The Times, 8 February 1978
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
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
