Economy & Trade, Europe, Financial Crisis, Global Governance, Headlines, Latin America & the Caribbean

Portugal Looks to Former Colonies for Lifeline in Crisis

Mario de Queiroz

LISBON, May 24 2010 (IPS) - First Angola, and now Brazil, Portugal’s two largest former colonial possessions, are extending a helping hand to the battered Portuguese economy.

Besieged on all sides by international speculators, who according to local economists are trying to turn this country into “another Greece,” Portugal may find a remedy for its weakness in stronger economic ties with its two “sister nations.”

Last year Angola and Portugal created a bank intended to foment large joint ventures on an equal-share basis, in which the Angolan oil company Sonangol and the state Portuguese bank Caixa Geral de Depósitos (CGD) are partners.

With an initial capital of one billion dollars, the CGD/Sonangol partnership promotes investment in the areas of energy, sanitation, hospitals, cement and construction, transport and telecommunications.

Now that Brazil has increasing clout on the world stage, Portugal sees the South American giant that was its colony for 322 years as offering another opportunity to rescue its precarious economic and financial situation.

This is the general conclusion reached by economic analysts in Portugal after Brazilian President Luiz Inácio Lula da Silva’s brief visit to Lisbon May 19, where he met with Portuguese President Aníbal Cavaco Silva and Prime Minister José Sócrates.

In the space of a few hours, Lula signed agreements in the fields of science, defence, technology and renewable energy, all of them emphasising the economy, in the context of Portugal’s enthusiasm for increasing cooperation with one of the BRIC (Brazil, Russia, India and China) group of countries, which were least affected by the global crisis and today are the drivers of the international economy.

In Sócrates’ view, the affinity between the two countries, which share a common language, is an opportunity to pull Portugal back from the brink of the crisis that is tirelessly predicted by the credit rating agencies that quantify the risk attached to sovereign debt.

Lula’s support for increasing trade between the two countries and for more bilateral projects in Portugal occurs at a time of new opportunities created by increasing Brazilian investments in Portugal, his spokesman Marcelo Baumbach said in Lisbon.

One of these projects, announced in 2008, is to build two factories for the Brazilian aircraft manufacturing company Embraer in Évora, 140 kilometres south of Lisbon, representing an investment of 500 million dollars.

However, the project was delayed for two years while the European Union reached a decision about the compatibility of its competition rules and Brazilian government subsidies for Embraer, a multinational corporation ranking third in the world in the aeronautics industry.

Lula’s visit to Lisbon included the regular annual summit meeting between the two countries. With regard to the economy, the emphasis was on energy production, and a memorandum of understanding on biofuels was signed between Portugal’s oil and natural gas company Galp, and Brazilian state oil giant Petrobras.

Galp and Petrobras will build a biodiesel refinery in Sines, 110 kilometres south of Lisbon, to process palm oil from a plantation in the Brazilian state of Pará.

But the companies are demanding clarification of the conditions of the investment, amounting to over 400 million dollars, before they go ahead, especially of the tax that will be levied on biodiesel and the Portuguese state’s package of financial incentives for the project.

If these issues are clarified, the new plant could become operational in 2015. Petrobras would also use Sines as its logistical platform to export aviation fuel to the European market, and the two oil companies would partner in exploration for oil off Brazil’s Atlantic coast.

According to Lisbon newspaper Diario Económico, the Galp-Petrobras partnership, like that created with Angola’s Sonangol which is a part owner of Galp, is “a prelude for the influx of Brazilian capital” into the Portuguese energy company.

As for economic, financial and trade cooperation, Lula and Sócrates agreed on the need to improve their countries’ trade balance, which is currently unfavourable to Portugal, as well as to diversify trade, promoting the exchange of high-value goods and services.

Lula highlighted the potential of the Brazilian market for Portuguese companies, and the business opportunities provided by the 2014 Football World Cup and the 2016 Olympic Games to be hosted by his country.

Both governments regard it as essential to create a Portugal-Brazil Business Confederation as the embryo for future EU-Latin America and Caribbean dialogue to foment business and employment opportunities and the use of new technologies among the countries and regions.

So far, Sócrates has proposed essentially an austerity plan without a sound economic basis, says the May 21 editorial of Diario Económico, which criticises the prime minister for adopting deficit reduction measures that are only “an accounting solution.”

A sharp tax hike “is a solution that does not address any of the structural problems that affect the competitiveness of Portugal’s economy,” and although budget control “is a necessary condition to ensure economic growth, such control is not sufficient to set the economy in motion,” it says.

The Sócrates administration “must govern, not merely react to the orders given by Germany and France,” the editorial concludes.

All political and economic sectors are apparently glad to accept the opportunity of diversifying economic relations outside of the EU, especially with countries with such close ties to Portugal.