Warning bells as Portugal urged to exit bailout without buffer

Warning bells as Portugal urged to exit bailout without buffer
European Commission President Jose Manuel Barroso also pressed for Portugal to exit the aid programme without a safety net, even though in January he had said he preferred to leave a line of credit open for Portugal in case it needed it.

LISBON - With Portugal's 78-billion-euro (S$137 billion) IMF-EU aid programme about to come to an end, its creditors are not only expecting the country to exit its massive bailout on May 17, but urging it to do so without a safety net.

Analysts however warned that it is too soon for Portugal, which only shook off a 2.5-years-long recession in the second quarter of 2013, to raise its own funds on the open markets without any recourse to credit as back-up.

Portugal sought the rescue package to avert default, after decades of ballooning wages and state spending led to a massive build-up of public debt.

International creditors granted the bailout in May 2011, but set strict conditions including severe sweeping job, pay and pension cuts.

The painful austerity has pushed tens of thousands onto the streets, but Lisbon's stubborn adherence to the bailout conditions allowed it to pass successive reviews carried out by the international creditors, thereby securing a continuous flow of aid funds.

In fact, it has been so faithfully sticking to the rules that creditors now believe that it is ready to stand on its own.

Steffen Kampeter, a top official at the German Finance Ministry said: "Portugal is close to the end of the troika mission and it would be a good occasion to exit the aid programme without a safety net." During a visit last week to Portugal, where he met Deputy Prime Minister Paulo Portas and Finance Minister Maria Luis Albuquerque, Kampeter took care to point out that the final decision rests with the Portuguese government.

But European Commission President Jose Manuel Barroso also pressed the same case, even though in January he had said he preferred to leave a line of credit open for Portugal in case it needed it.

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