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Portugal on Track, But Faces Mountain of Debt

Portugal on Track, But Faces Mountain of Debt Portugal on Track, But Faces Mountain of Debt

Problems from the past have been corrected, yet a mountain of debt remains–that’s the way the Portuguese see it. The country is an uncertain prospect in the eurozone once more.

He took out a loan, bought six tuk-tuk rickshaws and created 10 jobs: Joao Tubal is betting on tourism to help him through the crisis, DW reports.

“There is practically no new building going on, but Lisbon is full of tourists,” the young man soberly explains. So he and his colleagues shuttle tourists around to all the sights of the Portuguese capital in their three-wheelers–with environmentally friendly electric motors.

 Profound Changes

Tourism is booming in Portugal, and more and more people are profiting from it. Low-cost airlines and cruise ships brought 12% more tourists to the country last year. More increases are expected in 2015.

Portugal after the crisis is not Portugal before the next crisis, says Joao Duque, an economics professor, who teaches at the respected ISEG business school. He says, the country has changed. Portugal has modernized and reinvented itself. And though government debt remains high, Portugal has meanwhile repositioned itself on decidedly better economic footing, he added.

“In 2013 and 2014 we once again exported more than we imported. That is the first time in a long time.”

 Post-Crisis

But post-crisis Portugal is not only exporting more, it has also cut off its ancient bureaucratic braids and built up an efficient tax collection authority. That’s why the sound of cash tinkling into state coffers is sweeter than ever before.

One of the men who has contributed to the Portuguese success story is Henrique Neto. Now 79 years old, the businessman will also stand as an independent candidate in next year’s presidential election.

He has built a small empire of extremely modern injection mold factories, which export around the world and also produce goods in China. The sector in which he does business is responsible for the country’s export growth alongside the shoe and textile industries, and the Volkswagen factory south of Lisbon.

Portugal now has a well-educated workforce and good managers. One can add to that the potential for Portugal to profit from its geographic position in light of the pending TTIP free-trade agreement with the US.

But Neto says that in order to really get business booming in Portugal, European aid and foreign investment will be necessary. Investors could be further attracted by low income and payroll tax costs. And, he notes, Portugal’s outstanding infrastructure, partially financed with help from the European Union, could also help.

Duque emphasizes that Portugal has proven that it’s capable of change. He cites Portugal’s shoe industry, which once produced cheap, low-quality goods, and now competes with exclusive fashion labels from around the world.

Similar expertise has been built up in other sectors, with products like textiles. So the country is on the right path. Many other changes that have already been implemented will begin to show positive results, but only in several years time, says Duque.

 Horrific Gov’t Debt

Portugal is still struggling with a crushing debt burden of almost 130% of GDP. Businessman and presidential candidate Neto says that the country’s former leaders are to blame for the problem. Not only did they make it easy for private citizens to amass debt, but with the drop in interest rates that followed Portugal’s accession to the eurozone, the government also lived far beyond its means.

Duque notes that the EU has eased some of the pain through loan restructuring, but he says he has no idea how Portugal will ever be able to pay off its debt in the foreseeable future.

Financialtribune.com