Portugal has been warned that it must deliver a ‘truly national’ and ‘major’ reform effort in exchange for a €78 billion bailout.
International Monetary Fund chief Dominique Strauss-Kahn and EU Economy Commissioner Olli Rehn said that the success of a ‘socially-balanced’ programme will require a ‘truly national effort’.
The warning came as Portuguese Finance Minister Fernando Teixeira dos Santos announced agreement with the EU and IMF in Lisbon for a debt rescue worth €78bn.
IMF mission head Poul Thomsen said Portugal's economy will face 'significant headwinds in the next three years', and that the country needed to become much more open to competition to be able to grow again.
The IMF will provide €26bn, with the rest of the sum coming from the European Union.
The Finance Minister said consumption taxes, but not income tax, would rise and Portugal's debt/GDP ratio would keep climbing until 2013 before falling.
'This is a programme aimed at returning to growth and employment,' he told the news conference.
Portugal’s caretaker Prime Minister, Jose Socrates, described the deal as a good agreement and said it included more lenient terms than those imposed on Ireland and Greece.
Portugal's two key opposition parties signalled after meeting European and IMF officials yesterday that they will back the bailout.
EU officials have suggested that lessons had been learned from very strict terms handed out to Greece when it was bailed out last year, which backfired because investors saw them as unachievable.
Portugal's deal includes up to €12bn for the banking sector to recapitalise.
The plan also envisages €5.3bn in privatisation revenues up to 2013.
The interest rate on Portugal's bailout loan is expected to be set at a meeting of eurozone finance ministers in mid-May.
