By CHRIS GRAEME chris.graeme@theresidentgroup.com
The financial wizard who secured a bail-out package for Portugal in the 1983 crisis says that the Government should start putting together a rescue package bid to the International Monetary Fund and European Union now.
Teresa Ter-Minassian believes that by working out the country’s financial needs now rather than waiting for an eventual crisis will send a clear message to the ratings agencies and markets that the country does not need help in the short term.
The news, published in the business daily Jornal de Negócios, came as Portuguese banks published statistics that Euribor bank mortgage lending rates had been climbing steadily since March from 0.999 per cent to one per cent in line with the European Central Bank.
At the same time, the worldwide investment bank UBS stated that the Portuguese Banco Espírito Santo was the bank with the greatest potential on the Iberian Peninsula and predicted a difficult year for the banking and financial sectors in Spain and Portugal because of continuing market jitters over sovereign debt.
The international financial consultant, who led the IMF team which worked out a rescue package for Portugal in the 1980s, said in an interview on June 8 that it was best that the Portuguese Government applied now for the 750 billion euro bail-out package which was agreed at a European level last month.
The Italian specialist stressed that that didn’t mean that Portugal was “incapable of sorting out its finances without international help” but that rather knowing that the country had access to the EU/IMF fund would “help it to make the necessary adjustments” and “avoid going cap in hand in desperation if things didn’t work out.”
Ageing population
Portugal currently has one of the largest balance of payments deficits in Europe, estimated to reach a massive 230 billion euros by 2013.
In addition, family indebtedness has soared over 112 per cent while the Government deficit currently stands at 9.3 per cent per annum.
She said that the budget crisis in Europe was in part caused by Europe’s ageing population and the cost of pensions and health care for the elderly against a shrinking birth rate.
This had implications on higher Government expenditure and reduced tax receipts.
The consultant said that people weren’t saving enough in Portugal, that there were competitiveness problems and high levels of family debt.
“In order to increase competitiveness in a single European currency you can’t devalue your own currency which you no longer have. Instead you have to control costs, particularly salaries, while productivity has to be improved,” she said.
“Portugal’s problems cannot be sorted out by budgetary consolidation alone, although that is necessary. Portugal needs structural reforms as has been pointed out by the European Commission and IMF and this means upping labour competition and flexibility,” she added.
Over the weekend, the economist José da Silva Lopes said that to gain that kind of competitiveness would mean slashing wages in Portugal by 20 per cent which he doubted was “socially feasible”.
