The IMF, led by the former corporate lawyer Christine Lagarde, has warned that certain reforms have an immediate negative impact on the economy
The impact of structural reforms in the country, especially in the short-term, depends on the state the economy is in and the level of company indebtedness, says the International Monetary Fund (IMF) in its latest doom-laden study.
The IMF says governments should make reforms, as if they are not working they can easily be changed in small countries like Portugal.
A review of Portugal’s economy before and after the Troika loans shows the country in many respects in a worse state than before with overall borrowing actually higher than in 2011.
In 2011 the then Finance Minister, Teixeira dos Santos, admitted that Portugal needed external financial assistance as the State was close to insolvency and the public debt ratio was 111.1%.
Five years later, the budget deficit remains above that expected by all the European rules with borrowing at over 120% of GDP and unemployment exceeding 10%. Borrowings peaked at 130.2% in 2014.
José Sócrates addressed the country in April 2011 to confirm what it already knew and signed the bailout agreement for €78 billion to be paid out over the next three years.
In of May 2011 there was an increase in VAT rates and rates. The TGV project was shelved as were any more ruinous PPP deals but government spending has bever been cut to the levels required by Portugal's lenders.
The Economic and Financial Assistance Programme was in force until June 2014 but far from Portugal being off the radar, Lagarde and the European Commission remain deeply sceptical that Portugal has made any serious effort to right decades of waste as it lacks the will and the skills to control and develop its economy while cutting public spending.
Staff from the IMF and the European Commission will continue to visit Lisbon, twice a year, until the mid 2020 as Portugal remains under the Excessive Deficit Procedure.
This should keep Portugal within the Stability and Growth programme, although a decision from Brussels will only be known after the Spring economic forecast.
At the end of last year, Portugal’s budget deficit turned out to be 4.4%, due mainly to Banif and the taxpayer funded bailout which wasted further billions and for which no one is responsible.
The unemployment rate has remained virtually unchanged. In 2011 it was 12.7% of the working population and in 2015 the figure was 12.4%.
Lagarde and the European Commission are justified in keeping a close watch on Portugal’s performance as neither found credible the Carlos Costa 2016 State Budget, approved with a large proviso that it is likely to fail and say a Plan B is needed.
This alternative plan should things go wrong has yet to be delivered as Costa remains self-assured that there will be no need for one and that his popularist policies will work by giving families more to spend after years of cut-backs.
Lagarde and the other lenders forming the Troika are keeping their eye on Portugal, rightly so it seems.
