Portugal Economy Post-Bailout
World Economy

Portugal Economy Post-Bailout

Four years ago, the Portuguese economy was bailed out with EU funds. Last year, it officially exited the program. Now it wants to pay off an IMF loan early. But all’s still not well.
Portugal’s Prime Minister Pedro Passos Coelho does not exactly have an awful lot to write home about. Unemployment remains high, young people are moving abroad. The country’s health service is on its knees, taxes are at record highs, DW reported.
But at least he has found one argument for his claim that his center-right government helped bring the country’s financial crisis to an end: Portugal plans to pay off early the bailout money it owes to the International Monetary Fund (IMF).
At the beginning of the year, Portugal had already decided to pay back 10 billion euros ($11.4 billion) to the IMF. The rest -16 billion euros – are to follow next year.
Finance Minister Maria Luis Albuquerque said Portugal had a comfortable financial cushion, preparing the country for all eventualities. Portugal had also won back the trust of the financial markets, she said.
What she really meant was that while the IMF takes almost 4-percent interest on its money, Portugal can raise funds on the markets for less than 2-percent interest.
Joao Duque, economics professor at the Lisbon School of Economics and Management (ISEG), said the government’s latest decision shows good business acumen.
“We still owe the money, but to different creditors and on much better terms,” he said adding this type of debt restructuring would pay off and also apply to the funds Portugal owes the European Union (EU) and the European Central Bank (ECB).
“A 2-percent cut in interest amounts to a saving of half a billion per year - so it’s a clever move by the government,” Duque told DW.

  Reforms Not the Only Factor
What the head of government, Passos Coelho, and his Finance Minister keep mum about is the fact that the ECB’s cheap money policy also contributed to Portugal’s debt miracle in no small way. The country’s strict adherence to the European troika’s prescriptions and the austerity measures that came with it helped the country regain the trust of market players and secure low interest rates.
No, it was also Mario Draghi’s decision to switch on the euro printing machines. Whoever wants to make some money by granting loans needs to lend money on more favorable terms to Portugal, too. You can’t get anything out from nations like Germany, which are doing well economically. On the contrary – loan providers often have to pay a fee for that.
Anyway, lower interest rates go a long way towards helping Portugal reduce its sovereign debt amounting to 130 percent of GDP, maintains economics professor Duque.
University of Lisbon philosophy professor Viriato Soromenho Marques points to the psychological effect that should not be sneezed at. “That way, Portugal can prove to its creditors that as a debtor, it’s honoring its obligations and can be trusted as a reliable partner,” he said.

Short URL : http://goo.gl/VSDiu4

You can also read ...

Cyber threats are ever-evolving.
The White House released a report that found that the economic...
Global Investors Target Zimbabwe Energy Sector
Zimbabwe has become a magnet for billionaire global firms such...
BSP said the planned RRR cuts are part of the bank’s financial market reforms.
The Bangko Sentral ng Pilipinas said it was reducing banks’...
FAO regional representative Julio Berdegue (R), and the deputy regional representative Eve Crowley.
Identifying territories where rural poverty is most entrenched...
Asean Labor Flows Hit a Wall
Tighter restrictions on foreign labor in Malaysia and Thailand...
The country’s GDP grew by 3.2% in 2017 but will  edge down in the coming years.
A report by the International Monetary Fund showed Sunday that...
Baby-boomers will start turning 75 or older in 2022, which is expected to trigger a surge in health care and nursing care costs.
Amid stalling inflation and ballooning government spending,...
Lagarde Backs Creation of European Monetary Fund
International Monetary Fund chief Christine Lagarde has no...