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Credit management company says Portugal should seek IMF help

By CHRIS GRAEME [email protected]

The chief economist for a leading credit management company believes that Portugal needs to seek help from the International Monetary Fund now.

Yves Zlotowski, who works for Coface, thinks the country needs early elections and a new austerity package.

“I don’t think it would be such a bad thing if Portugal sought help from the IMF”, he told the business daily Diário Economico on Monday.

The economist was speaking on the same day that the company reconfirmed Portugal’s company credit rating at A3 with a “negative outlook”.

The rating reflects the risk of Portuguese companies not meeting their borrowing payments or defaulting on their overall company-to-company payment obligations rather than Portugal’s risk of loan default as a whole.

He did, however, say that there were tensions within the Portuguese financial system because Portuguese banks were too exposed to Portugal’s sovereign debt.

Because of these tensions there was a tendency for banks to reduce their lending to companies and for international financial institutions to slash their lending to Portuguese banks at reasonable interest rates.

United States ratings agency Moody’s said on Monday that Portuguese national banks have to cut their dependency on the European Central Bank.

It had been one of the main reasons that the ratings agencies had cut Portugal’s rating and Moody’s once again warned that Portuguese banks needed to invert that tendency.

In December the European Central Bank granted Portuguese banks liquidity worth €40.9 billion – the second highest amount ceded to national banks in history and an amount which far exceeds the €11.8 billion lent in 2009.

According to Moody’s Credit Outlook, published this week, the ratings agency warns that Portugal cannot expect the ECB “to continue bailing out national banks indefinitely”.

“The Bank of Portugal (BdP) or the ECB could force the banks to reduce their dependence which would have consequences on their receipts and force then to significantly restructure or recapitalise to levels that will inspire confidence in the markets,” it stated in its report.

The Bank of Portugal itself announced it would be cutting its employee salaries by 5.6 per cent while its directors would be taking a 10 per cent salary cut.

“The Board of Directors at the Bank of Portugal has decided to adopt measures with immediate effect in line with the current demands being promoted by the Government in the public administration sector in order to reduce costs and salaries,” stated a communiqué published by the central bank on Monday.    

At the same time, far-left presidential candidate Manuel Alegre, expected to be roundly beaten by Cavaco Silva in the forthcoming elections, said he did not want to see “Portugal on its knees before the IMF”.

“Portugal has the capacity to resolve its problems and honour its commitments without the help if the IMF. It’s time to stand up to it and not give in. Those people who are whispering about the IMF are the same people who are arguing for the disproportionate sacrifices that the IMF would demand,” he said.