Portugal Set to Announce Bailout Exit after 3 Years ; International Lenders Give Positive Review as Data Shows Gradual Recovery

By Minder, Raphael | International New York Times, May 5, 2014 | Go to article overview

Portugal Set to Announce Bailout Exit after 3 Years ; International Lenders Give Positive Review as Data Shows Gradual Recovery


Minder, Raphael, International New York Times


Prime Minister Pedro Passos Coelho was expected to announce Portugal's exit from its 78-billion-euro bailout in a televised address Sunday evening.

Portugal on Sunday was expected to announce its exit from a three- year bailout program that has forced deep spending cuts and triggered mass protests, but also helped the country clean up its public finances and return to the bond markets after halving its budget deficit.

Prime Minister Pedro Passos Coelho was to announce Portugal's exit in a televised address Sunday evening, following a cabinet meeting. The decision to end the program comes after Portugal's international lenders -- the International Monetary Fund, the European Commission and the European Central Bank -- issued a positive assessment on Friday of the country's progress. Portugal, which was particularly scarred by the European debt crisis, received a bailout of 78 billion euros, or about $108 billion, three years ago.

Following the review by international lenders on Friday, Paulo Portas, the deputy prime minister, said that ending the bailout program would allow Portugal to "recover the portion of its sovereignty that was lost when the bailout began in May 2011."

Economic data recently released in Portugal shows that the country is making a steady, albeit fragile, recovery, after emerging last year from a deep, two-year recession. The economy is now expected to grow more than 1 percent both this year and next. Unemployment has fallen back to 15.2 percent in the first quarter, after peaking at 17.7 percent in early 2013.

Mr. Passos Coelho was widely expected Sunday to announce a clean exit from the bailout program, following the example of Ireland last year. That means Lisbon would not ask lenders for a precautionary credit line, which could have been employed if the country's finances deteriorated and it needed more rescue funding.

Portugal had returned to bond markets even before the bailout exit was announced. In April, Portugal issued EUR 750 million worth of 10-year governments bonds for the first time since negotiating the bailout in 2011. The bonds were sold with an average interest rate of 3.575 percent, the lowest rate Portugal has ever received for 10-year debt. Mr. Passos Coelho said at the time that the auction "gives us confidence in the future."

Such confidence, however, comes with caveats, particularly regarding the country's debt levels. Government debt has climbed to 129 percent of gross domestic product, from 94 percent at the end of 2010, when borrowing costs began to spiral out of control, eventually forcing Lisbon to request a bailout. And even though Portugal is officially exiting the program this month, international creditors will continue to monitor its finances. Under the current redemption schedule, Portugal is set to repay its last loan to the I. …

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