Portugal starts bailout talks; deal seen

LISBON, April 12 (Reuters) – Portugal starts negotiations on
Tuesday with European authorities and the IMF on a bailout that
could reach 80 billion euros to salvage its indebted economy as
politicians jostle ahead of a general election campaign.

Officials from the European Commission, European Central
Bank and IMF will pore over Portugal’s public accounts to decide
on extra austerity measures they deem necessary for Lisbon to
reduce its budget deficit in return for a three-year loan.

Portugal’s crisis entered a critical phase when its minority
Socialist government resigned last month after parliament
rejected its latest austerity plan. That led to multiple
downgrades of Portugal’s creditworthiness and a sharp rise in
borrowing rates, making it prohibitively expensive for the
country to continue borrowing in debt markets.

Newspapers splashed the bailout talks in their Tuesday
editions, with many drawing comparisons with the last time the
country was under IMF tutelage in the early 1980s, which brought
harsh austerity.

“IMF forecasts that Portugal will be the only country facing
crisis in 2012,” said daily Diario de Noticias in its headline.

The country’s bond spreads were flat on Tuesday.

Economists had seen a bailout for Portugal, following on
from Greece and Ireland, as almost inevitable. But the
government only caved in after it failed to get its latest
measures through parliament after resisting foreign aid for

Now, the negotiations will be complicated by the fact that a
snap general election is scheduled for June 5 and all parties
want to avoid blame for the bailout.

The Socialist government will rule in a caretaker capacity
until then and has said it does not have full powers to agree on
a bailout, meaning the opposition Social Democrats may also need
to be involved in parts of the talks. The policy negotiations of
the bailout will start next Monday.

Analysts say they think politicians will ultimately come
together and agree basic terms of a bailout. [ID:nLDE73A1ON]

Portugal’s parliament has been dissolved ahead of the
election and may have to hold a special session to agree to
measures included in the rescue.

Pressure on Portugal to go for a bailout rose as the country
has to pay off just over 4 billion euros in maturing bonds next
week and a further 4.9 billion euros in June.

The rescue package is likely to set the same budget deficit
targets the government committed to previously — a cut to 4.6
percent of gross domestic product this year, 3 percent in 2012
and 2 percent in 2013. Last year’s deficit of 8.6 percent
overshot a target of 7.3 percent.

The main political parties have already said they are
committed to those targets, while bailout-linked adjustments
this year will probably entail harsher spending cuts than in the
original government’s plan, analysts say.

(Reporting by Axel Bugge; Editing by John Stonestreet)

Portugal starts bailout talks; deal seen