Carta de Intenções enviada ao FMI por Portugal - 9.DEZ.11 - Ministro das Finanças e Governador do Banco de Portugal

                                 PORTUGAL: LETTER OF INTENT


Lisbon, December 9, 2011 


Ms. Christine Lagarde                                                     
Managing Director 
International Monetary Fund 
Washington, DC 20431 


                   Dear Ms. Lagarde: 


       1. In the attached update to the earlier Memoranda of Economic and Financial Policies 
(MEFPs), we describe progress and additional policy steps towards meeting the objectives of 
the economic program of the Portuguese government which is being supported by an 
Extended Arrangement. 
       2.Policy implementation is broadly on track. In particular, we believe that the recent 
adoption of a bold and comprehensive 2012 budget will decisively set public finances on a 
sustainable path and bolster market confidence in our program. All the quarterly quantitative 
performance criteria for the second review were met, along with the continuous criterion on 
external arrears. However, our end-September indicative target on the non-accumulation of 
new domestic arrears by the general government was breached. As a corrective measure, to 
avoid further arrears accumulation, we are strengthening commitment controls and ensuring 
adequate budgetary allocations to the health sector.  
      3.Expenditure overruns and the materialization of fiscal risks have complicated the 
attainment of end-2011 fiscal deficit target. However, we intend to meet the target through a 
partial transfer of bank pension funds to the social security system—a one-off revenue item. 
      4.Fiscal-structural reform is addressing deep-seated problems with expenditure control. 
To this end, we are strengthening public financial management, halting new PPP contracts, 
fundamentally restructuring the SOE sector and limiting its capacity to incur further market 
debt, and reforming revenue administration and the health sector. We are also revising our 
inter-governmental fiscal framework to enhance fiscal responsibility. We will require a 
statement of affairs for Madeira ahead of a financial arrangement with the region.  
      5.Our policy efforts to support financial system stability continue. Bank deleveraging is 
progressing, and we will continue to ensure that their plans provide a level of credit 
consistent with the program’s macroeconomic framework. The legal framework for 
temporary capital increase of viable banks will be significantly improved by early 2012 with 
a view to ensuring financial stability while protecting tax payers. The structural benchmark 
on amending legislation to strengthen the early intervention framework and adopting the new 
bank resolution framework will be met by year-end.2 
      6.Our ambitious structural reform agenda to foster higher and sustainable growth is on 
track, although we did not implement a fiscal devaluation given the large fiscal 
consolidation. We are working to give firms the flexibility to respond to changing demand 
conditions without disruptive changes in employment, which is particularly important at this 
point in the economic cycle. We are continuing to advance legislation and practices to 
enhance the competition framework and facilitate market entry.  
      7.On the basis of the policies defined in this letter, we request completion of the second 
review under the Extended Arrangement, and the third purchase under the arrangement in the 
amount of SDR 2,425 million. The attached MEFP proposes new structural benchmarks 
relating to the fiscal area (reforming the regional finance law, assessing PPPs, and priority 
elements of SOE restructuring plans), structural reform (developing a proposal to correct 
excessive rents in energy markets), the banking sector (the rules governing the provision of 
public capital to banks), and the judicial process. 
      8.We remain confident that the policies described in the current and previous MEFPs 
are adequate to achieve the objectives under the program. We stand ready to take additional 
measures that may be needed to meet the objectives of the economic program and will 
consult with the IMF, the European Commission, and the ECB, in advance of any necessary 
revisions to the policies contained in this letter and attached Memorandum.  
     9.This letter is copied to Messrs. Juncker, Rehn, and Draghi. 


     Sincerely yours,  
  
             Vítor Gaspar                                       Carlos da Silva Costa 
Minister of State and Finance              Governor of the Banco de Portugal