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June 10, 2010 2:30 pm
Portugal has no plans to use emergency European Union funding and is confident it can borrow at lower rates in international markets, the country’s finance minister has said.
“Our perception is that the markets are still willing to buy Portuguese public debt,” Fernando Teixeira dos Santos said in an interview with the Financial Times. “We’re not in a situation where we need to use last resort facilities.”
Portugal, like Greece, Ireland and Spain, has seen public borrowing costs soar as it struggles to cut a budget deficit that reached a record 9.4 per cent of gross domestic product last year.
Mr Teixeira dos Santos said the minority Socialist government, would do “whatever it takes” to more than halve the deficit to 4.6 per cent of GDP next year and 2.8 per cent by 2013.
“We know we cannot afford not to meet these targets,” he said. “They are crucial for our fiscal credibility and restoring the confidence of international markets.”
His comments came after Portugal paid 5.225 per cent to raise €816m in 10-year government bonds on Wednesday, a higher rate than some analysts expect the newly created European Financial Stability Facility will charge for loans.
However, Mr Teixeira dos Santos said: “It is not clear we are paying a higher price in the market than we would if we used the facility.”
The EFSF was expected to issue three-year loans at about 5 per cent interest, he said, whereas Portugal on Wednesday raised €701m ($848m, £579m) in three-year bonds at 3.597 per cent.
Some analysts believe the EFSF could at a later stage issue 10-year loans at rates close to 5 per cent. But Mr Teixeira dos Santos said Portugal would try as far as possible to finance public debt in the market.
“For similar maturities, the markets are still offering us lower prices than the emergency facility,” he said.
Yields on 10-year Portuguese government bonds fell 15 basis points to 5.23 per cent on Thursday morning. The country will issue a further €600m in government bonds on June 15.
Mr Teixeira dos Santos said the government was monitoring the financing of Portuguese banks in a situation where interbank lending markets had “dried up”.
He said the government was willing to provide banks with state guarantees to access liquidity support from the European Central Bank. But Portuguese banks had so far not required them.
Portugal’s parliament on Wednesday approved an additional package of austerity measures including a 5 per cent pay cut for politicians, tax increases and public spending cuts.
Mr Teixeira dos Santos said the government would implement further measures if they proved necessary, but he was confident of meeting the 2010 budget target of reducing the deficit to 7.3 per of GDP this year.
He said tax revenue in the first four months of 2010 was 3.5 times higher than the assumptions implicit in the budget, while the increase in public spending was 50 per cent lower.
He said there were indications that strong economic growth in the first quarter had continued in subsequent months.
First-quarter GDP growth was up 1.1 per cent on the previous three months, the biggest gain in the EU. Portuguese exports were up 18.4 per cent in the three months to April.
Mr Teixeira dos Santos said the government was considering revising labour legislation to make it more flexible. It also wanted to see wages in both the private and public sectors increase at a slower pace than productivity gains.
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