Adjusting in the euro area: the case of Portugalstatic.publico.pt/docs/Economia/ApresentacaoGasparAbril2013.pdf · Economic forecasts for 2013 Volume, percentage change on preceding

Vítor Gaspar

Adjusting in the euro area:

the case of Portugal

Trinity College Dublin

April 11th, 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 7th disbursement, following the 6th 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

Portugal’s 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-to–deposit

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%

2007

2008

2009

2010

2011

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

Oct-

08

Nov-0

8

Dec-0

8

Jan-0

9

Feb-0

9

Mar-

09

Apr-

09

May-0

9

Jun-0

9

Jul-

09

Aug-0

9

Sep-0

9

Oct-

09

Nov-0

9

Dec-0

9

Jan-1

0

Feb-1

0

Mar-

10

Apr-

10

May-1

0

Jun-1

0

Jul-

10

Aug-1

0

Sep-1

0

Oct-

10

Ireland Italy Portugal Spain

(p.p.) January 26th, 2010: Presentation of 2010

State Budget

May 7th, 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

1200Austria 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

Portugal’s

structural

imbalances.

In April 2011,

Portugal’s

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

414039

36

31

28

323231

28282828282927

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

5,64,9

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

0,10,2

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

2,82,83,2

Mar 2013,

7th Review

Nov 2012,

6th Review

Sep 2012,

5th Review

Jun 2012,

4th Review

GDP PT External demand PT (goods)

Euro

are

a

Port

ugal

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

2,41,8

1,50,6

-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, 9th Review (April 2013); Portugal - Ministry of Finance, 7th 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

Program’s

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 7th review, the 2012 general government deficit was revised downwards in the context of the EU’s 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 (…).”

http://europa.eu/rapid/press-release_MEMO-13-226_en.htm














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%

Program’s initial targets (May 2011)

4,5%

2,5%

5,0%

Balancing act

between:

• Economic and

social costs of

the adjustment

• Inevitability of

fiscal

consolidation:

Portugal’s

financing needs

and the

repercussions on

public debt

sustainability

Structural adjustment will continue




Source: Ministry of Finance, March 2013

28

Structural balances (*)


-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 primário estrutural

2/3 of the structural adjustment

is already concluded

Structural balance Structural primary balance

Fiscal adjustments progressing in tandem

Source: Ireland – IMF, 9th Review (April 2013); Portugal - Ministry of Finance, 7th 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 (*)


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




Public debt: close to Ireland, lower than Italy

Source: GR - IMF,Jan2013; IT – IMF,Oct2012; PT - Ministry of Finance,7th 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


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

11,511,2

9,68,7

8,17,8

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

Jan-0

7

Abr-

07

Jul-

07

Out-

07

Jan-0

8

Abr-

08

Jul-

08

Out-

08

Jan-0

9

Abr-

09

Jul-

09

Out-

09

Jan-1

0

Abr-

10

Jul-

10

Out-

10

Jan-1

1

Abr-

11

Jul-

11

Out-

11

Jan-1

2

Abr-

12

Jul-

12

Out-

12

Jan-1

3

Greece

Portugal

Italy

Spain

Ireland

Germany

France

0

1

2

3

4

5

6

7

8

Jan-0

7

Abr-

07

Jul-

07

Out-

07

Jan-0

8

Abr-

08

Jul-

08

Out-

08

Jan-0

9

Abr-

09

Jul-

09

Out-

09

Jan-1

0

Abr-

10

Jul-

10

Out-

10

Jan-1

1

Abr-

11

Jul-

11

Out-

11

Jan-1

2

Abr-

12

Jul-

12

Out-

12

Jan-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

Jan-0

7

Abr-

07

Jul-

07

Out-

07

Jan-0

8

Abr-

08

Jul-

08

Out-

08

Jan-0

9

Abr-

09

Jul-

09

Out-

09

Jan-1

0

Abr-

10

Jul-

10

Out-

10

Jan-1

1

Abr-

11

Jul-

11

Out-

11

Jan-1

2

Abr-

12

Jul-

12

Out-

12

Jan-1

3

Greece

Portugal

Italy

Spain

Ireland

Germany

France

0

1

2

3

4

5

6

7

8

Jan-0

7

Abr-

07

Jul-

07

Out-

07

Jan-0

8

Abr-

08

Jul-

08

Out-

08

Jan-0

9

Abr-

09

Jul-

09

Out-

09

Jan-1

0

Abr-

10

Jul-

10

Out-

10

Jan-1

1

Abr-

11

Jul-

11

Out-

11

Jan-1

2

Abr-

12

Jul-

12

Out-

12

Jan-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 Depósitos”

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 Group’s

airport activity

7. Conclusion

0

5

10

15

20

25

Jan-1

0

Feb-1

0

Mar-

10

Apr-

10

May-1

0

Jun-1

0

Jul-

10

Aug-1

0

Sep-1

0

Oct-

10

Nov-1

0

Dec-1

0

Jan-1

1

Feb-1

1

Mar-

11

Apr-

11

May-1

1

Jun-1

1

Jul-

11

Aug-1

1

Sep-1

1

Oct-

11

Nov-1

1

Dec-1

1

Jan-1

2

Feb-1

2

Mar-

12

Apr-

12

May-1

2

Jun-1

2

Jul-

12

Aug-1

2

Sep-1

2

Oct-

12

Nov-1

2

Dec-1

2

Jan-1

3

Feb-1

3

Mar-

13

Apr-

13

2y 5y 10y

Treasury Bond Yields at 2010 levels

Source: Bloomberg (last observation: April 9th, 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 ECB’s OMT

Compliance with all the quantitative targets of the

Program…


(*) 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

7,38,4

2012 2011

168 177

2011 2012

4,44,9

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 7th Review

(*)

…are key to the European support in regaining

market access.

Source: IGCP (last update: January 23rd, 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 16th, 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 andlong term debt

http://www.eurozone.europa.eu/newsroom/news/2013/03/eg-statement-portugal-ireland-16-03-13/














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

Documents

Adjusting in the euro area: the case of Portugalstatic.publico.pt/docs/Economia/ApresentacaoGasparAbril2013.pdf · Economic forecasts for 2013 Volume, percentage change on preceding