Vtor Gaspar

Adjusting in the euro area:

the case of Portugal
Trinity College Dublin
April 11
th
, 2013
2008 1999 2009 2010 2011 2015
Crisis and its aftermath: a chronology
2

Crisis as simple
demand-driven
contraction


Expansionary Fiscal
Policy
Alignment of
Sovereign and
Banking Risks
Further
Postponement
Leading to Near-
bankruptcy
An error of
judgment

Strong compliance
with the Program
7/12 reviews
Over 80% of
financing received
(1)


Progress in all
dimensions of the
Program
Fiscal Consolidation
Deleveraging and
Financial Stability
Structural
Transformation
ECONOMIC ADJUSTMENT PROGRAM

Macroeconomic
stability and
sustainable
growth

Balanced
budget and
reduction of
public debt
Financial
Stability
Open and
Competitive
Economy

AFTER CRISIS

Accumulation of
macroeconomic
imbalances
and structural
bottlenecks

Unsustainable
Public Finances
Over-
indebtedness
Anemic Economic
Growth
Low Productivity


Building up
imbalances
2012 2013 2014
Constitutional
Court ruling on
2013 Budget Law
Return of the
sovereign to the
financial markets
Focus on
investment and
credit recovery to
relaunch
employment and
economic growth
Maintain political
and social support
Complete public
expenditure review
(1) Up to the 7
th
disbursement, following the 6
th
Review
Achievements Challenges
POSTPONING THE ADJUSTMENT
Outline
1. Slump and Bust.
2. The Economic Adjustment Program.
3. Macroeconomic developments.
4. Fiscal Consolidation.
5. Deleveraging and Financial Stability.
6. Structural Transformation.
7. Conclusion.





3
1. Slump and Bust
2008-2010

An Error of Judgment in
the conduct of policy:

1. Alignment of
systemic risk in the
Portuguese economy
2. Postponement of
adjustment through
expansionary fiscal
policy
3. Heightened
vulnerability in the
context of the EA
sovereign debt crisis
1995-2008

Build-up of imbalances
in the Portuguese
economy:


The Portuguese
economy is in serious
trouble: Productivity
growth is anemic.
Growth is very low. The
budget deficit is large.
The current account
deficit is very large.
Blanchard, 2007

Portugals imbalances exposed in the context of
the economic and financial crisis
Blanchard, O. (2007). Adjustment with the Euro: the Difficult Case of Portugal, Portuguese Economic Journal.

5
Sudden-Stop
materialized
in early
2011
I II
Budget deficits over 3% of GDP since the
mid-1990s
Upward trend of General Government
gross debt, surpassing 60% of GDP in 2004
Increase of Private debt since the mid-
1990s, reaching 240% of GDP in 2008
Current account deficits of ~10% for a
decade
Deteriorating competitiveness
Increase in unit labor costs
Increase in the real effective exchange
rate
1995-2008: Build-up of imbalances in the
Portuguese economy
6
For too long,
Portugal preserved
fiscal rules and
procedures
developed during
decades of
monetary
instability and
limited capital
mobility.
Such fiscal rules
and procedures
were completely
inadequate in the
context of the
euro area.
Portugal did not adjust to the specific requirements of the Monetary Union
Anemic
economic
growth and low
productivity
Unsustainable
public finances
Over-
indebtedness
I
Anemic economic growth
Source: AMECO, April 2013
7
Gross Domestic Product
1998 = 100
I
100
110
120
130
140
150
160
170
180
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(P)
2014
(P)
Ireland
Spain
Germany
Greece
Portugal
Italy
Excessive private debt accumulation
Source: Eurostat, April 2013
8
Private debt, non consolidated, annual data
Percentage of GDP
I
Portuguese
households and non
financial
corporations did not
have direct access to
foreign financing.

The banking system
acted as an
intermediary.

