Lisbon gets through latest examination by bailout troika
Three major banks to get 6.65-billion-euro injection
The European Union, the IMF and the European Central Bank have approved Portugal's performance in fulfilling the commitments it took on in exchange for a 78-billion-euro bailout, allowing a further four billion euros in funds to be disbursed.
After examining the Portuguese economy over the past two weeks, the troika declared that the government of Prime Minister Pedro Passos Coelho had fulfilled all of the conditions imposed in the bailout package approved in June of last year.
At a news conference on Monday, Finance Minister Vítor Gaspar said: "We have to focus on what depends on us and follow the program with determination and sacrifice." Gaspar said the government now expects the local economy to shrink by only 3.0 percent this year, compared with an earlier forecast of 3.3 percent, as a result of better performance by the export sector than had been predicted.
He did, however, add a caveat: "We should exaggerate things, since the differences are not very big."
The Portuguese government has imposed a draconian austerity drive, including tax hikes and cuts to pensions and public sector wages. This will bring its public deficit down from 9.8 percent of GDP in 2010 to back within the EU ceiling of four percent by next year.
Gaspar said Portugal needed to bring down labor costs, which "unfortunately and inevitably" would have to mean cuts in wages.
In a parallel development, the government announced it will inject 6.65 billion euros into three leading banks. Of the total, five billion euros will come from a 12-billion-euro tranche of the bailout package set aside for the country's lenders.
Banco Comercial Português is to receive 3.5 billion euros, the state-controlled Caixa Geral de Depósitos 1.65 billion, and BPI Bank 1.5 billion.
The funds will allow the three lenders to meet the European Banking Authority's requirement of a core Tier 1 capital ratio of nine percent by the end of this year. Banif is also expected to request state funds.