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On track but moving slowly

Privatization looked to be the answer to Portugal's widening budget deficit but poor market conditions have stymied it. The government, though, has cut costs and boosted revenues, with favourable capital market effects.

Portugal stays on track during market downturn

AS AN ELECTION pledge it didn't sound that snappy, but when the Social Democrats came to power in Portugal in May 2002, it was partly on the basis that they would sharply cut the country's annual budget deficit relative to GDP.

This was not entirely a home-grown idea. Portugal had recently been warned by the EU that its deficit was too high, breaking the criteria for membership of the eurozone, and it was threatened with a hefty fine if the situation was not resolved.

Luckily, the government had plenty of assets to sell. Privatizing a range of companies, including oil company Galp, energy company Electricidade de Portugal and airline TAP, seemed the obvious solution to the country's financial difficulties.

Shortly after it was elected the government announced that in order to help the economy and boost the country's entrepreneurial spirit, several of these sales, some of which had already been announced by previous governments, would be speeded up.

But the incoming government had not predicted the dire condition of the equity capital markets.

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