This is the origin of
the heightened
systemic risk in
Portugal, associated
to an increase in the
loan-todeposit
ratio.
0
50
100
150
200
250
300
350
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Ireland
Portugal
Spain
Italy
Germany
Greece
2008-2010: An Error of Judgment in the conduct
of policy
9
II
Considering the
events of
2008-2010 as
a simple
demand-driven
business-cycle
fluctuation was
an error of
judgment that
proved to be
expensive in
the context of
the euro area
sovereign debt
crisis.
Expansionary fiscal policy
Heightened
vulnerability in the
context of the EA
sovereign debt crisis
Alignment of
systemic risk in the
Portuguese economy
Postponement of
adjustment through
expansionary fiscal
policy
Sovereign provides guarantees to the
banking sector
Increase in bank credit to the public
sector
Effectiveness in the short run, but
significant long run costs in terms of
lost activity and unemployment
Denial about to the need to adjust
Presentation of 2010 State Budget as
a defining moment
Increase of sovereign risk throughout
2010, despite ECB support
Increase in bank credit to General Government
Source: Bank of Portugal
10
Domestic Credit
Year-on-year change, %
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
Domestic Credit (Households and Non-Financial Corporations) Total Domestic Credit (non-monetary sector)
Domestic credit to
General Government
II
Public sector expansion offset private adjustment
Source: National Statistics Institute, April 2013
11
Net lending /net borrowing by institutional sector
As percentage of GDP
II
-12
-10
-8
-6
-4
-2
0
2
4
6
8
2007 2008 2009 2010 2011 (P)
General Government Non Financial Private Sector Financial Corporations
-12
-10
-8
-6
-4
-2
0
2
4
6
8
2007 2008 2009 2010 2011 (P)
Total Economy
Successive upward revisions of 2009-2010 Budget
deficits
12
II
2009 2010 2009 2010
GOP 2005-2009 Jul-05 -1,6 64,5
PEC 2005-2009 Dec-05 -1,5 66,2
PEC 2006-2010 Dec-06 -1,5 -0,4 65,2 62,2
ROPO 2007 Apr-07 -1,5 -0,4 62,6 59,7
EC autumn Oct-07 -2,4 64,5
PEC 2007-2011 Dec-07 -1,5 -0,4 62,5 59,7
EC spring Apr-08 -2,6 64,3
ROPO 2008 May-08 -1,5 -0,7 62,5 60,5
OE 2009 Oct-08 -2,2 64,4
EC autumn Oct-08 -2,8 -3,3 65,2 66,6
PEC 2008-2011 Jan-09 -3,9 -2,9 69,7 70,5
EC spring Apr-09 -6,5 -6,7 75,4 81,5
ROPO 2009 May-09 -5,9 74,6
EC autumn Oct-09 -8,0 -8,0 77,4 84,6
OE 2010 Jan-10 -9,3 -8,3 76,6 85,4
"PEC I" PEC 2010-2013 Mar-10 -9,3 -8,3 77,2 86,0
ROPO 2010 Jul-10 -9,3 -7,3 76,3 83,5
"PEC III" OE 2011 Oct-10 -9,3 -7,3 76,1 82,1
"PEC IV" PEC 2011-2014 Mar-11 -7,3 82,4
IMF Staff Report Jun-11 -10,1 -9,1 83,0 93,0
INE/BdP Final Data Mar-13 -10,2 -9,8 83,7 94,0
General Government
Budget Balance
(% GDP)
General Government
Gross Debt
(% GDP)
General election (27-Sep-09)
Note: The document known as "PEC II" corresponds to Law no. 12-A/2012 of 30 June.
The impact of the 2010 State Budget in financial
markets
Source: Bloomberg, February 2013 (generic yield indices, BID values)
