Portugal Parties Hold Fourth Day of Talks on Salvation Pact

Portugal’s ruling coalition parties will hold a fourth day of talks today with the main opposition party as they seek an agreement on how to meet the conditions of the country’s bailout program.

“Work has progressed in an intense fashion,” the opposition Socialists and Prime Minister Pedro Passos Coelho’s Social Democratic Party said in matching statements issued separately late yesterday. “Party delegations agreed to continue meetings tomorrow with the presentation of written contributions, with a view to obtain a compromise on national salvation as quickly as possible.”

President Anibal Cavaco Silva, who has the power to dissolve parliament, called on the three parties on July 10 to reach an agreement that will allow Portugal to complete its aid program through June 2014 and set early elections for after that date. He also urged them to ensure debt will be sustainable with a new government after the European Union-led bailout ends.

The Social Democratic delegation is led by Jorge Moreira da Silva, while the Socialist Party’s team is led by Alberto Martins. Pedro Mota Soares heads the delegation from the CDS, the second coalition party. Finance Minister Maria Luis Albuquerque and David Justino, an adviser to the president, also attended the meeting yesterday, the parties said.

Bond Yields

The parties gave themselves one week to reach an accord when talks began on July 14. Portugal held its first bill auction in four weeks today, with borrowing costs rising to an average of 1.72 percent at a sale of 1.2 billion euros ($1.58 billion) of 12-month bills. That’s the highest since an Oct. 17 sale at a rate of 2.1 percent and up from 1.232 percent at the previous auction in May.

Portugal’s 10-year bond yield rose 5 basis points to 7.19 percent as of 12:43 p.m. in London today, up from 6.39 percent on July 1, the day before a rift in the coalition emerged. The yield breached a seven-month high of more than 8 percent on July 3. The country pays 3.2 percent on its bailout loans.

“Portugal has returned to the limelight following the political turmoil over recent weeks,” Ruben Segura-Cayuela, Sphia Salim and Ralf Preusser at Bank of America Merrill Lynch said in a client note yesterday. “With 10-year yields at above 7 percent, and five-year yields flirting with that level, the prospects of regaining full market access by mid-2014 are diminishing substantially.”

Conducive Conditions

Government debt agency IGCP said on July 12 that it plans to resume “regular issuance” of bonds “only if market conditions are conducive.” Financing needs for 2013 are “fully covered” and in the second quarter, the debt agency started to “pre-fund” for borrowing needs in 2014, according to IGCP.

The two coalition parties settled a split over budget policy on July 6 with Coelho offering CDS leader and foreign minister Paulo Portas the post of vice premier and control over economic policy. While ruling out early elections right away, the president didn’t endorse the new coalition agreement between Coelho and the CDS party, calling for a broader pact also involving the Socialists.

The president will hold his weekly meeting with Coelho at 4:30 p.m. today. Silva starts a visit tomorrow to Portugal’s Selvagens islands in the Atlantic Ocean, south-west of the mainland. He returns to Lisbon on the morning of July 19.

No Separate Talks

The Socialists said in another statement last night that they won’t start separate talks with the Left Bloc and the Communist Party after those two groups refused to take part in the discussions with the coalition parties. Both the Left Bloc and the Communists have argued in favor of debt restructuring.

The eighth review of Portugal’s progress on meeting the terms of the 78 billion-euro aid program has been pushed back to the end of August or the start of September due to the political situation, the Finance Ministry said on July 11. The review had been due to start on July 15.

“The country hasn’t stopped,” Parliamentary Affairs Minister Luis Marques Guedes told reporters today in comments broadcast by television channel SIC Noticias. The governing parties are committed to the negotiation process, he said.

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