Portugal’s economy has recovered and the banking system is stronger, the country’s economy minister Pedro Siza Vieira tells Brian Caplen. 

Pedro Siza Vieira

Pedro Siza Vieira

Q: Novo Banco is the good bank rescued from Banco Espírito Santo [BES]. How are things progressing with sorting out the problems caused by BES's troubles? How does it impact on government finances?

A: Novo Banco was sold [US equity fund Lone Star has a 75% stake] in the context of trying to find a private sector solution that prevented the bank from being wound up. The bank is now operating and is still undergoing a very significant [attempt] to reduce a non-performing loan [NPL] book that was the highest in the country. The public retains 25% of the bank’s capital and is required to make capital injections if, on the sale of certain identified troubled assets, the value realised by the bank is below the book value, and this has an impact on the regulatory capital of the bank. These injections have a maximum amount and time to be made, and are adequately appropriated in the budget projections of the Portuguese government.

Q: How will this be sorted out over the longer term?

A: The holder of record of the 25% stake – and the body that is committed to making the capital contributions – is not the Treasury, but the Portuguese Bank Resolution Fund. The fund has taken a loan from the Treasury in order to make up the funds required to meet its commitments. That loan is to be repaid to the Treasury over a 30-year period, bearing interest at the rate [within the country]. The fund is entitled to collect contributions from the banks to meet its debt service obligations towards the government. Therefore, while the capital contributions have an immediate impact on public expenditure, they will be repaid by the banks and are not ultimately a burden on the taxpayer.

Q: How is the banking system as a whole faring?

A: One thing about the banking system as a whole is that NPLs have been reduced by 50% in three years and are now below 10%. If they continue to reduce at the same rate as 2018, then we should soon be down to very average numbers.

Q: How will Portugal reduce its high debt-to-gross domestic product [GDP] ratio?

A: The public debt-to-GDP ratio is still quite high, 121%, but it has come down from 130% three years ago. This is due to a combination of controlling expenditure, which is growing less than GDP, and as the result of very positive [economic growth]. Welfare and social security payments to the unemployed have declined significantly and, at the same time, there are 380,000 more people in jobs who are now becoming taxpayers and contributors. Growth in the economy is having a very positive impact on public finances and that is allowing us to reduce the debt-to-GDP ratio, which we want to see going down to 100% in 2022.

Q: How have foreign direct investment flows recovered since the crisis?

A: In the past few years we have had a tremendous inflow of foreign direct investment. The highest year was 2012, when we held several privatisations, which were substantially purchased by Chinese investors [China Three Gorges bought a stake in power utility EDP; and China’s State Grid bought a stake in electricity grid REN]. But in the past two years we have had investment from all places and across different sectors. Real estate was very significant, but what’s more interesting is that we didn’t have so many acquisitions, but rather new investment in greenfield projects in industry and services, particularly. In industry [we have seen activity] across the sectors in which we specialise, such as the automotive industry, machinery and equipment, and agriculture.

Q: Does the new investment have a strong technology focus?

A: The interesting side of the story is in tech. We have car production here and car parts suppliers, and several are foreign players. The interesting thing is how the car manufacturers are discovering the quality of Portuguese engineering and using Portugal as a base for software development for autonomous vehicles, for interaction between the vehicle and the infrastructure, artificial intelligence and data analytics. BMW, Volkswagen and Mercedes have all set up [tech] centres here. Most of the tech investment is about software development with a lot in financial services, for example, but we also have investment in life sciences.

Q: How significant is China’s investment role in Portugal?

A: China was a significant investor, particularly in difficult times when our traditional allies were not viewing Portugal as an [attractive] destination. We were required to privatise a number of companies and assets and not everybody was willing to invest. China made that effort, which we appreciate very much. We have had diplomatic relations with China for five centuries now. We know the country very well. Our allies are in the EU and NATO. China is a friend, a good friend, a trusted friend but not an ally.


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