13
10-year Government Bond yields, October 2008 October 2010
Spread against Germany in percentage points
0
1
2
3
4
5
O
c
t
-
0
8
N
o
v
-
0
8
D
e
c
-
0
8
J
a
n
-
0
9
F
e
b
-
0
9
M
a
r
-
0
9
A
p
r
-
0
9
M
a
y
-
0
9
J
u
n
-
0
9
J
u
l
-
0
9
A
u
g
-
0
9
S
e
p
-
0
9
O
c
t
-
0
9
N
o
v
-
0
9
D
e
c
-
0
9
J
a
n
-
1
0
F
e
b
-
1
0
M
a
r
-
1
0
A
p
r
-
1
0
M
a
y
-
1
0
J
u
n
-
1
0
J
u
l
-
1
0
A
u
g
-
1
0
S
e
p
-
1
0
O
c
t
-
1
0
Ireland Italy Portugal Spain
(p.p.) January 26
th
, 2010:
Presentation of 2010
State Budget
May 7
th
, 2010:
Eve of final decision
on Greek Program
II
The Error of Judgment led to a Sudden Stop in
international private financing
Source: Bloomberg
14
10-year Government bond yields
Spread against Germany in basis points
0
200
400
600
800
1000
1200
Austria Italy
Belgium Spain
France Ireland
Netherlands Portugal
Finland Greece
The effects of
expansionary
fiscal policy on
public finance
sustainability were
revealed in the
context of the
sovereign debt
crisis in the euro
area, exposing
Portugals
structural
imbalances.
In April 2011,
Portugals
request for
financial
assistance
became
inevitable to
avoid
bankruptcy.
2. The Economic Adjustment
Program
A balanced Program to cope with the major
challenges of the Portuguese economy
16
The Economic
Adjustment Program
protects
Government
financing from
market pressures,
allowing an orderly
adjustment of
imbalances and time
to build up
confidence and
credibility.
Fiscal consolidation
Putting fiscal policy on a
sustainable path
Structural transformation
Implementing structural reforms to
contribute to potential growth
Deleveraging and financial stability
Reduction of debt and financing
needs of the economy
The Economic
Adjustment Program
3. Macroeconomic developments
Strong increase in exports
Source: AMECO, March 2013
18
Exports-to-GDP ratio
Percentage
41
40
39
36
31
28
32 32
31
28 28
28 28
28
29
27
2003 2002 2001 2000 1999
+7%
+1%
2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
Annual average growth rate
Projections
Reversal in internal demand contraction
Source: National Statistics Institute, March 2013
19
Contributions to GDP growth (year-on-year)
Percentage points
-3,1
-2,3
-3,1
-3,5
-3,8
-4,8
-7,4
-8,7
-7,2
-10,7
1,0
3,9
5,6
4,9
7,7
-12
-10
-8
-6
-4
-2
0
2
4
6
8
2012 Q4
Internal Demand
GDP
2012 Q3 2012 Q2 2012 Q1 2011 Q4
Net External Demand
Weaker growth prospects for the Euro Area
Source: European Central Bank, International Monetary Fund, European Commission and Ministry of Finance
20
Economic forecasts for 2013
Volume, percentage change on preceding year
-0,3
-0,2
0,1
0,2
0,7
1,0
Sep 2012
ECB
-0,4 to 1,4
Jul 2012
IMF
Jun 2012
Eurosystem
0,0 to 2,0
Apr 2012
EC
Mar 2013
ECB
-0,9 to -0,1
Feb 2013
EC
Jan 2013
IMF
Dec 2012
Eurosystem
-0,9 to 0,3
Oct 2012
EC
Oct 2012
IMF
-2,3
-1,0 -1,0
0,2
-0,4
2,8 2,8
3,2
Mar 2013,
7th Review
Nov 2012,
6th Review
Sep 2012,
5th Review
Jun 2012,
4th Review
GDP PT External demand PT (goods)
E
u
r
o

