UPDATE 2-Portugal starts bailout talks; deal seen

* Minister says country needs bailout in June

* Socialist leader says parties need to find compromise
* Inflation shoots up, adds to gloomy outlook

(Adds links to TV interview, other key stories)

By Sergio Goncalves

LISBON, April 12 (Reuters) – Portugal launched talks on
Tuesday with European authorities and the IMF on a bailout the
caretaker government said it needs to pay the country’s dues
from June, as politicians jostled ahead of a general election.

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 that
could reach 80 billion euros ($115.7 billion).

Finance Minister Fernando Teixeira dos Santos acknowledged
Lisbon only had its financing needs covered for this month and
next, but will need the bailout loans from June onwards.

“We are covered until June. But in June we will be needing
the activation of this programme,” Teixeira dos Santos told
Reuters in an interview, saying he expected Europe to approve
the aid programme in mid-May. [ID:nLIS002642]

The country has to pay off 4.9 billion euros in maturing
bonds in June.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ EXCLUSIVE interview with finance minister [ID:nLDE73B1NP] Watch the interview: http://link.reuters.com/tad98r ANALYSIS on prospects of bailout deal [ID:nLDE73A1ON] FACTBOX on Portuguese economy, politics [ID:nLDE73611J] More stories on the debt crisis [ID:nLDE68T0MG] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

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 its credit ratings and a sharp rise in borrowing
rates, making it prohibitively expensive for the country to
continue borrowing in debt markets.

Adding to the problems that drove Portugal to seek aid and
worsening an already gloomy economic outlook, its consumer price
index rose a higher-than-expected 1.6 percent on the month in
March, with the year-on-rise reaching 4 percent.

Austerity measures already implemented and further steps
likely to be imposed as part of the bailout deal are expected to
depress consumer demand and cause a second economic contraction
in just two years in Portugal, with 2012 also looking grim,
analysts say.

At the heart of the country’s woes are a chronic lack of
competitiveness since it adopted the euro more than a decade ago
— which means it cannot help its exporters by devaluing its
currency. Teixeira dos Santos also pointed to the need to use
some of the aid to support its struggling banks.

Newspapers splashed the bailout talks across 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 Portugal will be the only country facing
crisis in 2012,” said daily Diario de Noticias in its headline.
The IMF expects Portugal’s economy to contract 1.5 percent this
year and 0.5 percent in 2012.

The premium investors charge Lisbon to borrow over 10-years
compared to Germany were slightly higher at 546 basis point on
Tuesday from around 539 bps on Monday.

CARETAKER

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

The negotiations now 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. It has said it does not have full powers to agree on
a bailout, meaning the opposition Social Democrats, who lead in
opinion polls, would be involved in 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]

Although the bickering continued on Tuesday, Teixeira dos
Santos called for a commitment by all political forces to the
bailout plan, and a senior Socialist figure played down mutual
attacks as a “clarification of positions” and called for a
compromise.

“It is true that we now have to get into a phase of finding
solutions … the necessity of obtaining at least minimum
consensus between the political parties,” said Francisco Assis,
leader of Socialists in the now dissolved parliament.

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.
(Additional reporting by Andrei Khalip and Shrikesh Laxmidas;
editing by Patrick Graham)

UPDATE 2-Portugal starts bailout talks; deal seen