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Portugal announces mass privatisation to fight rising debt

16 March 2010, 18:18 CET

(LISBON) - Portugal, under strong EU pressure to correct its public finances, announced sweeping privatisation measures affecting its airline, rail transport, postal, energy and paper industries, on Tuesday to fight a rise in debt.

Also covered by the crash programme are bank and insurance activities.

The privatisation would raise about 6.0 billion euros (8.22 billion dollars) by 2013, bringing in 1.2 billion euros this year and 1.8 billion euros next year, the government said.

The sales would lead to "increased productivity in these sectors and contribute to the essential reduction of the public debt," which currently amounts to 142.91 billion euros.

The expected contribution from the privatisations to reducing debt amounts to about 4.19 percent of the total debt.

The measures, being outlined by Finance Minister Fernando Teixeira Santos to European Union finance ministers in Brussels on Tuesday, are to be debated by parliament here on March 25 and then submitted to EU authorities.

The urgent programme presented on Tuesday resumed privatisations for 2010-2013, which had been suspended in 2007 because of the financial crisis.

The Socialist government intends to sell great chunks of the Portuguese economy.

It will sell its holding of 8.0 percent in Galp Energias, 25.73 percent in Energias de Portugal, an 51.08 percent in electricity distributor REN while retaining a strategic interest.

It also intends to sell its interest of 32.7 percent in Inapa, the fourth-biggest distributor of paper in Europe.

The privatisation programme also covers the entrance of private capital into the shipyards Viana do Castelo and the sale of shares in companies in the industrial and defence sectors, the opening of the capital TAP Portugal airline and the sale of Aeroports du Portugal.

Rail freight transport will also be sold to the private sector, and the postal service CTT will be opened to private capital.

The government said it would re-privatise BPN bank which was taken under state control during the financial crisis, and sell part of the insurance activities of Caixa Geral de Depositos (CGD) bank.

The government raised slightly its estimated debt to 86.0 percent of output in 2010, from a previous estimate of 85.4 percent of output this year.

The debt will rise to 89.4 percent of gross domestic product in 2011, 90.7 percent in 2012 and then turn down to 89.8 percent in 2013.

These figures are far above ceiling levels for countries in the European Union, and specifically the eurozone as is the case for Portugal.

There is widespread concern that if the debt crisis in Greece, the subject of the EU ministerial meeting in Brussels on Tuesday, is not contained other countries with big deficit and debt problems could come under pressure on financial markets.

EU rules state that a member country must not run a public deficit of more than 3.0 percent of output, and that debt should not exceed 60 percent or if it does must fall structurally to below that figure.

Portugal intends to cut its annual public deficit from 8.3 percent of output this year to 2.8 percent in 2013. Such a reduction is widely considered to be huge.

Before the financial crisis, several countries already had structural difficulties in switching their public finances into a strong condition, and the cost of supporting economies through the crisis has raised public deficits and debt in many countries to far above the limits.

Data from the national statistics institute published last week showed that the economy shrank by 0.2 percent in the last quarter of last year from output in the previous quarter.

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