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Time Unlikely To Be A Healer For Portugal's Economy

 April 02, 2012 08:32 AM

In a strict sense, the answer to this question has to be no and indeed the most recent turn of events have put Spain back in the spotlight much to the chagrin no doubt of the EU and IMF. Simply put, Portugal is manageable but Spain may turn out not to be. In this one though I will focus on the former. 

Despite comparisons with Greece the critical difference is that Portugal currently is under no obligation to deal with international or national creditors to increasing government debt issuance courtesy of joint aid programme administered by the EU and the IMF

The aid programme which aims to allow Portugal to return to normal market funding in mid 2013 stands at 78 billion euros of which 56 billion euros is provided by the EU and the remaining 26 billion euros by the IMF under the Extended Fund Facility. The recent mission statement concluded at the end of February found little to protest against and it appears the next installment of aid financing for Portugal (14 billion euros in total) will be delievered in April according to plan. 

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So far so good. 

On the time scale currently employed by the market to assess the progress on the eurozone debt crisis mid 2013 is far away in the distant future. In other words, Portugal has time and while I am as certain as an economist can be that the country will need debt restructuring, the time between here and there may still prove crucial. 

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Recent comments by European Central Bank's Vice President Vitor Constancio suggest that while the headlines from the ongoing mission reiterate that progress is ongoing and according to plan the actual ability of Portugal to re-enter the market in 2013 is still not clear cut. 

Quote Bloomberg

The question of whether Portugal can sell debt or needs additional aid from international creditors "only poses itself in September next year," Constancio, who is Portuguese, told reporters in Copenhagen today after a meeting of European finance ministers. "Until then, we have to see if this progress consolidates, allowing the return to the markets without a new program." Meanwhile, "fortunately" market conditions have improved for the country, he said.

Portugal's aid plan assumes the country will regain access to medium and long-term sovereign debt markets in 2013, with the program's last disbursement to be made in June 2014, the International Monetary Fund said in December. European leaders declared then that Greece's situation is "exceptional and unique" and said they don't foresee bondholder losses in other nations that seek assistance.

No country that has been subjected to debt relief/aid programmes by the IMF and EU has so far been able to access debt markets on normal market conditions.

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