The Times 26 March 1985
Special Report
Hopes of recovery and trade shine through the crisis
The Portuguese government presented a new economic recuperation plan on
March 7 after a two-day cabinet meeting. Emergency plans to overcome
the economic crisis have been drawn up by most of the 15 provisional and
constitutional goverments during the past decade, but the crisis
remains.
Portugal is plagued by 30 per cent inflation, 11 per cent unemployment
and a $16.2 billion foreign debt. It is calulated that every Portuguese
citizen now owes about $1,800 on the debt – one and a third times the
annual minimum wage.
Forty per cent of all tax revenues will go to pay the interest on the
national debt. The charges rose 38 per cent last year because of the
rising dollar and have reached $2 billion, or 33.7 per cent of budget
expenditure.
High interest rates and loss of buying power have paralysed the
construction industry. Present restrictions discourage saving because
money received on deposits after taxes is less than inflation.
Portuguese banks show negative balances. Money is escaping the country
illegally or is being converted into tangible assets, further increasing
inflation.
Tax evasion is a big problem. The heaviest tax burden falls on the
salaried workers from whom it is withheld. A plan to tax gains on
savings accounts belonging to Portuguese emigrants will further decrease
deposits.
The emigrants, who are the main source of foreign exchange, can be
expected to keep their money away. Emigrant remittances have already
dropped 6.7 per cent since 1983.
Black marketeering and smuggling are rampant. There are an estimated
one million people in the underground economy. which accounts for
approximately one fourth of the gross domestic product. Cheating on
social security – the number of retired persons compared with active
ones is, two to one – costs the state a large part of its budget.
Investment in manufacturing industries went down 20 per cent in 19
months and 35 per cent in heavy industry. The industries are
decapitalized and heavilv dependent on the nationalized banks for high
interest rate loans to keep afloat.
The government had to sell 49 tons of gold in 1984 to pay off part of a
billion-dollar loan. Emergencv funds had to be voted by parliament to
cover a $216 million gap in the budget caused by uncontiolled spending.
The 1985 budget was presented three months late w'ith a record $2
billion deficit – up 32 per cent from last year.
Many of Portugal's 80 state companics. which employ 210.000 workers,
are losing money. The hardest hit are those involved in steel.
chemicals, shipbuilding and ship repair. A large share of the state
budet goes to support them. The 1985 budget allotted them $300 million.
One of the problems for the state companies is that government agencies
and other state companies owe them vast sums of money. For example, the
state-run electric company is owed £530 million. Some of the state
companies have been forced to borrow money on the iinternational money
market, with the result that the rising charges on their loans are
eating up their profits.
Professor Joseé Veiga Simão, Minister of Industry, has estimated that
it would cost $2.6 billion and take five years to make 18 of the state
companies under his ministry economically viable.
Some effects of the economic crisis are clearly visible. Many schools
have been closed because their dilapidated condition make them safety
and health hazards. Hospitals are old and poorly equipped. The roads are
in disrepair – every morning on the radio an announcer warns drivers
where the worst holes are.
The most dramatic feature of the crisis is the plight of nearly 150,000
workers who have not received their wages – some for as long as two
years. Many state and private companies cannot or will not pay the wages
– claiming they are near bankruptcy and have too many workers who
cannot be fired under present labour laws.
There is real hunger in many areas, especially in the industrial belt
around Lisbon. The government has been forced to allot about $900,000
for emergency aid in the area.
The labour unions are losing their clout because they have been
powerless to help the workers, and their members cannot afford to pay
dues. The head of the Confederation of Portuguese Industry (CIP) says
many workers are "so desperate that they are willing to forget their
back wages and start from scratch" just to keep their jobs.
Real wages have gone down 20 per cent since 1977. They fell 2.1 per
cent in 1982. 5.1 per cent in 1983 and 11.3 per cent in 1984. In January
prices on basic necessities such as food, utilities, transport and fuel
were raised again by an average of 25 per cent, while wage increases
negotiated this year were less than 21 per cent.
Keeping wages down to prevent spending was part of the austerity
programme introduced by Dr Ernâni Lopes, the finance and planning
minister when Prime Minister Mário Soares' Socialist-Social Democrat
coalition government came into power in 1983. It was part of an
agreement with the International Monetary Fund.
The austerity programme was succcssful in reducing the balance of
payments deficit from $3.2 billion to less than $700 million at the end
of 1984.
Everyone agrees, however, that Portugal got an overdose of austerity and that the social effects were too negative.