a
r
e
a

P
o
r
t
u
g
a
l

GDP EA
led to a downward revision of economic
prospects
Source: Ministry of Finance, National Statistics Institute, March 2013
21
2012 2013 2014 2012 2013 2014
GDP and expenditure components
(volume, percentage change on preceding year)
Private Consumption -5,6 -3,5 0,1 -5,9 -2,2 0,2
Public Consumption -4,4 -2,6 -2,0 -3,5 -3,5 -1,5
GFCF -14,5 -7,6 2,5 -14,1 -4,2 2,7
Exports 3,3 0,8 4,4 4,3 3,6 5,5
Imports -6,9 -3,9 3,1 -6,6 -1,4 3,3
GDP -3,2 -2,3 0,6 -3,0 -1,0 1,2
Contributions to GDP growth
(percentage points)
Domestic Demand -7,0 -4,1 0,0 -7,1 -2,9 0,3
Net Exports 3,9 1,8 0,6 4,1 1,9 0,9
Deflators
GDP -0,1 1,7 1,3 0,3 1,3 0,9
HICP 2,8 0,7 1,0 2,8 0,9 1,1
Labor Market
Unemployment Rate (%) 15,7 18,2 18,5 15,5 16,4 15,9
Employment Growth (%) -4,2 -3,9 -0,5 -4,3 -1,7 0,4
7th review:
March 2013
5th review:
September 2012
Economic
forecasts in
a context of
risks and
uncertainty
regarding
the
adjustment
process
Rebalancing internal demand and supply
22
-2,3
-2,9
0,0
2,4
1,8
1,5
0,6
-1,6
1,9
-3,2
-8
-6
-4
-2
0
2
4
6
2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Contributions to GDP growth
Percentage points
Projections for
2013-2016:

Do not
consider
impacts from
structural
reforms

Assume
moderate
export market
share gains

GDP Growth Net exports Internal demand
Source: National Statistics Institute (2007-2012) and Ministry of Finance (2013-2016), April 2013

Adjustment has come at a high social cost
Source: International Monetary Fund, Ministry of Finance
23
Real GDP growth projections
2011 = 100
Unemployment rate projections
Percentage
Rise in the unemployment rate above original forecasts reflects:
Lower employment given firms need to reduce costs (financing difficulties and uncertainty)
Transfer of resources from the non-tradable sector to the tradable sector given the ongoing
rebalancing of the Portuguese economy
90
95
100
105
110
2011 2012 2013 2014 2015 2016
May 2011 7th review
0
5
10
15
20
2011 2012 2013 2014 2015 2016
May 2011 7th review
in Portugal and Ireland.
Source: Ireland IMF, 9
th
Review (April 2013); Portugal - Ministry of Finance, 7
th
Review (March 2013)
24
Note: 2013-2015 - projections
Real GDP growth
2007 = 100
Unemployment rate
Percentage
90
95
100
105
110
2007 2008 2009 2010 2011 2012 2013 2014 2015
Portugal Ireland
0
2
4
6
8
10
12
14
16
18
20
2007 2008 2009 2010 2011 2012 2013 2014 2015
Portugal Ireland
4. Fiscal consolidation
The end-2012 fiscal deficit target was met ().
Source: Ministry of Finance, European Commission, March 2013
26
2012 General Government Deficit (*)
As percentage of GDP (national accounts)
0,9
0,7
ANA
Concession
2012 Deficit
according
to the
Programs
definition
4,9
0,6
2012 Deficit
estimate
(EDP)
6,6

One-off
statistical
reclassifications
2012 Deficit
excluding
one-off
effects
6,0
Other one-
off effects
(*) After the 7
th
review, the 2012 general government deficit was revised downwards in the context of the EUs Excessive Deficit
Procedure. The effects on the trajectories of the general government deficit, the structural balances and the general government gross
debt will be considered in the next complete forecast presented by the Ministry of Finance.
(**) Statement by the EC, ECB and IMF on the 7th Review Mission to Portugal: http://europa.eu/rapid/press-release_MEMO-13-226_en.htm
Statement by the
EC, ECB and IMF on
the Seventh Review
Mission to Portugal
(
**
)
:

The end-2012
fiscal deficit target
was met ().
Adjustment of the fiscal path
Source: Ministry of Finance, March 2013
27
(P) Projection; not a Program target
Deficit targets
As percentage of GDP (national accounts basis)
2013
5,5%
2015(P)
2,5%
1,9%
2014
4,0%
2012
5th review targets (Sep 2012)
7th review targets (Mar 2013)
4,5%
3,0%
2,3%
1,9%
Programs initial targets (May 2011)
4,5%
2,5%
5,0%
Balancing act
between:

Economic and
social costs of
the adjustment

Inevitability of
fiscal
consolidation:
Portugals
financing needs
and the
repercussions on
public debt
sustainability
Structural adjustment will continue
(*) After the 7
th
review, the 2012 general government deficit was revised downwards in the context of the EUs Excessive Deficit
Procedure. The effects on the trajectories of the general government deficit, the structural balances and the general government gross
debt will be considered in the next complete forecast presented by the Ministry of Finance.
Source: Ministry of Finance, March 2013

