Madeira’s hidden debts

By CHRIS GRAEME [email protected]

The Bank of Portugal and the Portuguese National Statistics Institute have discovered that the island of Madeira has effectively hidden a €1.8 billion black hole in its finances.

The debt has been clocked up since 2003 and cloaked in Debt Regularisation Agreements (DRA) but even so, Madeira’s long-standing leader Alberto João Jardim says he will continue spending money on public works programmes and will not cut jobs in the island’s vastly overstaffed public administration sector.

A press communiqué from the BdP stated last week that the “present notification seeks to inform about the impact of a number of new factors discovered about expenditure and debts in Madeira’s Regional Administration”, which went on to explain point-by-point how it uncovered the huge debt.

In April, the Financial Audit Exchequer (Tribunal de Contas) published a report about the financial liabilities which Madeira had admitted to and had not paid in 2009.

In the report, various DRA agreements were highlighted concerning the paying off of debts, agreements which had been signed by Alberto João Jardim and construction companies over an amount stated to be €184.5 million, of which €143.3 million related to agreements in 2008.

The INE and BdP state that these debts were not set down as orders made and not paid as is required by law.

Therefore both entities decided to carry out investigations into the region because the debts were not reported to the authorities in Lisbon.

It was only following these investigations carried out in August and this month that the true picture of Madeira’s deficit black hole came to light.

In 2010, the Madeira government signed a fresh batch of Debt Regularisation Agreements worth €571 million with respect to debts contracted since 2003, an amount which has increased by €290 million due to interest on the various debts, which Lisbon also hadn’t been told about.

Added to these amounts was a further €54 million related to health service costs still to be paid; the total impact of these unregistered debts totalled €915 million by 2010.

The amount represents more than the Government will net from cutting the Christmas subsidy. But the problem has got worse. Already this year a further €11 million in these kinds of officially non-registered IOU agreements on debts contracted since 2005.

This amount brought a total amount of €32 million in interest while a further €25 million related to health expenditure was uncovered for the years 2008 and 2009.

All told, the BdP and INE believe that a total of around €1.8 billion has been uncovered which had not been put down in official accounts as unpaid debts and had not been admitted to the central government in Lisbon.

Confronted with the debts, which made it into the pages of the foreign press, João Jardim has blamed the Regional Finance Law (Lei das Finanças Regionais) which capped the amounts Madeira could receive and spend, and added that “in the next few weeks, the ‘rectangle’ (slang for mainland Portugal) will be entertained with lies about Madeira”.

The opposition Socialist Party has asked Prime Minister Pedro Passos Coelho to bring light into the financial situation of Madeira prior to campaigning for the island’s regional elections on October 9, when Alberto João Jardim is expected to be re-elected.