March 3, 2021

Portugal Faces Challenges in Meeting Bailout Terms

International lenders calling this week on Pedro Passos Coelho, who moved in just two months ago, will be looking, however, for more than superficial improvements to the country’s economy before writing their next check.

Three months after approving a €78 billion, or $111 billion, bailout for Portugal, officials from the International Monetary Fund, the European Commission and the European Central Bank are conducting their first review of progress toward meeting conditions set for emergency financing. Those include budget cuts and an economic overhaul intended to stimulate growth.

Portuguese officials and business executives expect a broadly favorable assessment following general elections that replaced a minority Socialist government with a stronger, center-right one. But they also worry that elements out of their control — a widening debt crisis in Europe and fears of a slowdown in global growth that have been rattling markets — could undermine Portugal’s efforts.

“To make the changes that we have agreed to is a necessary condition, but not a sufficient one” alone, said António Mexia, chief executive of EDP Energias de Portugal, the country’s largest utility.

“There are now a lot of things that no longer depend on Portugal but instead on Spain and Italy and other countries around us,” he said. “In this crisis not even bigger countries than ours can say that they control fully their destiny.”

Still, since his electoral victory in June, Mr. Passos Coelho, Portugal’s new prime minister, has struck a confident note, insisting that his government would reduce the budget deficit by more than a third this year, to 5.9 percent of gross domestic product from 9.1 percent in 2010.

Such drastic tightening would be a significant improvement on the performance of the previous government. It would also contrast with the situation in Greece, which remains on the brink of default more than a year after becoming the first euro zone country to be rescued.

The Finance Ministry in Athens reported last month that the budget deficit there had widened by almost a third in the first six months of this year — blowing its targets — as a deep recession exacerbated by budget cuts dampens government revenue.

“What we learnt from Greece is that it’s all about implementation,” said Carlos Moedas, a former Goldman Sachs investment banker named by the Portuguese prime minister to oversee the budget agreement with its foreign creditors. “The kind of implementation monitoring that we are putting in place is completely new in Portugal and I believe even ahead of what was done in past I.M.F. programs.”

As in the bailouts of Greece and Ireland, the lenders have set quarterly progress reviews. For Portugal, the outcome of the first review is expected as early as the end of this week.

When the I.M.F. was last called to Portugal’s rescue in the early 1980s, the intervention was widely unpopular, largely because it led to a sharp rise in interest rates.

This time, despite grumblings by Portugal’s powerful Communist party about foreign intervention and excessive austerity demands, “there is a real and widespread sense of relief that we are finally getting helped by qualified financial experts, because people here are completely fed up with mismanagement by our politicians,” said Pedro Reis, author of “Returning to Growth,” a recent book detailing Portugal’s economic woes.

Nuno Vasconcellos, who heads Ongoing, a family investment company that has several media businesses, as well as a significant stake in Portugal Telecom, said the arrival of the I.M.F. “must be seen as the perfect excuse to make all the reforms that Portugal has refused to consider for the past 30 years.”

Indeed, one of Mr Passos Coelho’s challenges is to lead by example and rein in spending in the country’s bloated public administration, as well as improve performance at state-controlled companies that have accumulated about €40 billion of debt.

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