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The IMF can only loan money to countries whose funding is fully covered for the year ahead. That means if in six months' time it appears clear Portugal won't be able to go back to longer-term bond markets in 2013, the IMF could halt disbursements unless more help is guaranteed. The IMF also highlighted the risk of trying to reduce debt through pay and welfare cuts and tax hikes, which cut consumer demand, while simultaneously attempting to accelerate growth
-- a dilemma seen in other EU nations. The Bank of Portugal expects the economy to contract 3.4 percent this year after a double-dip recession last year. Unemployment has climbed to a record 15 percent. The IMF projects growth to be 0.3 percent next year and 2 percent in 2014. Another danger is that if the recovery falters, further austerity would bring little benefit and political support could begin to erode, the IMF said. Portugal has so far benefited from broad support for the bailout program, with all three major parties endorsing it. The budget deficit fell to 4.2 percent of gross domestic product last year
-- down from 9.8 percent in 2010 -- though without one-off measures it would have stood at 7.7 percent, according to Portugal's National Statistics Agency. The government is aiming for a deficit of 4.5 percent this year. Public debt, currently at 107 percent of GDP, is expected to stabilize at some 115 percent of GDP in 2013 and then decline gradually. Economic reforms have included new labor laws that make it easier for employers to hire and fire workers and alter their working hours and duties; a restructuring of the legal system and state-owned companies; and scrapping rent controls. Also, privatizations have gone well, with the sale of blue-chip energy companies bringing total proceeds so far to
euro3.3 billion. That represents two-thirds of the amount projected under the program.
[Associated
Press;
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