May 28 (Bloomberg) -- Portugal’s government will approve a 1 billion-euro ($1.3 billion) credit line to municipalities to help them repay short-term debt to suppliers, said Miguel Relvas, the country’s minister for parliamentary affairs.
“The credit line, with a total value of 1 billion euros, aims to inject money into the local economy,” Relvas said at a news conference in Lisbon today after meeting the president of the country’s association of municipalities, Fernando Ruas.
Ruas said in an interview on March 21 that Portugal’s municipalities hold as much as 9 billion euros of debt and may face default unless the government provides aid soon.
Portugal is also encouraging local administrations to merge as part of a plan to save money and comply with the terms of a 78 billion-euro bailout from the European Union and the International Monetary Fund.
In return for the credit line, local governments have promised to cut back on spending, control their short-term debt and pay suppliers on time or risk facing sanctions from the central government, Relvas said.
“I want to underline that local governments will not stay on the sidelines of the adjustment effort imposed on all the Portuguese people,” Relvas said.
The southern European country’s municipalities face similar issues to those of Spain, whose regions and municipalities have been shut out of capital markets. Spain’s government is offering them loans to help pay suppliers.
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