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Thursday, June 20, 2013
Mario de Queiroz
- Worrying economic indicators and gloomy forecasts by the International Monetary Fund (IMF) are rapidly making Portugal a magnet for international speculative capital.
Independent lawmaker Rui Tavares, a historian, writing in the local press, described the international financial actors preparing to attack the fragile Portuguese economy as “gigantic octopus-vampires” that manipulate markets to make money.
The IMF revised its 2010 forecast for Portugal’s economic growth sharply downward on Apr. 20.
Instead of the 0.7 percent growth estimated by the government of socialist Prime Minister José Sócrates, the IMF now predicts 0.3 percent, well below the average of one percent forecast for the 16 countries belonging to the Eurozone.
If the Portuguese economy goes into recession, it will lose at least 90,000 jobs this year and the unemployment rate will reach 11 percent, according to the IMF, which sees Portugal as the second most likely country to cause disruption in the Eurozone, after Greece, which formally requested an enormous financial aid package from the EU and the IMF last week.
A recession would be particularly serious for huge numbers of people in the lower social strata in Portugal, which along with Bulgaria and Latvia is one of the EU countries with the highest social and economic inequalities.
In a recent article titled “The next global problem: Portugal”, IMF’s former chief economist Simon Johnson said this country is the next target for financial markets because, like Greece, “it is on the verge of bankruptcy.”
Portuguese Finance Minister Fernando Teixeira dos Santos called Johnson’s article “nonsense.” “In a world of free expression, unfounded nonsense can be written,” that reveals “ignorance about the differences between the various countries in the Eurozone,” he said.
But the minister’s indignant response was ineffectual. Eurostat, the EU’s official statistics agency, confirmed on Apr. 15 the generalised suspicions about the health of the Portuguese economy and that of four other members of the 27-country block.
Portugal had the fifth largest budget deficit among EU countries in 2009, at 9.4 percent of GDP. At the top of the list was Ireland, with 14.3 percent of GDP, followed by Greece with 13.6, the United Kingdom with 11.5 and Spain with 11.2 percent, according to Eurostat.
Teixeira dos Santos said that Portugal and Greece are not in the same boat, “in terms of neither their deficits nor their debt levels, which right from the start make Portugal’s status substantially different from the situation in Greece.”
Portugal’s statistics agencies are “more robust, credible and trustworthy” than those of Greece, and its banking system “has shown itself to be highly sound,” he added.
Economy professor Mario Gómez told IPS that “the cost of belonging to a rich man’s club has been the absence of mechanisms for correcting and adjusting to loss of competitiveness.
“With a fixed exchange rate, introduced when the euro was adopted in place of the escudo (Portugal’s former currency), aggravated by the rise in value of the euro against the dollar, competitiveness must be maintained or increased by productivity growth.”
This, however, “has not happened in Portugal since 2000,” and the economic situation “has been worsening, requiring continuous and growing external financing,” which has forced the adoption of a financial plan that relies on debt bond issues simply to meet interest payments.
In this context, he said, “uptake of the debt bond issue is a matter of speculation, as markets rationally anticipate the state’s inability to pay the debt, increasing the risk premium to five percent, second only to Greece’s seven percent.
“The Portuguese government has proposed a plan that is facing criticism from the opposition and trade unions, and is questioned by foreign analysts, pushing Portugal’s credit rating down,” Gómez said.
Portugal will have to “pay more interest on its debt, in a climate of economic stagnation, frozen salaries and rising unemployment,” presenting “a grim picture in the midst of a political power play” in which the conservative opposition is calling for more spending cuts and further privatisation of public assets.
“The poor will have to wait, while the rich still have no alternative to Sócrates’ Socialist Party,” the economist concluded.
Tavares maintains that “it is not worth denying the situation, as Minister Teixeira dos Santos did. I have bad news: the dish for the next dinner of the giant vampire-octopus is a small country called Portugal.”
The signs are all around, “in the international financial press that is now showing interest in our little problems, sometimes with good intentions, sometimes with bad, who identify us as the next cause of pan-European problems, with effects like the (recently erupted Icelandic) Eyjafjallajokull volcano on the economy.”
The EU, “after much hesitation, finally promised Greece serious money, 39.8 billion dollars, but it was not capable of guaranteeing from the outset something that would have cost nothing: political cohesion. And seeing that European countries lack solidarity for each other, the giant octopus is heading for its next victim.”