28
Structural balances (*)
As percentage of GDP
-8,8
-6,6
-4,3
-3,3
-2,1
-1,6
-1,1
-6,0
-2,5
0,0
1,1
2,1
2,7
3,2
-12
-10
-8
-6
-4
-2
0
2
4
2010 2011 2012 2013 2014 2015 2016
Saldo estrutural Saldo primrio estrutural
2/3 of the structural adjustment
is already concluded
Structural balance Structural primary balance
Fiscal adjustments progressing in tandem
Source: Ireland IMF, 9
th
Review (April 2013); Portugal - Ministry of Finance, 7
th
Review (March 2013)
29
Note: 2013-2015 - projections
-10
-8
-6
-4
-2
0
2
4
2010 2011 2012 2013 2014 2015
Portugal Ireland
-10
-8
-6
-4
-2
0
2
4
2010 2011 2012 2013 2014 2015
Portugal Ireland
Structural balance
Percentage of GDP
Structural primary balance
Percentage of GDP
Public debt peaking at 124% in 2014
Source: Ministry of Finance, March 2013

30
General Government Gross Debt (*)
As percentage of GDP
93,5%
108,1%
120,0%
122,2% 122,3%
119,6%
115,8%
93,5%
108,0%
123,0%
122,4%
123,7%
122,5%
119,4%
90%
95%
100%
105%
110%
115%
120%
125%
2010 2011 2012 2013 2014 2015 2016
6th review
7th review
(*) After the 7
th
review, the 2012 general government deficit was revised downwards in the context of the EUs Excessive Deficit
Procedure. The effects on the trajectories of the general government deficit, the structural balances and the general government gross
debt will be considered in the next complete forecast presented by the Ministry of Finance.
Public debt: close to Ireland, lower than Italy
Source: GR - IMF,Jan2013; IT IMF,Oct2012; PT - Ministry of Finance,7
th
review,Mar2013; IE IMF,Apr2013; ES IMF,Mar2013;
31
Public Debt
Percentage of GDP
60
80
100
120
140
160
180
2010 2011 2012 2013(P) 2014(P) 2015(P) 2016(P)
Greece
Italy
Portugal
Ireland
Spain
5. Deleveraging and
financial stability
Portugal as a net lender for the first time in two
decades
Source: Bank of Portugal, March 2013
33
(*) 1953 is the earliest observation available.
-16
-12
-8
-4
0
4
Current and capital account
(
*
)
Percentage of GDP
1952 1960 1970 1980 1990 2000 2010
2012 1993
Fast correction of external imbalances
Source: Ministry of Finance, March 2013
34
Balance of Payments, key balances
Percentage of GDP
-7,7
-4,4
-0,5
1,7
2,5
3,1
3,6
-9,0
-5,6
0,4
1,4
1,9
2,1
2,4
-10,4
-7,2
-1,9
-0,3
0,4
0,7
1,0
-12
-10
-8
-6
-4
-2
0
2
4
6
2010 2011 2012 2013 2014 2015 2016
External Balance of Goods and Services
Net Lending (+) / Net Borrowing (-)
Current Account Balance
Increasingly stable banking system
Source: Bank of Portugal, March 2013
35
2010
11,5
11,2
9,6
8,7
8,1
7,8
10
Q4 (*) Q2 Q4 Q2 Q4 Q2
120
Eight
Largest
Banks
National
Banking
System
Q4 (*)
128
119
Q2
136
126
Q4
140
128
Q2
150
137
Q4
158
147
Q2
167
157
2011 2012 2010 2011 2012
Banking system close to 120%.
This target was excluded from the
Memorandum after the 7th Review.
The 10% Core Tier 1 Ratio was reached
ahead of schedule.
(*) Preliminary values for 2012Q4
Loans-to-deposits ratio
Percentage
Core Tier 1 Ratio, Portuguese Banking System
Percentage
Interest rates on bank loans still high (1/2)
Source: ECB, March 2013

