The International Monetary Fund on Friday approved a euro 26 billion ($36.8 billion) loan to Portugal to help it recover from a debilitating sovereign debt crisis, saying it would immediately disburse euro 6.1 billion to ease investor concerns over the eurozone member’s debts.
The IMF said the total financing to Portugal in 2011 will include about euro 12.6 billion from the IMF and euro 25.2 billion from the European Union. The funding is part of a joint IMF/EU euro 78 billion ($110 billion) bailout package.
“The financing package is designed to allow Portugal some breathing space from borrowing in the markets, while it demonstrates implementation of the policy steps needed to get the economy back on track,” the IMF said.
The financial package was calibrated to allow Portugal to stay out of the market for medium-to long-term bonds for slightly more than two years, IMF Mission Chief Poul Thomsen said.
Under the agreement, Lisbon will have to carry out steep spending cuts, raise taxes, reform its labor and justice systems, and embark on an ambitious privatisation scheme.
“The Portuguese authorities have put forward a program that is economically well-balanced and has growth and job creation at its center,” said IMF acting managing director John Lipsky.
“It addresses low growth, the fundamental problem in Portugal, with a policy-mix based on restoring competitiveness through structural reforms, ensuring a balanced fiscal consolidation path, and stabilizing the financial sector,” he added.
The deal follows a euro 110 billion package for Greece last May and a euro 85 billion program for Ireland in November.
Portugal’s arrangement is the first time a country has asked private investors not to sell down their holdings of bonds on a voluntary basis.
Pedro Passos Coelho, the leader of Portugal’s opposition Social Democrats, warned on Thursday the country had no room for failure in meeting the austerity measures of the program.
The conditions included in the bailout are expected to contribute to a two per cent contraction in the Portuguese economy both this year and the next.
“This is not going to be an easy program. There is going to be a difficult period of adjustment,” Thomsen said.
The program addressed a lack of competitiveness among businesses in Portugal, he said. It sets a goal of achieving a deficit which is three per cent of GDP by 2013.
“Even during the good years, before the crisis, Portugal was hardly growing,” Thomsen noted.
