Portugal to Say May 4 If It Follows Ireland in Exit

Portugal will announce in two days whether it will follow Ireland in exiting its three-year bailout program without seeking a precautionary credit line.

The government will discuss how Portugal will leave its aid program at a cabinet meeting on May 4 at 6 p.m. and Prime Minister Pedro Passos Coelho will make an announcement on that day, Vice Premier Paulo Portas said today. The government had already said an announcement would be made before a May 5 meeting of euro-region finance ministers.

Portugal last month held its first bond auction since requesting the bailout in 2011 as it regains access to debt markets with the end of the 78 billion-euro ($108 billion) rescue program from the European Union and International Monetary Fund approaching on May 17. Ireland in December became the first nation to exit a rescue program since the euro area’s debt crisis began in 2009.

“All of us in cabinet will share with many Portuguese the sense of mission accomplished,” Portas said. “When the aid program ends, Portugal cannot return to financial irresponsibility.”

Coelho yesterday said that the path that has been taken allows the Portuguese today to walk “by our own means” from now on. The prime minister also said on April 23 that one of the disadvantages of opting for a precautionary credit line is that it has never been negotiated before and no one can say what conditions would be associated with it.

Collateral Demand

Finland’s demand for safeguards on loans to fellow euro members is stopping Portugal from taking a credit line to help exit its bailout, Olli Rehn, who is currently on election-campaign leave from his job as European Commissioner for Economic and Monetary Affairs, said on April 9. “Finland’s collateral demand had a negative impact on Ireland’s consideration and is having an impact on Portugal’s consideration,” Rehn said in Helsinki.

Portugal will probably opt to exit the bailout program without a precautionary credit line, analysts at Citigroup Inc., Commerzbank AG and Danske Bank A/S said in research notes on April 23. Citigroup, Commerzbank and Danske Bank are all primary dealers in Portuguese debt. They are among the financial institutions granted that status by the debt agency to place bonds in auctions and then ensure there’s enough liquidity in the secondary market.

Portugal’s borrowing costs have dropped since the beginning of 2012, helped by signs of economic recovery and a market rally spurred by the European Central Bank. The 10-year bond yield dropped to as low as 3.606 percent today. The nation’s borrowing costs are at the lowest since 2006 and down from a high of more than 18 percent set in January 2012. Portugal pays interest of about 3 percent on its bailout loans.

Obtain Funding

The country has already started to obtain funding for 2015 and built up a cash buffer before the end of the aid program. Debt agency IGCP said in an April 2 presentation that it ended 2013 with what it calls a treasury cash position of 15.3 billion euros. It raised 6.25 billion euros selling bonds through banks so far this year.

Portugal’s securities are rated below investment grade by Standard & Poor’s, Fitch Ratings and Moody’s Investors Service. Ireland, which no longer has a junk rating, entered its 67.5 billion-euro bailout in November 2010, six months before Portugal got its package.

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