seat parliament.
Voter turnout reached 20.01 percent as of noon in Lisbon today, compared with 21.29 percent at the same time when the country held the previous parliamentary elections on Sept. 27, 2009, according to the government’s election website.
“In the situation that the country is in, voting is not only a right, it’s a duty and each person should think that the choice of the next government is a matter that is too important to be left to the others,” Portuguese President Anibal Cavaco Silva said today after he voted in Lisbon, according to news radio TSF.
‘Narrow But Possible’
“The path is narrow but it’s possible,” said Joaquim Goes, a board member at Banco Espirito Santo SA, Portugal’s biggest publicly traded bank by market value. “Our duty is to carry out the agreement.”
A poll published by Jornal de Negocios on June 3 indicated 36.3 percent backing for the Social Democrats, 5 percentage points more than in a survey published on May 19, and 30.1 percent support for the Socialists. The survey showed 12.4 percent support for the conservative People’s Party.
A survey also published on June 3 by another newspaper, Publico, indicated 36.5 percent backing for the Social Democrats and 31.1 percent for the Socialists. The survey showed 11.6 percent support for the People’s Party.
“Our country needs a government that is responsible, realistic and based on social consensus,” Socrates said on June 2. “Only the Socialist Party can provide that government, there is no other party.”
Bond Yields Rise
Borrowing costs have increased since the bailout was requested. The difference in yield that investors demand to hold Portugal’s 10-year bonds instead of German bunds reached a euro- era record of 687 basis points on June 3. The 10-year bond yield also reached a record of 9.856 percent on June 3, and the five- year bond yield was at 11.421 percent. Portugal faces a 4.9 billion-euro bond redemption June 15, its only bond maturity until June 2012.
The three-year aid plan for Portugal set goals for a budget deficit of 5.9 percent of gross domestic product this year, 4.5 percent in 2012 and 3 percent in 2013. The country had the fourth-biggest deficit in the euro region last year at 9.1 percent of GDP.
Portugal’s public debt swelled to 93 percent of GDP in 2010 from 68 percent in 2007. The European Commission forecasts Portugal’s debt will increase to 101.7 percent this year and 107.4 percent in 2012.
A privatization program representing about 3.5 percent of GDP aims to sell stakes in companies including EDP-Energias de Portugal SA, the biggest electricity provider, and REN-Redes Energeticas Nacionais SA, the operator of the national power grid, by the end of this year.
The aid program envisions a recovery in 2013, with unemployment peaking at 13 percent in that year, according to Portuguese Finance Minister Fernando Teixeira dos Santos. Portugal’s unemployment rate rose to 12.4 percent in the first quarter.
The government said on May 5 the economy will shrink 2 percent this year, twice as much as it previously forecast. GDP will also decline 2 percent in 2012, the minister said. The country’s economic growth has averaged less than 1 percent a year in the past decade, one of Europe’s weakest rates.
The aid package calls for spending reductions for 2012 and 2013 amounting to 3.5 percent of GDP, while revenue increases will represent 1.4 percent of output. The government will freeze public workers’ salaries through 2013 and cut pensions of more than 1,500 euros a month, while tax deductions will be limited.
“The program must be implemented urgently,” Finance Minister Teixeira dos Santos said on May 23. “The country at this moment has three big challenges. First: implement the program; second: implement the program; and third: implement the program. Whoever wins the elections, whoever forms government, won’t have time to sit down.”
The next legislature is likely to open at the end of June, according to the Portuguese parliament’s website.
--Editors: Mark McCord, David McQuaid
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