Portugal’s Albuquerque to Replace Gaspar as Finance Chief

Portugal said Secretary of State for Treasury Maria Luis Albuquerque will replace Vitor Gaspar as Finance Minister two years after the government took office.

President Anibal Cavaco Silva accepted the proposal from Prime Minister Pedro Passos Coelho about Gaspar’s resignation and the appointment of Albuquerque, the presidency said on its website. Albuquerque, 45, will be sworn in at 5 p.m. in Lisbon today. Gaspar asked to resign, the prime minister’s office said in an e-mail.

“It’s my firm conviction that my departure will contribute to reinforce the leadership and cohesion of the government team,” Gaspar wrote in a resignation letter addressed to the prime minister and e-mailed by the Finance Ministry. “The risks and challenges of the near future are enormous. They demand government cohesion.”

Passos Coelho is battling rising joblessness and a deepening recession as he cuts spending and raises taxes to meet the terms of a 78 billion-euro ($102 billion) aid plan from the European Union and the International Monetary Fund. Coelho announced measures on May 3 intended to generate savings of about 4.8 billion euros through 2015 that include reducing the number of state workers.

Deficit Targets

“The timing of the resignation is not great, as the eighth review of the aid program is due to start in two weeks’ time,” Ricardo Santos, an economist at BNP Paribas SA in London, said in a note today.

On March 15, the government announced less ambitious targets for narrowing its budget deficit as it forecast the economy will shrink twice as much as previously estimated this year. It targets a deficit of 5.5 percent of gross domestic product in 2013, 4 percent in 2014 and below the EU’s 3 percent limit in 2015, when it aims for a 2.5 percent gap. Portugal forecasts debt will peak at 123.7 percent of GDP in 2014.

“The repetition of this slippage undermined my credibility as finance minister,” Gaspar said in the letter. Portugal in September had already been given more time to narrow its budget gap after tax revenue missed forecasts.

On Oct. 3 Gaspar announced a plan to implement an “enormous” increase in taxes on wages and other income in 2013 to meet budget deficit targets. He is a former head of the Bureau of European Policy Advisers at the European Commission and a former director-general of research at the European Central Bank.

Second Attempt

Gaspar said he had already asked to be replaced in October after a July 2012 Constitutional Court ruling that blocked certain pay cuts for government workers in 2013, and a decline in public support following proposed changes to social security tax.

Olli Rehn, the EU’s economic and monetary affairs commissioner, said Gaspar showed “unwavering commitment” to Portugal’s adjustment program. “I am confident that Maria Luis Albuquerque will show similar commitment and determination,” Rehn said in an e-mailed statement yesterday.

Albuquerque worked at Portuguese debt agency IGCP before joining the government in 2011. As secretary of state, Albuquerque has overseen the debt agency.

Portugal’s IGCP sold 10-year bonds on May 7 for the first time in more than two years as a decline in interest rates worldwide spurred demand for higher-yielding assets. It had stopped selling bonds until this year after requesting the bailout in April 2011 following a surge in debt levels and borrowing costs.

Bond Yields

The yield on Portugal’s benchmark 10-year bond rose 7 basis points, or 0.07 percentage point, to 6.47 percent at 9:50 a.m. in London. The two-year bond yield declined 2 basis points to 3.42 percent. The difference in yield that investors demand to hold Portugal’s 10-year bonds instead of German bunds has narrowed to 4.77 percentage points from a euro-era record of 16 percentage points in January 2012.

Portugal pays an average interest rate on its aid loans of 3.25 percent, Passos Coelho said on May 10. His coalition government is backed by the Social Democrats and the conservative CDS party, which together have a majority of seats in parliament.

Passos Coelho also named Helder Reis as the new secretary of state for the budget and Joaquim Pais Jorge as the new secretary of state for treasury. The other three secretaries of state at the finance ministry will remain in their posts.

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