IMF Sees Portugal Market Return in 2013 With No Bondholder Cuts
Portugal should be able to return to bond markets next year and private creditors aren’t expected to take writedowns on the nation’s debt, the head of the International Monetary Fund’s aid mission to the country said.
“Our baseline expectation remains that Portugal will be able to access markets late next year,” Abebe Aemro Selassie, who is taking over supervision of the IMF portion of the international bailout plan for Portugal, said yesterday in an interview with Bloomberg television. “This will not be easy.”
The government is cutting spending and raising taxes to meet terms of the 78 billion-euro ($103 billion) aid plan arranged by the IMF and the European Union. Portugal is determined to address the bailout guidelines and return to bond markets in 2013, according to Prime Minister Pedro Passos Coelho.
“I’m sure in a few months when the results of the current year are stronger in the eyes of the analysts, Portugal will become a more favorable case of success,” Passos Coelho said in a separate interview with Bloomberg television yesterday.
Portugal’s borrowing costs have increased since the bailout was requested last year. The difference in yield that investors demand to hold Portugal’s 10-year bonds instead of German bunds was at 12.02 percentage points yesterday, up from 5.11 when former Socialist Prime Minister Jose Socrates sought the rescue on April 6. On June 6, the day after Passos Coelho defeated Socrates to take power, it was 6.70 percentage points.
The IMF’s Selassie said the government “needs to establish more credibility” and “reassure investors.”
“There is a bit of a dissonance between the elevated levels of spreads right now and what has been happening on the ground,” Selassie said in the interview.
Developments in Greece may be having a bearing on increased spreads, Selassie said, although “the two countries have very different debt profiles.” The IMF is expecting Portugal’s debt to gross domestic product to “stabilize around 115 percent in 2013 and “begin a gradual decline after that,” he said.
Even after private sector involvement -- known as PSI -- Greek debt to GDP doesn’t come down to 120 percent until 2020, he said. “The countries have very, very different debt profiles so we have no expectation of PSI in Portugal,” according to the IMF official.
Selassie said Portugal is addressing its imbalances and that the government is undertaking structural reforms.
The current account deficit has improved more than “we had projected but we still expect a more gradual improvement of the current account deficit” and it may be another three years before the deficit narrows “significantly.”
Selassie said Portugal’s challenges include addressing a lack of competiveness as a means to enhance growth.
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