European Union finance ministers approved Monday a €78 billion ($110 billion-USD) bailout for Portugal with the European Union and the International Monetary Fund. Portugal is the third EU country, after Greece and Ireland, receiving financial aid from its European partners.
The Eurozone countries will provide two-thirds of the aid fund at 5.5 to 6 percent interest rate, and the International Monetary Fund with contribute with one-third at 3.25 percent interest rate. The plan tags €12 billion for Portugal’s banks.
The bailout terms call for the implementation of further austerity measures amounting to 3.4 percent of Portugal’s GDP. They include spending reductions for 2012 and 2013, privatization plans, a freeze in public workers pay, changes in workers’ pension policies and further tax increases.
Portugal needed to have the bailout package in place in order to repay about €5.0 billion ($7.2 billion-USD) in debt by June 15.
Figures from Lisbon based National Statistics Institute (INE) revealed Friday that Portugal has entered into a double–dip recession, with the economy contracting 0.7 percent in the first quarter of 2011.
Portuguese acting Finance Minister Fernando Teixeira dos Santos had predicted a contraction of 2 percent in both 2011 and 2012, twice as much as previously forecast.
The IMF has projected that unemployment in Portugal would reach 11.9 percent this year and 12.4 percent in 2012, as compared to 11 percent in 2010. The current unemployment rate in Portugal is 11.2 with an estimated 610,000 out of work. Portugal’s population is estimated at 10,760, 305 (2011).
Inflation in Portugal rose for the first time in six years to 4.1 percent in April from 4 percent in March according to the country’s National Statistics Institute (INE). Fuel, water, electricity and food prices were mainly responsible for the rise.
On June 5, Portugal holds parliamentary elections that will shape its future for years to come. Recent poll figures show Socialist caretaker Prime Minister José Socrates still leading for the June 5th elections. The Socialists had 36 percent of the votes, the center-right Social-Democratic Party (PSD) 34 percent, and the right-wing Democratic and Social Center (CDS) 10 percent.
Socrates had resigned last in March, after his minority government austerity measures were rejected in Parliament by the parties in opposition. José Socrates was under pressure from the opposition to request the EU bailout which he refused and then requested after having resigned.
Portuguese opposition parties — the Social Democrats (PSD) and the Communist Party (PC) — had rejected Socialist government’s austerity measures meant at avoiding the EU bailout, triggering the current political crisis that lead to the resignation of Prime Minister José Socrates, the dissolution of Parliament and the call for the June 5th early elections.