WASHINGTON (MNI) – The following is the text of a statement Monday
by the European Commission, European Central Bank, and International
Monetary Fund on the sixth review of Portugal’s financial aid program:

Staff teams from the European Commission (EC), European Central
Bank (ECB), and International Monetary Fund (IMF) visited Lisbon during
November 12-19 for the sixth quarterly review of Portugal’s economic
program.

The program is broadly on track, despite stronger headwinds. With
much already accomplished, strong commitment and perseverance need to be
maintained as the program enters its second half. External and fiscal
adjustment continues to advance, adequate capital and liquidity buffers
have reduced financial stability risks, and structural reforms are
proceeding apace. At the same time, rising unemployment, lower incomes,
and uncertainty are weighing on confidence, while the recession in the
euro area is beginning to bear on export dynamics. Given financing
constraints and high debts, the program adequately balances the need to
adjust, against the unavoidable costs of adjustment for economic
activity and jobs.

While downside risks to growth are significant, the programs
macroeconomic framework remains appropriate. Recent data have been
mixed, although they continue to support the program scenario. After a 3
percent decline in 2012, real GDP in 2013 is projected to decline by 1
percent but should gradually return to positive quarterly growth rates
during the year, with annual GDP in 2014 expected to grow by 0.8
percent. The external current account deficit is projected to improve
further to below 1 percent of GDP in 2013.

Fiscal consolidation efforts are in line with the revised deficit
targets for 2012 and 2013. Revenue collection has been somewhat weaker
than envisaged in recent months, but this was offset by tight spending
execution. The government remains committed to achieving the deficit
target of 5 percent of GDP in 2012 and a deficit of 4.5 percent of GDP
in 2013. Going forward, the mission supports the authorities’ intention
to rebalance the adjustment effort toward permanent reductions in
expenditure. An expenditure review is underway. Results will be
discussed during the seventh review, including measures to address
potential implementation risks in 2013.

Policy efforts to improve financing conditions for viable firms
have continued. While deleveraging in the banking system is proceeding
on pace, access to credit at reasonable conditions remains difficult for
parts of the economy, particularly for exporting companies and small and
medium-sized enterprises (SMEs). Measures to ensure adequate funding
include initiatives to improve information-sharing on SMEs and
facilitate their access to capital markets.

Fostering a more competitive economy remains imperative. The
privatization strategy is on track, and state-owned enterprises as a
whole have brought operational costs in line with revenues, but more
progress is needed in several enterprises to reduce their deficits and
debt burdens. The renegotiation of private-public-partnership contracts
is proceeding, while cost reductions for ports will ensure a more
competitive framework in this part of the transport infrastructure that
is critical for exports. In addition to strengthening active labor
market policies, the authorities are committed to reducing severance pay
to promote labor market flexibility and job creation.

A comprehensive reform of the corporate income tax has been
launched to foster investment and competitiveness while remaining
compatible with European Union rules. Judiciary reforms in the areas of
civil procedures and court management, which aim at unclogging the court
system, are being finalized.

Overall, the review confirms that solid progress is being made. A
broad political and social consensus continues to be an important asset
for the success of the program. Following a successful bond exchange,
the authorities have intensified their work on preparing the expected
return to market financing during 2013. Provided the authorities
persevere with strict program implementation, euro area member states
have declared they stand ready to support Portugal until full market
access is regained.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: MI$$$$,M$X$$$,MGX$$$,M$P$$$,M$$CR$]