Portugal finds spending cuts to keep bailout on course

Thu Apr 18, 2013 7:10am EDT
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By Andrei Khalip and Daniel Alvarenga

LISBON (Reuters) - The Portuguese government approved around 800 million euros of new spending cuts on Thursday to put its EU/IMF bailout back on track after some of its austerity plan was thrown out by the constitutional court.

Budget Secretary Luis Sarmento told a news briefing after an all-night cabinet meeting that the latest cuts and some other measures would allow Lisbon to meet this year's budget deficit target of 5.5 percent of gross domestic product and secure the next 2 billion euro tranche of its bailout.

The government will hope its new plan is resistant to fresh court challenges, but the cuts could still stoke public anger which brought hundreds of thousands of people onto the streets last month in opposition to austerity.

Keeping Portugal on course for a full return to the debt markets is an important goal for the euro zone, which has seen its path out of crisis blocked in recent months by a political stalemate in Italy and a financial collapse in Cyprus.

Representatives of Lisbon's lenders from the European Union and International Monetary Fund were in Lisbon this week to help the government identify measures to compensate for the court's ruling and work on wider structural cuts through 2015.

The government had been forced to cut spending further after the court on April 5 overturned a range of austerity measures set out in this year's budget, leaving a hole of around 1.3 billion euros.

The new spending cuts that affect expenditure on public sector workers and other current spending are worth 0.5 percent of gross domestic product.

But the government said it would also use European Union structural funds, further renegotiate public-private partnership contracts and bring forward some structural spending cuts planned for 2014 and 2015 to plug the hole. The cuts will be detailed on Tuesday.   Continued...

A woman watches a demonstration against government policies from her balcony in Lisbon April 17, 2013. REUTERS/Jose Manuel Ribeiro