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Madeira negotiating multi-million euro bailout with Portugal

By CHRIS GRAEME chris.graeme@theresidentgroup.com

The president of the Regional Government of Madeira, Alberto João Jardim, negotiated a multi-million euro bailout this week with the mainland government.

The money is to cover a €5 billion black hole in the island’s accounts which had been deliberately hidden from the mainland government through a series of creative accounting measures. The total loan amount could top €3.7 billion.

The Prime Minister, Pedro Passos Coelho, and Alberto João Jardim reached an agreement on Monday “to move forward as quickly as possible with a financial adjustment plan” for Madeira.

In the first audience granted to the Madeira leader, the Prime Minister paved the way for the possibility of allowing Madeira to contract a yet to be decided loan to sustain the bankrupt region.

The region’s debt has soured relations considerably between the Government in Lisbon and the de-facto ‘king’ of Madeira who last month won yet another election and was returned as president.

Alberto João Jardim has been in power after successive elections wins for over 30 years on the island.

While doing much to improve the average lot of the island’s citizens by building health centres, hospitals, roads, community and cultural centres, Jardim has been severely criticised for the profligate spending of mainland taxes on white elephant projects while creating a client-base of around  a dozen super rich individuals and a massive and costly public service sector.

The first meeting given by Portuguese Prime Minister Pedro Passos Coelho was dominated by restrictions imposed on the region by the State Budget 2012, specifically the limits on debt and the violation of debt ceilings.

The tax exemption regime for the island is also under discussion.

Jardim has stated that the amount proposed by the Government is insufficient to ensure financial and regional government commitments let alone to service the island’s debts.

The Inspectorate-General of Finances (IGF) in its analysis of the region’s financial state has estimated that Madeira needs €3.7 billion over the next four years.

However, the bailout, taking into account the total financial requirements of the regional government’s administration and services between now and 2030, could require as much as €5.8 billion to €6.7 billion.

That figure includes the €936 million debt clocked up by the region’s public companies – much of the money owed to private contractors and builders for big-ticket public works projects.

According to the IGF, Madeira will have to pay a total of €3.5 billion by 2015 to service its debt and pay off some of the loaned capital.

Between 2016 and 2030, the interest rate and capital payments alone will represent €2.2 billion.

The bailout plan has been prepared by the Ministry of Finance with the regional finance secretary.

Vítor Gaspar, the finance minister who has not, so far, left the Prime Minister with room for manoeuvre, has stated that the adjustment programme “will be demanding and prolonged”.

Madeira’s total debt has been officially set at €6.3 billion or 123% of the region’s GDP.