Q What do you see as the main sources of economic growth for Portugal?
A Once the first impact of the recent increase in international competition has been absorbed, we expect Portuguese exporters to begin to take full advantage of the new opportunities arising from globalisation. Increased competitiveness is needed to regain market shares in both domestic and international markets.
In the short term, it is vital that wage policy and prices do not cause any unsustainable increase in unit production costs. To regain competitiveness, the Portuguese economy must become more flexible, by means of more efficient and more competitive markets; better qualified human resources with a greater capacity for innovation and entrepreneurship; and scientific and technological development to increase the value-added component of exports.
Q Why has growth been weaker in Portugal than in Spain in recent years?
A Portugal and Spain share serious competitiveness problems. Productivity growth has been weak in both countries. But Portugal, due to its size and economic structure (a small, open economy with exports still focused on traditional sectors) has been more exposed to stronger international competition.
The domestic market, particularly construction, has driven growth in Spain, making it more protected from international competition. Inflation, which has fallen in Portugal but increased in Spain, also reflects this difference. Portugal and Spain are also different in regard to developments in their public finances since the run-up to European Monetary Union – a difference we are committed to removing.
Q What are the government’s main policies for resolving Portugal’s structural deficit problems?
A Our strategy is contained in Portugal’s Stability and Growth Programme, which has the support of our EU peers and is based on the following premises: no one-off or temporary measures; consolidation means tackling the structural causes of increased government expenditure; this is an opportunity to modernise the public administration and improve the quality of public services; credibility is crucial, particularly when it comes to making fiscal adjustments that are compatible with the prevailing conditions for economic growth.
Taking into account the high level of the deficit when the government came to office, consolidation was initially [2005] focused on increasing revenue and is now moving [2006-2008] to the reduction of public spending as a percentage of GDP.
The most important measures already implemented by this government include an increase in the minimum retirement age for state employees from 60 to 65 (in line with the private sector); halting automatic promotions in the public administration ahead of the introduction of a more flexible, performance-based system in 2007; and keeping public sector wages increases below the 2006 inflation rate.
Measures planned for 2006 include a vast restructuring programme involving the closing, merger and streamlining of dozens of services in every ministry and a sweeping reform of the career structures, performance assessment and mobility regulations for public employees. Important reforms of the social security system, with the aim of ensuring long-term sustainability, will also be introduced this year.
Q To what extent is the government’s goal of promoting economic growth compatible with the requirement to cut the budget deficit?
A Budgetary consolidation is a pre-condition for sustained economic growth and social development. It will require a substantial adjustment of expenditure that will involve short-term sacrifices. But if a creditable strategy is pursued, budgetary consolidation will begin to contribute to a recovery of private sector investment. On the revenue side, our strategy includes measures to simplify administrative procedures. This will reduce ‘compliance costs’ and ‘contextual costs’ and make it easier for companies and individuals to calculate future taxation. This is an important component of tax competitiveness, particularly in current conditions, which rules out any possibility of reducing tax rates in the short term.
Q Does the government support the building of ‘national champions’ and favour keeping Portugal’s biggest banks, utilities and corporations in Portuguese hands?
A We need competitive companies that contribute to economic growth and job creation, that can meet the challenge of globalisation and a more competitive internal European market. We need companies that are innovative and guarantee high levels of quality, capable of reconciling increased productivity with good governance and more social responsibility.
Whether or not they are ‘national champions’ or Portuguese-owned is not what matters. Of course, if that is the case, so much the better, as it will mean that Portuguese entrepreneurs are active and prepared to take risks and meet the business challenges of the 21st century. But this must depend on their own capabilities, not on any form of state protectionism.