36
Interest rates on MFI Loans (1y) to Non-Financial Corporations | New Businesses only
Percentage
0
1
2
3
4
5
6
7
8
J
a
n
-
0
7
A
b
r
-
0
7
J
u
l
-
0
7
O
u
t
-
0
7
J
a
n
-
0
8
A
b
r
-
0
8
J
u
l
-
0
8
O
u
t
-
0
8
J
a
n
-
0
9
A
b
r
-
0
9
J
u
l
-
0
9
O
u
t
-
0
9
J
a
n
-
1
0
A
b
r
-
1
0
J
u
l
-
1
0
O
u
t
-
1
0
J
a
n
-
1
1
A
b
r
-
1
1
J
u
l
-
1
1
O
u
t
-
1
1
J
a
n
-
1
2
A
b
r
-
1
2
J
u
l
-
1
2
O
u
t
-
1
2
J
a
n
-
1
3
Greece
Portugal
Italy
Spain
Ireland
Germany
France
0
1
2
3
4
5
6
7
8
J
a
n
-
0
7
A
b
r
-
0
7
J
u
l
-
0
7
O
u
t
-
0
7
J
a
n
-
0
8
A
b
r
-
0
8
J
u
l
-
0
8
O
u
t
-
0
8
J
a
n
-
0
9
A
b
r
-
0
9
J
u
l
-
0
9
O
u
t
-
0
9
J
a
n
-
1
0
A
b
r
-
1
0
J
u
l
-
1
0
O
u
t
-
1
0
J
a
n
-
1
1
A
b
r
-
1
1
J
u
l
-
1
1
O
u
t
-
1
1
J
a
n
-
1
2
A
b
r
-
1
2
J
u
l
-
1
2
O
u
t
-
1
2
J
a
n
-
1
3
Greece
Portugal
Italy
Spain
Ireland
Germany
France
Interest rates on bank loans still high (2/2)
Source: ECB, March 2013

37
Interest rates on MFI Loans (1y) to Non-Financial Corporations | Outstanding amount
Percentage
0
1
2
3
4
5
6
7
8
J
a
n
-
0
7
A
b
r
-
0
7
J
u
l
-
0
7
O
u
t
-
0
7
J
a
n
-
0
8
A
b
r
-
0
8
J
u
l
-
0
8
O
u
t
-
0
8
J
a
n
-
0
9
A
b
r
-
0
9
J
u
l
-
0
9
O
u
t
-
0
9
J
a
n
-
1
0
A
b
r
-
1
0
J
u
l
-
1
0
O
u
t
-
1
0
J
a
n
-
1
1
A
b
r
-
1
1
J
u
l
-
1
1
O
u
t
-
1
1
J
a
n
-
1
2
A
b
r
-
1
2
J
u
l
-
1
2
O
u
t
-
1
2
J
a
n
-
1
3
Greece
Portugal
Italy
Spain
Ireland
Germany
France
0
1
2
3
4
5
6
7
8
J
a
n
-
0
7
A
b
r
-
0
7
J
u
l
-
0
7
O
u
t
-
0
7
J
a
n
-
0
8
A
b
r
-
0
8
J
u
l
-
0
8
O
u
t
-
0
8
J
a
n
-
0
9
A
b
r
-
0
9
J
u
l
-
0
9
O
u
t
-
0
9
J
a
n
-
1
0
A
b
r
-
1
0
J
u
l
-
1
0
O
u
t
-
1
0
J
a
n
-
1
1
A
b
r
-
1
1
J
u
l
-
1
1
O
u
t
-
1
1
J
a
n
-
1
2
A
b
r
-
1
2
J
u
l
-
1
2
O
u
t
-
1
2
J
a
n
-
1
3
Greece
Portugal
Italy
Spain
Ireland
Germany
France
6. Structural transformation
Increase in working days: up to 7 additional (3 vacation + 4 holidays)
Reduction of restrictions to individual dismissal: based on performance
Restrictions on automatic extension of collective agreements

Reduction of rents in network and sheltered sectors
Electricity: -1,4Bn NPV of future payments
Mobile communications networks: reduction of 80% since 2010
Pharmaceuticals: expenditure from 1,5% (in 2010) to 1,25% of GDP (in 2012)
Infrastructure PPP: -1,3Bn NPV of future payments
Liberalization of the energy and gas market

