Portugal learns terms for $115 billion bailout
LISBON, Portugal – Portugal will get IMF loans at rates similar to those granted to Greece and Ireland, officials said Thursday, but Lisbon is still waiting for its fellow European countries to decide how much they'll charge for their slice of a €78 billion ($115 billion) bailout.
The interest rates on the huge loan are a crucial aspect as the ailing country struggles to get free of its massive debts, and Portuguese officials were keen to avoid bailout terms that might thwart economic growth needed to create jobs.
Both Greece and Ireland, the two other debt crisis victims, chafed at what they complained were punitive rates on their bailouts agreed last year. They said the payback terms and deep spending cuts were hurting attempts to restore their fiscal and wider economic health.
Market confidence is so bad in Greece that many investors believe the country will have to eventually renege on its debt deals, a position Portugal is eager to avoid.
Portugal will have to pay interest rates between 3.25 percent and 4.25 percent for the International Monetary Fund's portion of its €78 billion ($115 billion) bailout, a senior IMF official said. Those are close to the ones provided to Athens and Dublin.
Poul Thomsen said Thursday the lower rate will apply for the first three years of the bailout, while the higher one will kick in after that. The IMF will supply one third of the overall package, with the rest coming from the EU and eurozone countries.
The EU's representative Juergen Kroeger said the interest rates to be charged for the bloc's portion of the loans has yet to be determined and that that would most likely happen on May 16, when the EU finance ministers meet to sign off on the bailout.
That timeframe could be disrupted by recent elections in Finland, where a euro-skeptic anti-bailout party might be part of the new government and could balk at sending taxpayers money to countries viewed as fiscally lax.
A decision is also being held up by wider discussion within the currency bloc. Eurozone leaders in March agreed in principle to lower the interest rates charged for their bailouts, but have not yet reached a final deal, partly due to disagreements with Ireland about the rate it is being charged.
Portugal needed the bailout because it has become virtually cut off from market financing — needed to run its economy and settle its debts — as investors demand extremely high rates for lending money to a country viewed as risky.
The yield on its 10-year bonds was slightly down Thursday but still at an unsustainable 9.6 percent. Paying those rates denies Portugal funds to invest in economic growth and pay its bills. Authorities have said the country won't be able to meet debt repayments due in June.
Thomsen, of the IMF, said the bailout will allow Portugal to stop raising money on debt markets via short- and long-term bonds for a little over two years. That will "give the government the breathing space" to implement necessary changes to the way its economy is run, he added.
Portugal's poor economic performance over the past decade, when it posted average annual growth of just 0.7 percent, is at the heart of its cash problems.
Finance Minister Fernando Teixeira dos Santos said that Portuguese officials had won favorable terms after more than two weeks of negotiations with delegates from the EU, the European Central Bank and the IMF.
He said "an effort was made to adopt measures that don't hurt growth" and improve Portugal's frail economic competitiveness.
"This is a good (bailout) program and an opportunity we can't waste," he said.
The EU's Monetary and Economic Affairs Commissioner Olli Rehn said the package sought to stimulate growth, cut public debt and ensure stability of the banking sector.
"The Portuguese economy faces considerable challenges and we believe that the bold steps being undertaken will enable it to get back on track," Rehn said in a statement.
Even so, dark days lie ahead for the Portuguese. The program predicts economic contraction of 2 percent this year and next, with growth returning only in 2013, while the jobless rate is seen rising to 13 percent from 11.1 percent now. Public debt is forecast to keep growing through 2013.
"The program is bold but it is realistic," the IMF's Thomsen said, rejecting claims that Portugal's package was more lenient than those imposed on Greece and Ireland.
He warned that "the economy will face significant headwinds" over the next three years as austerity measures bite.
The bailout plan foresees a broad round of tax hikes and welfare cuts that will likely lower living standards in what is already one of western Europe's poorest countries. Trade unions have balked at more austerity measures after a year of deep cuts as Portugal scrambled to avoid asking for a bailout.
The program "doesn't bring good news, but it doesn't mean a catastrophe has befallen us either," Teixeira dos Santos said.
"A program with this scope and with such ambitious measures and such an intense timetable of implementation ... demands effort and sacrifice from us all," he said.
Portugal's three main political parties have given their blessing to the new austerity measures. The foreign delegates insisted on broad consensus to ensure the country remains locked into the program no matter who wins a June 5 general election.
The plan aims to cut Portugal's state budget deficit to 5.9 percent this year, to 4.5 percent next, and 3 percent in 2013.
Higher taxes and a privatization program will help increase revenue, Teixeira dos Santos said.
Steinhauser contributed from Brussels.