EU-IMF face Portuguese pressures on debt rescue

Poul Thomsen (2nd R), head of delegation of the International Monetary Fund, and EU Commission's Chief Delegation Jurgen Kroge (L) and European Central Bank's Delegation Chief Rasnus Ruffer (R) leave after a meeting with Portuguese Finance Minister Fernando Teixeira dos Santos at the Finance Ministry in Lisbon on April 18 - source: AFP

The country is eight weeks away from a risk of defaulting on its debt and faces a general election on June 5.

The officials from the European Union, the European Central Bank and the International Monetary Fund had talks lasting nearly two-and-a-half hours with leaders of the main opposition Social Democratic Party.

Portugal faces an early general election on June 5 because the opposition rejected austerity cutbacks proposed by outgoing Socialist Prime Minister Jose Socrates.

The bailout plan is supposed to be agreed by mid-May so that the political parties can take it into the elections.

Pedro Passos Coelho, the head of the centre-right opposition which is tipped in surveys as the likely winner of the election, has pledged his backing to government efforts to tackle the crisis.

The EU and IMF officials only met politicians on the right of Portuguese politics because left-wing parties, opposed to open-market remedies, declined on Monday to participate.

The negotiators, who declined any comments on the days, sat down later in the day with representatives of Portugal's two main unions which are concerned that a future austerity programme would lead to reforming the country's work laws and unemployment benefits.

"We are negotiating with international organisations which have brought an extremely hard proposal," said the secretary general of the UGT trade union, Lusa Joao Proenca.

Earlier in the day he said the union would argue "that while the deficit must certainly be reduced, it must be done with social sensitivity and with policies orientated towards employment."

The president of the employers' confederation of trade and services, Joao Vieira Lopes, said that the measures "must not focus solely on reducing the deficit because that would risk killing companies off."

Other employers' leaders have mentioned possibly discussing limiting an increase in minimum pay.

Negotiations on the total value of a rescue, currently estimated at 80 billion euros ($114 billion), and on repayment terms, follow an evaluation mission here last week.

The debt rescue, finally accepted by Portugal after months of tense efforts to avoid help, is regarded by many in Portugal as a national humiliation.

The government of Prime Minister Jose Socrates had already adopted a series of unpopular spending cuts, tax rises and economic reforms in a year-long effort to reduce the public deficit to the EU limit of 3.0 per cent of gross domestic product by 2012 and avert a rescue along Greek and Irish lines.

But his government was brought down last month when parliament rejected a new round of cuts in public spending and other measures.

The latest package was intended to reduce the public deficit to 4.6 per cent in 2011 but it ballooned to 8.6 per cent of GDP last year -- way above a target of 7.3 per cent. Portugal also has a total debt of 159.5 billion euros.

The country, among the poorest in the EU, has to repay about five billion euros of debt by June 15 and most analysts believe it must have the EU-IMF rescue loans agreed by then if it is to avoid default.

The international delegation met Socrates, Finance Minister Fernando Teixeira and the governor of the Bank of Portugal Carlos Costa on Monday.

Later on Tuesday they were holding talks with leaders of the two main unions.

The European Commission delegation is headed by German Juergen Kroeger while his compatriot Rasmus Rueffer is leading the European Central Bank team.

The IMF side is headed by Dane Poul Thomsen, who was involved in the Greek bailout package a year ago. The Portuguese team is being led by Finance Minister Fernando Teixeira dos Santos and Pedro Silva Pereira, the spokesman of the caretaker goverment.