Social Crisis Loan: Portugal PM says bailout, IMF loan not an option

LISBON: Portugal's caretaker Prime Minister Jose Socrates vowed on Monday, April 4 to keep resisting a foreign financial rescue for the debt-laden country, including a short-term loan the opposition said it could back.

Portuguese bond yields have surged to record highs since Socrates resigned last month when parliament rejected an austerity package. The country's credit rating has been downgraded sharply since then, raising pressure on Lisbon to seek a bailout as it prepares for a general election on June 5.

Many economists think it is almost inevitable that Portugal will need a bailout like Greece and Ireland and some suggest at least an emergency loan may be necessary until the elections to allow Portugal repay its maturing debt and finance its needs. "I am committed to the idea of defending Portugal from external aid ... I will do everything to defend Portugal from this scenario," Socrates told the RTP television.

He reiterated that in his view a bailout would weaken Portugal and, ultimately, the euro currency. "The foreign aid scenario is the last resort," he said.

Asked if a short-term loan from the International Monetary Fund was possible if the country faces immediate financing problems, Socrates said: "I don't know of any IMF financing line that would not enforce a programme with conditions."

"All programmes that have been negotiated so far were very severe in terms of measures demanded from a country," he said.

The leader of the main opposition Social Democrats (PSD), Pedro Passos Coelho, told Reuters on March 26 his party, which leads in opinion polls, would back a loan if the country's financial crisis escalates until the election. [ID:nLDE72P0BM]

A euro zone source told Reuters earlier euro zone finance ministers will on Friday discuss Portugal's options to solve its debt problems under a caretaker government, including whether it is capable of requesting EU financial aid. [ID:nLDE7331TJ]

Socrates, in his turn, said the caretaker government he leads will use "all instruments available" to guarantee timely repayment and refinancing of Portugal's debt ahead of bond expiries this month and then in June. Portugal has to repay some 4.3 billion in maturing bonds on April 15.

He did not say what those instruments could be, saying only that "we cannot reveal all our strategy to the markets". Portugal has arranged some private debt placements since the start of the year in addition to normal debt auctions. On Friday, it successfully sold over 1.6 billion euros ($2.3 billion) in bonds in an extraordinary auction after having lined up investors to buy the debt beforehand, according to traders.

Still, Portugal's bond yields continued to rise, with the 5-year maturity rising above 10 percent on Monday.

Socrates said he will fight to win the snap election, and that if he does win without obtaining a full majority, he will seek to build a coalition government.

"If the Socialist party wins without a (full) majority), I will do my best for Portugal to have a majority government. We will be open to dialogue, compromise and negotiation as we have always been," he said.

The Social Democrats lead in opinion polls, but most surveys show them with ratings below those needed to secure a full majority, while the Socialists are still running strong.

An opinion poll by Aximage pollsters published on Monday showed PSD's lead narrowing to 6.4 percentage points from last month's 10 points. The PSD fell to 34.8 percent of voting intentions from 37.9 percent, while the Socialists edged up to 28.4 percent.

The confidence ratings of PSD's Passos Coelho and Socrates were practically equal at just over 35 percent, according to Aximage, which surveyed 600 people between March 28 and 30.

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