The Times, 8 February 1978
Portugal: The hint of an end to the suffering?
William Chislett
The new Portuguese government, a coalition between the Socialists and
Christian Democrats, faces a Herculean task in the application of an
economnic programme to bring the country out of its alarming decline.
Four years after the military coup on April 25, 1974, the state of the
country is beginning to show signs of resembling that in 1926 when an
unknown professor of economics, Antonio de Oliveira Salazar, was called
upon to halt the headlong rush to disaster.
There is now a widespread feeling of discontent among all classes and a
feeling that the revolution has made no one better off, least of all
the poor. The new minister for finance and planning, Dr Vitor
Constâncio, who is 34 and was previously vice-governor of the Bank of
Portugal, as a socialist is radically different in outlook from the old
dictator, but he has been cast very much in the role of saviour.
It is impossible not to be gloomy about the country's situation. Only a
fool – Dr Constancio is a level-headed realist – can be optimistic,
given such figures os the following for 1977: inflation at 31 per cent; a
current account deficit in the order of $1,300m; unemployment of about
14 per cent of the 3.2 million labour force; and foreign debt of about
S3,500m. The Portugeuese state budget is $450m in the red.
The country is still suffering and will continue to suffer very much -
some say for at least a generation – from the economic structure created
by Dr Salazar and left behind by his successor Dr Caetano and then
severely battered by the excesses committed in the aftermath of the coup
– with nationalisations, large pay rises, low productivity and
strikes.
Also, the loss of Portugal's former African colonies – a cheap source
of raw material – has had a profound effect. Previously, 25 pcr cent of
imports came from the colonies; now it is only eight per cent and,
whereas 20 per cent of exports went to them. it is now only five per
cent.
Last year was supposed to have seen the beginning of a series of
austerity measures. Government spending rose by about a quarter, but
revenue by only 10 per cent. The gross national product did, however,
rise by six per cent, compared with four per cent in 1976 and a three
per cent drop in the first year after the revolution.
This will be the year of austerity the degree of which will inevitably
affect the unstable political situation. The catalyst for the fall of
the first Soares government was just this point: the International
Monetary Fund was willing to lend Portugal a further $50m if it complied
with the fund's austerity measures, which included a far tighter
monetary policy, higher interest rates, a drastic cut in imports and a
probable devaluation of the escudo.
Devaluation would initially increase the current account deficit by
pushing up the already large imports bill (it rose in volume by 15 per
cent and in value by 49 per cent in 1977) until demand began to slacken
off. Remittances from emigrant workers and tourist revenue no longer
offset, the deficit.
The IMF's conditions were considered an excessive interference in
Portugal's affairs. To Dr Salazar borrowing was unthinkable. He always
balanced his books and put a little away for a rainy day, which by the
time he died amounted to 862 tons of gold.
More than 40 per cent of this has been pledged against foreign loans.
The immediate problem fecing the government is to resume negotiations
with the IMF for the urgently needed $50m – small feed anyway for a coun
try with so big an external debt. The IMF wants Portugal to reduce its
current deficit to $800m, a cut of one third, and this could well be the
most sensitive part of the negotiations.
The government hopes to be able to persuade the IMF to accept a lesser
cut. To do this will anyway entail a drastic reduction of imports and a
fall in the growth rate to four per cent at a time when it should be
running at at least seven per cent. It is hard to envisage how imports
can be cut down – Portugal does not produce nearly enough to meet its
needs.
More inmportant, on the outcome of the talks with the IMF hinges the
country's chances of obtaining a loan of $750m from a consortium of 13
countries, mainly the United States and West Germany.
It remains to be seen whether the fund will radically change its
conditions. Whatever they are, they will involve a stiff tightening of
the belt of the man in the street, whose standard of living has already
gone down since the revolution. It is estimated that real wages dropped
by 18 per cent last year.
The average monthly take home pay is about $150 (about $76), far below
that of Portugal's European counterparts, and there is widespread
poverty.
Food prices have soared. For example, items like chick peas and beef
went up by 73 and 67 per cent respectively between June 1976 and June
1977.
On the brighter side, politically it is likely that the entry of the
Christian Democrats (CDS) into the new government will restore some
international confidence in Portugal. "We will be talking to the IMF as a
majority government and not as a minority one as before", Senhor Amaro
da Costa, the CDS vice-president, told me.
The agreement between the CDS and the Socialists speaks of the
important role of private enterprise almost for the first time since the
coup.
The government's own programme, including a likely 20 per cent wage
ceiling (it was 15 per cent in 1977) in return for a highly optimistic
attempt to reduce inflation to the same amount, has to be negotiated
with the Communists, who control the trade unions. It is estimated that
85 per cent of union members are also Communist party members.
Dr Soares will now look for his equivalent of the economic pact which
his Spanish counter part Señor Adolfo Suarez has negotiated. The outcome
of the failure to tackle the problems is all too easy to see and
Portugal, to a far greater extent than Spain, is at the mercy of the
international community and the way it wants to see the country go.
Tags: antonio de oliveira salazar, salazar, vitor constâncio, finances, inflation, unemployment, foreign debt, state budget, colonies, exports, imports, austerity, mário soares, international monetary fund, IMF, monetary policy, standard of living, carnation revolution, christian democrats, CDS, amaro da costa, socialist party, PS, coalition, adolfo suarez, portuguese communist party, PCP
Source: The Times (London), 2 February 1978