Adoption of a law on arbitration to facilitate out-of-court settlement
Approval of new Code of Civil Procedure, submitted to Parliament
Adoption of a new Judiciary Map, submitted to Parliament
Reduction of the backlogged cases

Operational balance in 2012 achieved for the State-Owned Enterprises sector as a whole
New insolvency code and corporate recovery
New Competition Law harmonized with the EU legal competition framework
Liberalization of regulated professions access and exercise
Approval of the Public Professional Associations Framework Law
Accomplishment of over two thirds of the implementation of the Services Directive
Reduction of firms administrative burden: licensing requirements and other legal formalities
Adoption of the new Urban Lease, Renovation works and Urban Rehabilitation Laws
Implemented measures
Labor
Market
Product
Market
Judicial
system
Structural reforms advancing at good pace
Business
environm
ent
NON-EXHAUSTIVE
39
Main structural reforms discussed during the 7th
Review
40
Keys facts
Reform of
severance pay
Framework
Law for
Regulators
Reform of the
Corporate
Income Tax
Importance of maintaining social consensus: social partners were consulted
Agreement on new limits for severance payments, to align with EU average:
New permanent contracts: 12 days per year of service
For the remaining contracts, 18 days per year of service in the first 3 years
of the contract and 12 days for subsequent years
Cap of 12 months will remain in place


Approval of a framework law against best international practices
Reinforcement of the regulatory environment to protect the public interest
and to promote market efficiency
Ensuring the administrative, financial and management autonomy of regulators
Strengthening its organizational, functional and technical independence


Discussion of the reform of the CIT: create a modern, stable and competitive
tax according to international standards
Aspects considered: i) reviewing the rate structure; ii) redefining the tax base;
iii) reducing the costs of context; and iv) restructuring the international tax
policy
Presentation of a draft law by end-June, to be sent for public consultation and
discussion
Privatization program as a flagship in the
structural transformation agenda
Source: Ministry of Finance, January 2013

41
(1) Concession and privatization
(2) Expected completion date by Caixa Geral de Depsitos
Electricity
distribution
Energy retail
and production
Mail
distribution
Waste
management
Air
infrastructure
Railway
logistics
Seguros
Insurance
Seguros
Energy retail
and production
Air transport
(1)
(2)
2013
Urban Transportation (Lisbon, Porto)
Maritime Ports
Decisive
concessions
Privatizations results exceeding expectations in
revenue obtained
42
(1) List of five final bidders only
(2) Considering the closing price of the day before the Council of Ministers decision
(3) Equity Value (1200M) + Concession Fee (1200M) + Pre-Existing Debt (680M)
Bidders
Revenue
Financing
Investment
% Equity
Selected bidders
40%

State Grid: China
Oman Oil Company:
Oman






EUR 593M: premium of
33.6% per share (
2
)

EUR 1000M through
Chinese banks

Strategic plan for
national economy
development (e.g. I&D
center construction)
21,35%

China Three
Gorges: China
E.ON: Germany
Eletrobras: Brazil
Cemig: Brazil




EUR 2693M: premium of
53.6% per share (
2
)

EUR 2000M through
Chinese banks

EUR 2000M until 2015 in
wind farms
100%

Vinci: France
Atlantic Consortium: Germany, Australia
Blink Consortium: Colombia, Portugal,
Spain, Netherlands
EAMA Consortium: Argentina, Portugal,
Spain, Brazil
Consortium Zurich Airport: Switzerland,
Brazil, USA (
1
)

EUR 3080M (
3
)


