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Debt inspectors review Portugal’s reforms progress

September 16, 2013

LISBON, Portugal (AP) — Portugal wants its bailout creditors to soften the country’s 2014 deficit target, a senior official said Monday, as foreign inspectors began their latest review of whether the country is complying with the debt-cutting demands of its rescue program.

Portugal promised to reduce its debt and overhaul its economy in return for the 78 billion-euro ($104 billion) bailout in 2011, when countries sharing the euro currency, including Portugal, became mired in a financial crisis.

But the coalition government has, like bailed-out Greece, struggled to meet the financial targets stipulated in the agreement amid a deep recession. Consequently, the bailout providers — the country’s fellow euro members, the European Central Bank and the International Monetary Fund — have in the past two years eased the deficit target, though they have expressed reluctance at doing so again.

Deputy Prime Minister Paulo Portas told reporters the government has been fighting since April to change the 2014 target, currently set at 4 percent of gross domestic product, though he didn’t say what the new target should be. Unconfirmed reports said the government wants it set at 4.5 percent. The government says such a step would allow it to shift emphasis to financing growth measures.

Public hostility to the austerity program has grown amid tax hikes, cuts to services and a 16.5 percent jobless rate. The government almost collapsed in July as the coalition partners fell out over the scale and scope of austerity.

The creditors are keen for Portugal to abide by the bailout program, arguing the country needs to show investors it can get back on a sustainable financial footing so it can return to borrowing on international markets in June next year when the program ends.

The government has run into legal impediments in its efforts to cut public sector pay and pensions, with the Constitutional Court rejecting cuts three times over the past year. Those and other difficulties have helped push the yield on Portuguese 10-year bonds — an indicator of market confidence — above 7 percent in recent days. That interest rate is regarded as unaffordable.

The inspectors are expected to produce a report on Portugal’s progress and economic outlook next month.

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