Portugal Says Second Review of Aid Program Was ‘Successful’
(Updates with comments from the troika starting in second paragraph. See EXT4 for more on the sovereign debt crisis.)
Nov. 16 (Bloomberg) -- Portuguese Finance Minister Vitor Gaspar said the second review of the country’s financial-aid program was “successful,” allowing it to receive another rescue payment tranche of 8 billion euros ($10.8 billion).
“The government has been clear in its determination to meet the commitments assumed as part of the aid program,” Gaspar told a news conference in Lisbon today. The so-called troika of the European Commission, the European Central Bank and the International Monetary Fund said in a statement that Portugal’s budget plan is “off to a good start.”
Prime Minister Pedro Passos Coelho is cutting spending and raising taxes to meet the terms of a 78 billion-euro bailout. Portugal followed Greece and Ireland in April in seeking a bailout as its borrowing costs surged.
Passos Coelho said Nov. 10 Portugal won’t follow Greece in seeking a second rescue package. He said last month it was “crucial” to find a solution to refinance state companies’ debts and that the issue would be discussed with EU and IMF officials. Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of euro-region finance ministers, has also said Portugal doesn’t need additional funds.
The IMF said in September that the government needs to improve budget controls and cut spending as it seeks to regain access to bond markets in 2013.
“The only way to establish our credibility” is by fulfilling the country’s obligations set out in the aid plan, Gaspar said today. As those results become visible “it will be possible to return to the markets at the end of 2013.” Europe’s response to ensure to ensure the stability of the region would be “very important” in this respect, he added.
The 2011 budget overrun relative to the forecast in the financial-aid program exceeds 3 billion euros, Passos Coelho said on Oct. 13. The government has announced a Christmas income-tax surcharge to help cover the shortfall this year and also plans to transfer some pension funds from Portuguese banks.
The government aims to trim the budget deficit from 9.8 percent of gross domestic product in 2010 to the EU ceiling of 3 percent in 2013. Debt will peak at 106.8 percent of GDP in 2013 before starting to decline, it forecast on Aug. 31.
“Strict implementation” of economic and financial policies agreed on “will be needed to restore external competitiveness, bolster confidence in the sustainability of public finances, and maintain financial stability while ensuring adequate credit in support of sustainable growth,” the troika said in its statement.
The Portuguese economy will shrink 3 percent next year and may then expand 1.1 percent in 2013, the European Commission forecast on Nov. 10.
The aid program totals 78 billion euros, of which 12 billion euros are earmarked for the recapitalization of lenders should that be necessary. While Portuguese banks are being told to increase their capital ratios, the government is also asking them to keep lending to the economy.
Banks are not at the heart of the problems that the economy is facing, Rasmus Ruffer, head of the ECB mission that prepared the financial aid plan for Portugal, said at a separate press conference in Lisbon today. He urged lenders to deleverage and said they must meet new capital ratio targets.
Banco BPI SA and Banco Comercial Portugues SA said on Oct. 27 they would study different options to meet new capital requirements estimated by the European Banking Authority. The EBA estimated Portuguese banks need 7.8 billion euros by June 30, 2012. All of Portugal’s lenders passed EBA stress tests in July, with core Tier 1 capital ratios higher than the 5 percent minimum requirement.
Gaspar said today that banks will need to fulfil all targets that have been set. The Portuguese government approved a proposal on Nov. 3 for the recapitalization of lenders.
An intervention by the state in a bank would be limited to a maximum of five years and may be carried out through a capital increase or the purchase of own shares held by the banks.
--Editors: Eddie Buckle, Leon Mangasarian
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