-


Pre-existing investment plan for ANA to
be fully respected
ANA as the center of Vinci Groups
airport activity
7. Conclusion
0
5
10
15
20
25
J
a
n
-
1
0
F
e
b
-
1
0
M
a
r
-
1
0
A
p
r
-
1
0
M
a
y
-
1
0
J
u
n
-
1
0
J
u
l
-
1
0
A
u
g
-
1
0
S
e
p
-
1
0
O
c
t
-
1
0
N
o
v
-
1
0
D
e
c
-
1
0
J
a
n
-
1
1
F
e
b
-
1
1
M
a
r
-
1
1
A
p
r
-
1
1
M
a
y
-
1
1
J
u
n
-
1
1
J
u
l
-
1
1
A
u
g
-
1
1
S
e
p
-
1
1
O
c
t
-
1
1
N
o
v
-
1
1
D
e
c
-
1
1
J
a
n
-
1
2
F
e
b
-
1
2
M
a
r
-
1
2
A
p
r
-
1
2
M
a
y
-
1
2
J
u
n
-
1
2
J
u
l
-
1
2
A
u
g
-
1
2
S
e
p
-
1
2
O
c
t
-
1
2
N
o
v
-
1
2
D
e
c
-
1
2
J
a
n
-
1
3
F
e
b
-
1
3
M
a
r
-
1
3
A
p
r
-
1
3
2y 5y 10y
Treasury Bond Yields at 2010 levels
Source: Bloomberg (last observation: April 9
th
, 2013)

44
Treasury Bonds yields
Percentage
9/10 May 2010:
Extraordinary
ECOFIN meeting:
approval of the support
package for Greece
5 May 2011:
Formal Announcement of
Portuguese Program
23 Jan 2013:
Return to
bond markets
6 Sep 2012:
Announcement
of ECBs OMT
Compliance with all the quantitative targets of the
Program
Source: Ministry of Finance, March 2013
45
(*) Targets according to the definitions set in the Program
All the quarterly targets for the budget deficit on a cash basis and for the public debt ceiling were also met
7,3
8,4
2012 2011
168
177
2011 2012
4,4
4,9
2011 2012
Budget deficit

National accounts basis
(
*
)
Cash basis
(
*
)
Public debt
(
*
)

Percentage of GDP Billion euros
Billion euros
176
Limits of the Program
180
10,3
9,0
5,9
5,0
and the strong compliance with the Program
Source: European Commission, March 2013
46
Status of measures required in each review
Percentage
7% 8%
11%
9%
14%
12%
76%
16%
2nd Review
61%
31%
1st Review
72%
28%
5th Review
21%
16%
4th Review
76%
17%
3rd Review
73%
91%
7th Review
60%
27%
6th Review
64%
Observed/
partly observed
Ongoing
Not observed/
delayed
(*) Preliminary values for 7
th
Review
(*)
are key to the European support in regaining
market access.
Source: IGCP (last update: January 23
rd
, 2013); Eurogroup
47
* Beyond 2028 -- 2032: 5,20 bn. 2037: 6,97 bn. 2038: 4,40 bn. 2042: 1,50 bn. 2050: 0,01bn
** Eurogroup Statement on PT and IR: http://www.eurozone.europa.eu/newsroom/news/2013/03/eg-statement-portugal-ireland-16-03-13/
Substantial increase of refinancing needs
in 2014-2016 and 2021
Favorable
developments in
Portugal and
Ireland:

Significant
progress in
economic
adjustment

Strong
compliance with
the Program

Ongoing
strategy to
regain market
access
The Eurogroup ministers
are determined to
support Ireland's and
Portugal's efforts to
regain full market access
and successfully exit their
well-performing
programmes [ and ]
have agreed to an
adjustment of the
maturities of the EFSF
loans to both countries in
order to smooth the debt
redemption profiles of
those countries.
(Mar 16
th
, 2013**)


Technical details to be
further discussed
Redemption profile *
Billion euros
0
3
6
9
12
15
18
21
24
EFSF
EFSM
IMF
Other medium and
long term debt
Balanced budget,
reduction of public debt
and financial stability
Improving perspectives for
the EA: OMT, Banking Union,
Agreement on assistance to
Greece and Spain
Towards sustainable growth and job creation
48
Confidence and Credibility
Creating an open and
competitive economy:

Positive impact from
ongoing structural
reforms
Portugal as an attractive
location for investment
and foreign and
domestic capital
Solid
foundations
for
economic
recovery
Gradually achieving
better financing conditions:

Main driver in the present
economic context is
financial
Portugal is reversing the
sudden stop