Bloomberg News

IMF Says Loan Program to Portugal Entails ‘Important Risks’

June 08, 2011

June 7 (Bloomberg) -- The International Monetary Fund’s 26 billion-euro ($38.1 billion) loan to Portugal “entails important risks,” the agency’s staff said in a report prepared to assess the country’s request for assistance.

The measures attached to the loan “may fail to alleviate sovereign debt concerns, with an adverse impact on government financing prospects,” IMF staff wrote in a May 17 report that was posted on the fund’s website today. “In particular, refinancing risks from the closure or contraction of the Treasury bills market represent a near-term refinancing risk for the government.”

Other threats cited by the IMF staff include the needed support from Portugal’s population and from the political class, lower-than-expected growth and deepening problems in other European countries.

The IMF approved the loan May 20 as part of a joint 78- billion bailout with the European Union in the latest effort to stem the region’s sovereign-debt crisis. On June 5, Socialist Prime Minister Jose Socrates was unseated by opposition Social Democrats.

“Higher funding costs, rating downgrades, increasing non- performing loans, and portfolio losses could generate additional liquidity and solvency pressures on banks,” the IMF staff wrote. “Resort to public recapitalization could have macroeconomic, fiscal, and confidence effects.”

--Editors: Kevin Costelloe, Christopher Wellisz

To contact the reporter on this story: Sandrine Rastello in Washington at srastello@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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