International banks lending less credit to Portugal

Foreign banks are tightening the amount of credit they are prepared to lend to Portugal and Portuguese banks.

The move, generated by fears that Portugal could default on its loans in the short to medium term, is disastrous given that for every €100 Portugal has borrowed throughout the year, 86 has come from abroad.

On November 10, when the Portuguese Government issued its last large issue of sovereign debt for 2010, with 10-year interest rates reaching record levels of over seven per cent, participation by foreign financial investors and banks has shrunk back to 70 per cent.

Even so, Portugal still managed to auction €1.2 billion worth of public debt at seven per cent.

The Minister for the Economy, José Vieira da Silva, believed that the fact that Portugal had managed to sell its debt would help calm the markets and restore relative normality given the difficult situation.

Opinion has been divided over the past week as to whether Portugal will need the intervention of the International Monetary Fund (IMF) as Greece has done and Ireland may have to do.

Capital market analyst for Allianz Global Investors, Hans-Jorg Naumer believes that Portugal can control its public accounts and that the markets are underestimating the Government’s capacity to cut the deficit.

In an interview with the business daily Diário Económico last week, he said that in order for Portugal to avoid the intervention of the IMF, it had to strictly implement its austerity package (Stability &Growth Pact III) and slash Government expenditure.

The Minister of Finance, Fernando Teixeira dos Santos said that Portugal could not “ignore the consequences for the country and public debt of having high interest rates” on treasury bonds and had to concentrate on “reducing the deficit” to ward of IMF.

David Scammell, an economist at Schroders in the United Kingdom, believed that it was “increasingly likely that Portugal was close to asking the European Stability Fund for help whereas in an interview on RTP’s Grande Intervista last week, leading Portuguese banker and President of the Board of Directors of Banco Espirito Santos believed that Portugal should not and would not need outside intervention. C.G.