The European Union and the International Monetary Fund (IMF) on Thursday announced a 78-billion-euro (116-billion- dollar) bailout for Portugal, amid concern in the troubled Mediterranean country over its social cost, dpa reported. The EU was to contribute 52 billion euros and the IMF 26 billion euros to the package. The loans were to include 12 billion euros to recapitalize Portuguese banks, which will need to raise their core Tier 1 capital ratios, media reported. The IMF's initial interest rate of 3.25 per cent could vary in the future, IMF representative Poul Thomsen said at a press conference in Lisbon. EU representative Juergen Kroeger said the bloc may demand interest rates above those of the IMF, but declined to give more details. The news agency Lusa quoted an unnamed EU source as saying the interest could be two percentage points above market level, which would place it at about 4.2 per cent. Portugal needs funds by mid-June when it faces debt repayments worth 7 billion euros. The bailout programme is due to cut Portugal's budget deficit from 9.1 per cent to below the EU limit of 3 per cent by 2013. Portugal's unemployment will climb from 11 per cent to 13 per cent by 2013 under the programme, Finance Minister Fernando Teixeira dos Santos said. The economy is also expected to contract by 2 per cent in 2011 and 2012, fuelling concern over an eventual increase of poverty in what is already Western Europe's poorest country. "The Portuguese economy faces considerable challenges," IMF Managing Director Dominique Strauss-Kahn and European Economic Affairs Commissioner Olli Rehn said in a statement issued in Brussels. "We recognize that this programme will require major efforts from the Portuguese people," the statement read. The "draconian" bailout programme spelled "enormous difficulties for the Portuguese people," Left Bloc representative Luis Fazenda charged, while trade unions called on citizens to mobilize against it. Teixeira dos Santos said the bailout conditions would include more privatizations and structural reforms. They will also include spending cuts in health, education and unemployment benefits, tax hikes, and provisions to make firing workers easier, according to officials and news reports. Higher-level pensions will suffer cuts, but the lowest ones will not be touched.
