IMF calls for €9 billion in cuts, warning second bailout could be “just a wobble away”

The IMF has returned to its ‘dire economic warnings’ – purportedly calling on the Portuguese government to reduce budgets for 2017 and 2018 by €9 billion, and stressing that “the smallest economic shock” could catapult the country towards a second bailout.

Running with the story this morning, Correio da Manhã explains that the IMF’s fourth post-adjustment programme evaluation sees civil service and pensions as the areas where savings could be made.

The IMF delegation to Portugal’s ‘strong man’, Subir Lall, suggests it is “too late” to make inroads on the country’s deficit this year, thus the emphasis will be on programmes in 2017 and “the following years”, adds Público.

Nationally, the news has been greeted as a renewed call for austerity – something the IMF’s own independent evaluation office has already blamed for putting Portugal in the self-defeating path of “a dog chasing its own tail” (click here).

Even more bizarre is that in spite of so much evidence to the contrary, the IMF is reported to consider that Portugal’s adjustment programme was “a success”.

The fact that economists and political pundits have dubbed the nation’s debt unsustainable is not mentioned in any of today’s mainstream news reports.

Nonetheless, the government has responded to the IMF’s evaluation with eight damning pages of text, says CM, in which it “criticises the deliberate strategy to try and reduce labour costs as a way of increasing competitivity”, “ignoring the change in Portugal’s economic profile over the last 20 years”.

The Executive has also criticised the IMF for “ignoring the phenomenon of emigration that was a direct result of the crisis and, probably, a by-product of the adjustment programme”.

Contingency measures, like the cuts made by the last government to public sector pay-levels and pensions, “can only be taken as temporary”, added the text.

Thus whether this latest attempt by one of the troika lenders to try and bring Portugal to heel works or not remains to be seen.

Certainly, if taken in a wider European context, Portugal is among friends who also see the path of austerity as having run its course (click here).