Portugal’s Cavaco Seeks Re-Election as Bailout Looms

Portugal’s Anibal Cavaco Silva looks set to be re-elected president as the country struggles to avoid becoming the third euro-area nation to seek a bailout.

Cavaco Silva, backed by the opposition Social Democratic party, had 56.3 percent and 59 percent backing from voters in two polls published today, more than the 50 percent threshold needed to defeat Manuel Alegre in the Jan. 23 ballot without requiring a run-off. Alegre is supported by the Socialist Party of Prime Minister Jose Socrates.

The election comes as Socrates carries out the deepest budget cuts in three decades to convince investors the nation can narrow its budget gap further and tame its debt. Cavaco Silva, 71, an economist and former premier and finance minister, has backed those efforts that so far have failed to rein in borrowing costs and ease concern the country may follow Greece and Ireland in seeking a European Union-led bailout.

Cavaco’s background, coupled with the economic climate, “plays in his favor by far,” said Antonio Costa Pinto, president of the Portuguese Political Science Association.

The vote comes with the yield on Portugal’s 10-year bond at 6.92 percent today, 375 basis points more than comparable German debt and more than three times the level of a year ago.

Cavaco Silva, who oversaw annual GDP growth of as much as 4 percent during his decade as premier to 1995, has vowed to get Portugal through the tough times. All three of his predecessors in office were re-elected to a second five-year term.

‘Clear Idea’

Portugal needs a president who knows “the course the country must take to overcome these crossroads,” Cavaco Silva, elected in 2006 in the first round of voting, said at a campaign stop on Jan. 19. “I have a very clear idea” for Portugal to “see the light at the end of the tunnel.”

Alegre, his chief opponent and a critic of the austerity measures, has the support of 22 percent to 25 percent of voters, according to the two polls carried out by Portugal’s Catholic University and Eurosondagem. The other candidates are Communist Party-backed Francisco Lopes and independents Defensor Moura, Fernando Nobre and Jose Manuel Coelho, a member of the Madeira Island parliament.

Portugal’s gross domestic product will shrink 1.3 percent in 2011 as consumer demand weakens, the Bank of Portugal said on Jan. 11. The government, which predicts 0.2 percent growth this year, is cutting the wage bill by 5 percent for some public workers, freezing hiring and raising value-added sales tax by 2 percentage points to help narrow a deficit that amounted to 9.3 percent of GDP in 2009, the fourth-biggest in the region after Ireland, Greece and Spain.

Dissolving Parliament

While largely ceremonial, the post of president can influence the political debate by opining on government policies and has the power to dissolve parliament in certain cases, which his predecessor did in 2004.

Portugal is trying to avoid outside support as it seeks to sell about 20 billion euros ($25.8 billion) of bonds this year to finance its deficit and meet redemptions. The country set a target for a budget deficit of 4.6 percent of GDP in 2011, and aims to reach the EU limit of 3 percent in 2012.

The threat of a bailout is straining Socrates’s minority Cabinet, which relies on case-by-case accords with the opposition to get measures through parliament. Pedro Passos Coelho, leader of the Social Democrats, said in an interview with newspaper Diario de Noticias on Jan. 9 that the government will lack the conditions to govern if it seeks aid.

“The dissolution of parliament could happen, though it wouldn’t be driven by Cavaco Silva’s political wish,” Costa Pinto said. It would result more from a worsening of the economic situation and the existence of an alternative, he said.

“I have little appetite to use that atomic bomb,” Cavaco Silva said on Jan. 19, referring to dissolving the legislature, whose term ends in 2013. “The country won’t endure a caretaker government.”

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