Officials arrive in Portugal to prepare €80bn deal
Agreement expected to be reached before June elections
INTERNATIONAL Monetary Fund, European Commission and European Central Bank officials arrived in Lisbon yesterday as they start preparing an estimated €80bn aid programme for Portugal, the third euro-region nation to request a bailout in a year.
European Union finance ministers aim to reach an agreement on the aid when they meet on May 16, three weeks before the country's June 5 election, which was prompted by the resignation of Prime Minister Jose Socrates after parliament rejected his deficit-cutting plan.
The arrival coincided with the ECB's financing to Portuguese lenders dropping 4.8pc in March from the previous month, the first decline in four months.
ECB financing declined to €39.124bn from €41.078bn in February, the Lisbon-based Bank of Portugal said yesterday on the BPStat portion of its website.
ECB financing levels peaked at €49.1bn in August.
Mr Socrates last week announced that Portugal would seek a bailout from the EU after the nation's political crisis pushed borrowing costs to record levels. Portuguese banks had urged the government to ask for aid as downgrades by credit ratings companies threatened their ability to borrow in wholesale markets.
Banco Espirito Santo's chief executive officer Ricardo Salgado last week followed the CEO of Banco Comercial Portugues, Carlos Santos Ferreira, in saying the government should request a loan from the commission.
The government should request a short-term loan "urgently" before the June elections, Mr Salgado said.
Longer-term financing from the European Financial Stability Facility seems unavoidable after a new government takes office, he and Mr Santos Ferreira said before Mr Socrates announced the aid request.
Espirito Santo is Portugal's biggest publicly traded bank by market value and Banco Comercial is the second-biggest.
Moody's Investors Service last Wednesday downgraded its ratings on seven Portuguese banks, including Espirito Santo and Banco Comercial, joining Standard & Poor's and Fitch Ratings, which also lowered banks' ratings after downgrading the country's debt.
Portuguese banks have been relying on financing from the ECB as the government's difficulties in coping with its debt and deficit squeezed their access to the interbank financing market.
The central bank "encouraged" Portugal to seek EU aid, ECB president Jean-Claude Trichet said at a press conference in Frankfurt last Thursday, adding that the country's banks needed to reduce their reliance on ECB funding.
EU Monetary Affairs Commissioner Olli Rehn said last week he was confident Portugal could meet its financing needs in April and May, "while June will be more challenging".
He declined to say what portion of Portugal's bailout may be designated for the country's banks. (Bloomberg)