Prime Minister José Socrates outlined four key strategy areas his government was using to counter what he called the “worst economic and financial crisis in living memory”.
Addressing The Economist Fourth Business Roundtable into the state of the Portuguese economy and its prospects for the future on Monday, José Socrates said that Europe and the World were living in an economic situation that was “without historical precedence” and one in which “no living person” could remember being so bad.
For the first time ever, he said, the “United States, Europe, Russia, and Japan had entered a recession for the same reasons at the same time.”
To fight the crisis he gave the government’s four priority points as follows: “to do everything within our power to stabilise the financial and banking system” through nationalisation, re-capitalisation, guaranteeing loans and deposits, and making available lines of credit.
“Because of the actions we took, which we did not do for bankers or shareholders, we have helped maintain jobs and keep companies going. Had we avoided it, the consequences would have been unimaginable,” he said.
The second point was to help 9,400 small and medium companies with up to 50 staff through credit facilities worth 1.75 billion euros.
The third action the government took to help families and consumers in the face of fluctuating energy prices, rising food and commodity prices had been to lower Value Added Tax by one per cent, reductions in property and corporation taxes to help companies and struggling families on the lowest incomes with housing and mortgage costs.
But the priority for 2009 would be employment since the government had a “moral as well as a political duty” to do so. This fourth priority area was to be undertaken through Public Investment Projects which would “help keep the economy dynamic and maintain employment”.
The Prime Minister also highlighted Portugal’s investment in alternative and renewable energy sources as a way of reducing the country’s reliance on fuel imports and exposure to fluctuating prices.
Economist and banker Luís Mira Amaral welcomed the government’s initiatives but said it should ditch costly, large-scale public investment projects which the country could ill-afford.
The Economist Intelligence Unit has reported that Portugal is in a severe recession marked by deflation with an economy contracting 2.0 per cent this year, unemployment projected at 8.5 per cent, inflation at 1.2 per cent, deflation at 0.3 per cent and the budget deficit climbing to 4.5 per cent of annual GDP.
The government’s accumulated internal and external deficit was now running at 69.7 per cent of income.