Troika: Portugal on right track

Portugal is meeting its debt reduction targets and could be strong enough to borrow on financial markets by 2013, an international report released on Tuesday said, though it also cautioned that the country would face a deeper recession than previously thought this year.

Auditors from the so-called Troika - which comprises the European Union, the European Central Bank and the International Monetary Fund - said they expected the Portuguese economy to contract by 3.25 percent in 2012, as opposed to previous estimates of 3 percent.

However, Portugal's international creditors also praised the country's efforts to implement economic reforms and austerity measures, saying the government in Lisbon would likely record a deficit of 4.2 percent in 2012, eclipsing the Troika's target of 5.9 percent.

Cautious optimism

Peter Weiss, the second in command of the European Commission's delegation monitoring Portugal, called the 7.5-percent reduction in the government's deficit from one year to the next "enormous" and "very optimistic."

Weiss said he did not expect the country to need further international assistance, based on figures at his disposal, but cautioned that some factors were beyond the Portuguese government's control.

"If this performance continues, there is no reason to believe that this program is not enough," Weiss told reporters in Brussels.

The lenders said in their report that unemployment would prove the main challenge for Prime Minister Pedro Passos Coelho's government, with the jobless rate expected to rise to 15 percent by the end of the year.

"Noticeable progress has been made in the area of structural reforms," the delegation's written report said. "The far-reaching and ambitious reform agenda is back on track in the areas of labor market, health care, housing, judiciary and the insolvency and regulatory framework including competition. Also, privatizations so far have been highly successful."

Last May, Portugal became the third EU country, after Greece and Ireland, to accept emergency loans from its European partners and the IMF. The country was granted assistance potentially worth 78 billion euros in return for pledges to reform its economy and cut borrowing levels.

msh/acb (AFP, Reuters, dapd)