Portugal's new government faces bailout pressures

LISBON, Portugal – Portugal's center-right Social Democrats had little time to savor their return to power as they started work Monday on the enormous task of getting a ruinous debt burden under control just as the economy is shrinking once again.

Social Democrat leader Pedro Passos Coelho scored an emphatic win at the ballot box Sunday, with his party collecting about 39 percent of the vote compared with 28 percent for the second-placed Socialist Party, which governed for the past six years.

Passos Coelho is taking over as prime minister in the middle of a financial storm.

The clock is ticking on a long list of painful austerity measures that have to be adopted swiftly in return for a euro78 billion ($114 billion) bailout program agreed under the former Socialist government.

Any delays or hesitation could jeopardize the agreement that saved Portugal from bankruptcy, as well as complicate European efforts to draw a line under the continent's debt troubles.

"Passos Coelho is going to have the shortest honeymoon period ever," Jornal de Negocios editor Pedro Santos Guerreiro wrote in Monday's edition.

The new government inherits a record jobless rate of 12.6 percent and a forecast economic contraction of 4 percent over the next two years.

The ballot offered encouragement, however, for his efforts to set Portugal on the road to recovery.

Despite the promise of further tax hikes, public sector pay freezes, and pension and welfare cuts, almost 80 percent of voters gave their support to the three parties that have backed the bailout conditions.

Passos Coelho said he would consult with the smaller, conservative Popular Party — which claimed 12 percent — about forming a coalition government. Such a deal would ensure him an absolute majority in Parliament that is crucial for the approval of debt-reduction policies and broad social and economic reforms.

A lot is riding on Passos Coelho's negotiating skill. The affable 46-year-old is untested at such a high level, never having held a government post. He is best known as a lawmaker in the 1990s when, in his early thirties, he stood out in Parliament as a promising young politician who wore sweaters during debates instead of the more usual dark suit.

But after graduating in economics from a Lisbon university in 2001 he went into business, becoming an executive at companies in the energy and environmental sectors.

"I hope he will be man enough to govern the country," Lisbon resident Francisca Monteiro, 48, told Associated Press Television News.

Passos Coelho said he was selling no illusions.

"A lot of difficult measures lie ahead," he said Monday as he left home for a party meeting. "The Portuguese will need a lot of forbearance in coming years."

The new government will have to move quickly on cuts in expenditure and economic reforms before its first scheduled report in July to a team of inspectors from Portugal's European partners and the International Monetary Fund. They put up the money for the bailout and want to see it used effectively.

An immediate concern is improving notoriously slow bureaucratic procedures, identified as one of the obstacles to Portugal's development and which will prevent the government from formally taking office for at least two weeks.

Promised strikes by trade unions over the scrapping of entitlements such as job security will also give the government a rocky ride early in its four-year term.

Portugal has a mountain to climb to engineer the changes that will trigger the growth needed to pay its debts.

Low productivity, weak competitiveness and low levels of education have conspired to constrain an economy which recorded average annual growth below 1 percent over the past decade.