Portugal should seek a precautionary credit line from the European Union to help ensure successful access to debt markets after its bailout program ends in May, former Finance Minister Fernando Teixeira dos Santos said.
“The so-called precautionary program would be more advisable,” Teixeira dos Santos said in an interview on Feb. 21. It would show Portugal has the support of its EU partners and result in lower borrowing costs, said the former minister, whose government in April 2011 requested aid from the EU and the International Monetary Fund.
Two months later, Teixeira dos Santos’s Socialist-backed government lost an election to the center-right Social Democrats, and he returned to his previous job as an economics university professor in Oporto, northern Portugal. Maria Luis Albuquerque, the current finance minister, has said Portugal will only decide in April whether to seek a credit line or follow Ireland in going for a clean bailout exit. Portugal’s 78 billion-euro ($107 billion) financial aid program ends May 17.
Describing the moment his government decided to seek financial aid as “surely not one of my best days,” Teixeira dos Santos said the move on April 6, 2011, was nevertheless necessary as the interest rates Portugal was being asked to pay had become unbearable.
“The alarm bells rang as the situation worsened exponentially and access to financing became more difficult,” said Teixeira dos Santos. It was the first time in 28 years that the southern European country had been forced to seek a bailout.
Portugal still faces a handful of risks in its attempt to return to debt markets, said Teixeira dos Santos, even after the country’s 10-year bond yields have dropped to below 5 percent after reaching more than 18 percent in January 2012. The IMF said in a report on Feb. 19 that Portugal’s high debt burden and large refinancing needs makes it susceptible to “abrupt changes in market sentiment.”
Portugal’s debt is forecast to have peaked below 129.5 percent of gross domestic product in 2013 while corporate debt was above 155 percent at the end of 2012, according to the IMF.
Portugal’s debt position along with the “high” interest rates the country still has to pay to finance itself in the market may raise doubts about its ability to repay its debt on its own, said Teixeira dos Santos.
“If such doubts arise the country will again be on the knife’s edge, and from one moment to the other we can be surprised by a change of attitude in the markets,” said Teixeira dos Santos. That’s why it’s a “risky move to go for clean exit.”
Portugal’s gross debt in 2013 was estimated at 211 billion euros and gross domestic product projected at about 165 billion euros, the National Statistics Institute said in September. That debt peaked last year, when the government narrowed its budget deficit to about 5 percent of GDP from 6.4 percent in 2012.
Teixeira dos Santos, 62, said he’s not interested in another stint in government. “I’m just fine as I am now,” he said. “I think I’ve already made my contribution.”