The government has promised there will be no further reduction in real
wages. Dr Soares has said he believes there will be a turn-around in the
cconomy soon – a 3 per cent growth is promised in the budget and the
balance of payments deficit will be allowed to increase to $1.2 billion
to permit this.
A successful effort is being made to increase exports. The commercial
deficit was decreased by 28.4 per cent in dollar terms during 1984.
Exports covered 66.7 per cent of imports, against 56.5 per cent in
1983.
Britain was Portugal's biggest export market, followed by West Germany. France and the United States.
Textiles and clothing accounted for 28.3 per cent of exports. Shoes
have become a spectacularly growing export. Agriculture and food
products – including port wine and table wines – wood, paper pulp, cork
and machinery were also important. Imports were mostly food, crude oil
and machinery.
Portugal imports 60 per cent of its food and all its oil. Eighty per
cent of its imports are paid for in dollars. The oil crises and the
rising dollar. which the goverment is helpless to control, have caused
havoc with the economy.
In 1972 when the first oil crisis occurred, Portugal had just completed
a giant shipyard for million-ton tankers and a 10-million-ton refinery
and petrochemical complex, all of which are costly white elephants.
Most of Portugal's loans are dollar loans, so the charges have become
exorbitant as the dollar has risen against the escudo from 20 to one in
1972 to 185 to one in 1985.
In spite of its problems, Portugal has kept its image as a good credit
risk, although it will not receive its scheduled $90 million from the
IMF because of failure to settle the problem of the money-losing state
companies.
However, a new $500 million loan has just been negotiated with a group
of foreign banks on favourable terms. The finance ministry has said that
Portugal will not need to sell any more of its gold this year.
Successive governments have set entry into the EEC as their goal, even
though it will rock the country's fragile economy. The Confederation of
Portuguese Industry opposes entry.
Negotiations have been long and tedious, particularly because
Portugal's entry is linked with that of Spain. Talks have stalled over
fishing rights, wine and other products. Dr Soares, who first proposed
entry 10 years ago, said recently that meeting the January 1986 deadline
for entry is not all that important. "We don't believe entry should be
gained at any price", he said.
After a decade in which the state has been the dominating presence.
Portuguese industry appears to be heading for a spell of
reprivatization. For most of the country's impatient business owners. it
is not a moment too soon. They have long been clamouring for a
relaxation of policies which, they say, are a leading factor in the
industrial recession.
However, even for a government like the present one which favours a low
state profile in industry, the liberalizing process is not easy. A
socialist bent in the economy is built into the constitution, and the
nationalization that swept most heavy industry under state control in
1975 as well as the law governing labour are virtually irrevocable until
the constitution is revised.
Besides opening doors to the private banking sector and insurance the
government has shown its receptiveness to the idea of joint ventures
with private partners in some industries and is slowly moving towards
finding solutions for some of the money-losing state companies which
have to be kept afloat with state funds.
It is in the process of closing down two bankrupt state shipping
companies which practically monopolized general cargo, despite the 2,000
or so redundancies this will create, and it is encouraging job-cutting
in the troubled ship repair and construction sector by offering early
retirement and voluntary termination of work contracts.
A new rent law is being put through to stimulate the flagging construction industry.
The problems remain. Although the state-owned tobacco, cement,
cellulose, uranium and beer companies are showing healthy profits, the
grandiose state projects in petrochemicals, fertilizers and shipbuilding
cannot simply be waved away with a magic wand and be expected to become
profitable in a short time.
Private industries complain that they often take second place to the
state sector and that their interests are sacrificed to keep the state
companies going. The Confederation of Portuguese Industry, a
particularly acerbic critic of government policies, has repeatedly
demanded that more incentives be given to the private sector.
Speaking of money that the industry ministry admits has in some cases
been poured fruitlessly into the state companies, Sarsfield Cabral, an
economist, notes: "Nobody can doubt that the waste would not have gone
so far if the companies had been private – the shareholders would have
demanded an account
Martha de la Cal
Tags: economic recuperation plan, inflation, unemployment, tax evasion, foreign debt, buying power, emigrants, remittances, black marketeering, smuggling, heavy industry, nationalised banks, budget deficit, 1985 budget, state companies, José Viega Simão, emergency aid, Confederation of Portuguese Industry, CIP, real wages, Ernâni Lopes, Mário Soares, International Monetary Fund, IMF, balance of payments, austerity, imports, exports, Britain, United Kingdom, UK, West Germany, France, United States, US, United States of America, USA, European Economic Community, EEC, fishing rights, liberalisation, privatisation, Sarsfield Cabral.
Source: The Times (London) 26 March 1985
