Portugal's
Architect of Austerity Resigns After Nationwide Protests
1
July, 2013
Portuguese
Finance Minister Vitor Gaspar quit Monday, acknowledging he lost
credibility after missing deficit targets and was causing friction
inside the center-right coalition government as public support for
his austerity policies evaporated.
President
Anibal Cavaco Silva's office announced Gaspar's resignation on its
website and said he will be replaced by Secretary of State for the
Treasury Maria Luis Albuquerque.
Gaspar
was a key member of the government as it struggles to repair its
finances after needing a 78 billion euro ($102 billion) rescue two
years ago. He was an economist who previously worked at the European
Central Bank and had no political career before joining the
government following its election in June 2011.
The
government is under fierce pressure from opposition parties, labor
unions and business leaders to move away from the austerity policies
adopted by Gaspar as the country endures what is expected to be a
third straight year of recession and a jobless rate of 17.6 percent.
But
Gaspar's exit is unlikely to herald big policy changes.
The
austerity program is a requirement of the bailout creditors — the
International Monetary Fund and other EU countries. If Portugal
doesn't stick with the planned cuts and tax hikes the creditors can
stop disbursements of the bailout funds, likely making it hard for
the country to pay wages and pensions.
Portugal's
European partners, too, have insisted that it sticks with its
cost-cutting drive, regarded as crucial if heavily-indebted eurozone
countries like Portugal are to break out of their three-year-old
financial crisis. Portugal's government debt stands at almost 124
percent of gross domestic product, the third-highest in the EU after
Greece and Italy.
Furthermore,
Albuquerque, Gaspar's replacement, has in the past fully backed the
crackdowns on spending.
Gaspar
said in his resignation letter that missing the budget deficit target
for 2012, and then asking creditors to ease the target for this year,
had undermined his credibility. He blamed those fiscal developments
on a sharp drop in domestic consumption which, in turn, brought an
unexpected fall in tax revenue.
The
deficit last year stood at 6.4 percent, above the 5 percent target.
The latest review softened this year's deficit goal to 5.5 percent
from 4.5 percent.
Also,
Gaspar said in the letter emailed to reporters by the finance
ministry that there was "a significant erosion" in public
support for the austerity strategy as street protests and strikes
have grown in recent months.
He
said the intended new phase of the recovery, with a hoped-for
increase in private investment this year, required credibility and
public confidence in the government. He said he "cannot provide
those contributions."
Gaspar's
insistence on tax hikes and public sector pay cuts has angered the
junior partner in the center-right coalition government, the Popular
Party, but Prime Minister Pedro Passos Coelho's Social Democratic
Party, the senior alliance partner, has stood by him. That has
contributed to political tension around the terms of the bailout.
"The
risks and challenges of the near future are huge," Gaspar said,
adding that the Cabinet required cohesion and that his exit would
help achieve that.
Under
Gaspar, Portugal's fortunes haven't improved. The jobless rate is
forecast to reach 18.5 percent next year. The bailout creditors
predict an economic contraction of 2.3 percent this year after a drop
of 3.2 percent in 2012. However, he successfully lowered the deficit
from 10.1 percent in 2010.
Gaspar
said he first asked to be released from government duties more than
eight months ago. He said he wanted to leave after the Constitutional
Court, in July last year, blocked some of his planned reductions in
expenditure, saying cuts to pensions and vacation bonuses for
government workers were unlawful.
He
said he stayed on because the prime minister asked him to oversee
amendments to the 2013 state budget resulting from the court ruling.
Now
that is concluded, and Portugal's finances are in better shape, he
said, his resignation can no longer be postponed.
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