Portugal’s bailout rate ‘similar to Ireland’

PORTUGAL will pay bailout interest rates similar to those imposed on Greece and Ireland, but the final numbers are yet to be decided.

Portugal will have to pay interest rates between 3.25% and 4.25% for the International Monetary Fund’s portion of its €78 billion bailout, a senior IMF official said.

However, EU approval for Portugal’s bailout could hinge on making bankers and private investors take a hit, and proving that the measures are at least as austere as those imposed on Ireland.

The interest rate has yet to be agreed but the EU’s negotiator, Juergen Kroger, said they wanted to make it as competitive as possible. The decision will be made on May 16/17 when finance ministers meet in Brussels when they may also cut Ireland’s rate by 100 basis points.

The IMF rate is expected to be 3.25% on its €26bn and could be around 4.68% for the EU’s €52bn. While this is much less than the close to 6% rate Ireland is paying, it is for three years, while Ireland’s funding is over seven years with no repayments for the first three.

Portugal’s government collapsed after failing to adopt an austerity package largely the same as what they have now agreed to. The general election is to be held on June 5 and by June 15, the country has to repay a €5bn debt.

However, Finnish politicians, in negotiations to form a government, have threatened to veto the €78bn EU/IMF loan for Portugal when finance ministers meet to approve the deal on Monday week.

While Ireland and the EU ruled out penalising most bondholders, Finish politicians want it included in Portugal’s package.

The three biggest parties following last month’s election are opposed to help for Portugal and two other parties, with less than 25% of parliamentarians, are in favour.

The Social Democrats and the smaller Christian Democrats said that their support depends on “whether or not language can be added to the loan guarantee agreement, assigning a degree of responsibility for the situation to banks and investors”

Outgoing prime minister Mari Kiviniemi says her Centre Party wants to make sure that all of the tough conditions demanded by Finland are included, while the True Finns say they are firmly opposed to helping Portugal because government spending was responsible for the crisis.

Negotiations between the groups were under way in Helsinki yesterday in an effort to reach agreement by May 13 and give authority to outgoing finance minister, Jyrki Katainen, to vote for or against the Portuguese package.

Portuguese finance minister Fernando Teixeira dos Santos said the country is in for two years of recession, with the economy contracting by some 2% each year. The IMF representative, Poul Thomsen, predicts economic recovery should begin in the first half of 2013.

Some believe the measures agreed are not as tough as those of Greece and Ireland. But the emphasis will be on structural reforms, especially making it easier to hire and fire workers, cutting back unemployment benefits and reducing labour costs.

Health spending is to be reduced and VAT increased on some goods, some state assets are to be sold off but the traditional 13th and 14th month of pay for civil servants has survived.