Portugal needs an additional 30 billion euros in EU/IMF rescue funds to solve a credit crunch in the recession-hit economy and may have to negotiate an extension for its bailout, the head of the country's industry confederation said on Wednesday.
Antonio Saraiva, the leader of the influential lobby group with vast collective bargaining powers, told Reuters the 78-billion-euro bailout that runs through 2013 did not take into account massive debts by inefficient, loss-making public companies, especially in the transport sector.
Due to Portugal's debt crisis, foreign banks have stopped refinancing those debts and Portuguese banks had to step in, depriving the rest of the economy of loans needed for it to pull itself out of the worst recession in decades.
The government insists no bailout renegotiation is needed, although it added it could receive more support if external tensions kept it locked out of funding markets.
“I'll dare to say we have a credit crunch... What is lacking is 30 billion euros,” said Saraiva, who has been involved in consultations with Portugal's international lenders on the progress of the bailout program.
“I think we will need a mix of more funds and longer terms to be negotiated with the troika” of lenders from the European Commission, European Central Bank and International Monetary Fund.
Saraiva's estimate adds to a warning earlier by a former government official who negotiated the country's bailout, Carlos Pina, that Portugal may need a further 20-25 billion euros in rescue funds to finance public companies.
But Saraiva said Portugal would only be able to ask for more money and time after showing more effort in meeting the fiscal goals set out in the bailout to garner more credibility.
“The troika already has a much more detailed vision of Portugal than it had when the pact was signed in May. Through this vision and through the credibility we achieve by adjusting our course, the troika will be more prone to conceding this.”
“Maybe before the end of this year we could manage ... to increase the sum of the assistance to at least 100 billion euros, and extend the time terms,” he said, explaining that his group told the lenders last year the country needed as much as 106 billion euros in financial assistance.
He said the troika's initial evaluation of Portugal's needs was incorrect.
“When we were first consulted by the troika we defended that the state has to have conditions to reduce the debt burden of the broad public enterprise sector, allowing and obliging banks to provide this sum of 30 billion euros to the economy.”
The government says no bailout renegotiation is needed as it remains focused on meeting budget deficit targets and implementing structural reforms.
“I can reaffirm that Portugal will not ask for a renegotiation of its bailout, we will neither ask for more money nor for more time,” Prime Minister Pedro Passos Coelho said on Tuesday, vowing that the bailout will not fail due to internal reasons.
But he also said Europe and the IMF were ready to help Portugal if, for external reasons, it would be unable to return to debt markets as planned in the second half of next year.
Saraiva said whatever the outcome of Greece's debt crisis, the European Union was unlikely to allow the disintegration of the euro zone, and Portugal would definitely stick to the euro.
Last week, the government, unions, Saraiva's confederation and other employers' associations signed an agreement on labour market reforms, designed to make hiring and firing workers easier to help struggling companies.
Saraiva hailed the agreement as an important step in the right direction, but said it only “removes one part of one obstacle” for companies, while many problems such as an excessive tax burden or inefficient justice system remained.
He said the government should heed the IMF recommendations and lower the social security contribution rate for companies, now at 23.75 percent, probably next year, after the prime minister ruled out such a step in 2012.
“Tax hikes as a means to offset such a measure have already reached saturation... high taxes cannot continue to support the inefficiency of public companies,” Saraiva said.
“The state has to reform the public administration, reduce the weight of the state machine and that requires courage as it will cost them votes. But it needs to be done for labour costs to go down, to increase competitiveness.” - Reuters