Portugal: Economic Overview

Global Finance, January 1997 | Go to article overview

Portugal: Economic Overview


Since joining the European Community in 1986, Portugal has pursued structural reform designed to diminish the role of the state in the economy. Full or partial privatization of more than 100 state-owned companies since 1989 has reduced the weight of state enterprises in the economy from 20% to 10%, while yielding some $10 billion in receipts. A large proportion of the proceeds from privatization have been applied to public debt reduction and to the recapitalization of remaining state-owned companies.

In late 1995 and early 1996, Portuguese financial authorities supported a cautious decline in interest rates and intervened in foreign exchange markets to keep the exchange rate of the escudo within a 3% band of its central rate against the Deutschemark.

FOREIGN INVESTMENT CLIMATE

In stark contrast to direct foreign investment inflows of $ 1.3 billion in 1994, Portugal recorded net foreign direct investment of only $514 million in 1995. Nonetheless, the government resumed its privatization program in June 1996, after a one-year hiatus. To meet its European Union fiscal targets, the government planned to bring in some $2.5 billion in privatization receipts in 1996, of which 70% was earmarked for public debt reduction.

The sale of a 21.7% second tranche of Portugal Telecom, the state-owned telecommunications company, raised $932 million, or more than a third of the government's 1996 target for privatization receipts.With the sale, the government has completed the second of three phases of the privatization of the Portuguese phone monopoly, as the country moves toward a selfimposed January 1 2000 deadline for the opening of fixed telephony to outside competition.A variety of other state-owned assets also will be privatized over the near term, including Eletricidade de Portugal, the state electric power utility.

BANKING SYSTEM

The three largest banking groups in Portugal by total asset ownership are: the state-owned Caixa Geral de Depositos/Banco Nacional Ultramarino, with assets of $45 billion; the Banco Comercial Portugues/Banco Portugues do Atlantico merger, which includes part ownership of five other smaller banks, with assets of $43 billion; and the Champalimaud group-composed of Banco Pinto & Sotto Mayor, Banco Totta & Acores, Credito Predial Portugues, and Chemical Bank Portugalwith assets of $30 billion.

Portugal has adopted into national law several key EU financial directives, covering banking coordination, auditing on a consolidated basis, capital structure, solvency, and money laundering. …

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