Portugal raises $1.67B as it awaits bailout cash

[May 04, 2011]  LISBON, Portugal (AP) -- Portugal has raised euro1.12 billion ($1.67 billion) in an auction of 3-month Treasury bills, a day after officials said the cash-strapped country had agreed on a euro78 billion bailout.

The steep increase in the interest rate on the T-bills Wednesday underscored Portual's financial plight as investors demanded a 4.65 percent interest rate- up from 4.05 percent on the same debt two weeks ago.

More positively, the government debt agency said there was demand for almost twice the amount on offer.

Portugal's borrowing costs have hit unsustainable levels, with the yield on its 10-year bonds reaching 9.34 percent.

Authorities say Portugal won't be able to settle debts due in June. That has forced it to follow Greece and Ireland in asking for a bailout.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

BRUSSELS (AP) -- A European Union official on Wednesday rejected claims by Portugal's caretaker prime minister that the country's bailout program was less severe than previous deals for Greece and Ireland.

"He sold his highlights of the agreement," the official said of Jose Socrates' announcement on Portuguese television Tuesday night. "You have to take into account that they are in an election campaign."

In his brief statement, Socrates said there would be no layoffs of civil servants, no change to job and welfare entitlements enshrined in the Constitution, and no cut in the minimum salary.

"The international institutions have acknowledged ... that Portugal's circumstances are very different from those of other countries and very different from the picture that some people here would like to paint," he said in televised remarks timed to coincide with the halftime of the Champions League semifinal between FC Barcelona and Real Madrid to ensure a large audience.

The prime minister, who handed in his resignation in March but remains in office until elections in early June, didn't even disclose the size of the bailout in his appearance, which his office later put at euro78 billion. The interest rate that Portugal has to pay for the rescue loans has also not been revealed yet.

"It is a severe adjustment anyway," the EU official, who was speaking by phone from Lisbon, said of the bailout program. He added that most of the spending cuts and structural reforms would have to come this year and next.

Portugal did get an extra year -- until 2013 -- to cut its government deficit below the EU's 3 percent ceiling, but that extension was necessary after the country disclosed a much larger than expected budget shortfall for last year. The country now has to reduce its deficit to 5.9 percent by the end of this year from 9.1 percent in 2010, and to 4.5 percent in 2012, Socrates said Tuesday.

The deal reached by negotiators from the EU, the European Central Bank and the International Monetary Fund with the Portuguese government is not final until it has been endorsed by the opposition parties and other eurozone governments.

"For us, the process continues today," the EU official said, adding that details of the agreement will be announced once there is support from opposition parties, most likely in a news conference on Thursday.

The reforms will include changes to the labor market, the pension system and the transport sector, where plans for a high-speed train between Lisbon and Porto will likely have to be reconsidered, the official said. The official was speaking on condition of anonymity because the terms of the deal are still confidential.

The EU wants all major parties in Portugal to support the bailout program to ensure it will be implemented in full, no matter who takes power after the June 5 vote. Reaching a final deal is further complicated by recent elections in Finland, where a euro-skeptic anti-bailout party might be part of the new government.

Jonathan Loynes, chief European economist at Capital Economics in London, said that fact that Portugal got some more time to cut its deficit was "goodish news" for the country.

"But these adjustments largely reflect last year's higher than expected deficit, rather than a slower pace of fiscal tightening," he said.

[Associated Press]

Barry Hatton in Lisbon contributed to this article.

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