IMF Assessing Portugal’s Results of the Quarterly Bailout Review

Published on 23rd June, 2013

The board of the International Monetary Fund (IMF) will be discussing the results of assessments conducted by its own officials in coordination with the officials from the European Commission and the European Central Bank in connection with Portugal’s progress related to the euro-zone bailout. The scheduled assessment is part of the tri-bodies’ seventh quarterly review in this regard,

The approval of the favorable assessment made by the officials by the board can result in the subsequent approval of the eight tranche disbursements of the loan guarantees. The expected disbursement is approximately €2 billion.

The country’s finance minister, Vitor Gaspar, presented the results of the seventh quarterly review last 15 March 2013. The insufficiency of time for the development of medium-term reform plans and financial strategy by the Portuguese national government lead to the non-approval of the review by the board.

International officials also required further details regarding into the replacement savings, said requirement of which was only satisfactorily complied with last 13 May 2013. Said action was the result of the ruling made by Portugal’s Constitutional Court, which struck down several items of the 2013 state budget.

The meeting of the euro-zone finance ministers of Eurogroup and of the European Union finance ministers’ Ecofin meeting for the discussion of the seventh quarterly review results is scheduled on 20-21 June 2013.

On April 2013, the European Union and the IMF also granted an extra seven years for Portugal to pay back its emergency bailout loan. Said loan was originally granted to the country in 2011.

The extension is essential to the success of the bailout plan. Basically, Portugal’s national government is provided with more time, more opportunity to recover from the European financial crisis even after the bailout loans has run out. Its financial system can hopefully recover before 2014, the year when the country’s bailout money is expected to run out.

Said repayment extension is supposedly backed by all 27 European Union members, many of which are situated outside of the Eurozone.

Portugal has been praised by the ministers led by Eurogroup President and Dutch Finance Minister, Jeroen Dijsselbloem, on its successful implementation of the bailout program. However, the country is encouraged to maintain its momentum of reform despite the current economic conditions.

Analysts also assert that the extension of the repayment period was a reward, sort of, for good behavior as well as an acknowledgement that an austerity–first approach is not always the be-all and end-all of the European financial crisis.

It should be noted that, when Portugal received its first bailout loan of €78 billion in 2011, the national government pledged various measure to lessen public spending. But, as previously stated, the Constitutional Court ruled that many of the 2013 public spending measures were unlawful.

Regardless of the impact of the ruling, the Portuguese government is under the obligation to overhaul the national economy. Experts say that the combination of consistent fiscal consolidation and structural reforms for growth enhancement purposes is the key to re-establishing investor confidence. In the process, Portugal can put the fiscal crisis behind and move onward and forward to a better future.

Published in: Money / News and Updates