Portugal's Interior Fights to Improve Economy

`PORTUGAL cannot be developed without solving the problems of the interior. If the millions spent in Lisbon could be spent in the interior, the social problems of the capital would be solved rapidly,'' says C'esar Vila Franca, president of the Municipal Council of Castelo Branco. Castelo Branco grew up as a fortress town when Christians and Moors were fighting over territory. Later it became a market town for products from its hilly, stony, and semi-fertile surroundings and regional capital of the province of Beira Baixa. One of the town's claims to fame is an exquisite sheeps' milk cheese. The other is a tradition, inherited from the Moors, of lavishly embroidered bedspreads that retail at $3,000 to $7,000.

Since 1980, the Municipal Council has had a plan to increase employment through industrial development. With only 1 billion escudos ($6.5 million) from European Community structural funds, it sought private capital from abroad.

``Foreigners came here because of cheap labor costs,'' says Rui Rodr'igues Rapoula, the Municipal Council's vice-president.

The result is a thriving industrial zone, about half a mile outside town, boasting car-assembly plants, plants for consumer electronics, textiles, and food processing, and so on. And in the municipality's population of 40,000, only 22 are registered unemployed, though no one admits to the size of the black-market economy. The problem is that the industrial miracle could be wavering.

Mr. Vila Franca is the politician's politician and Mr. Rodr'igues Rapoula the avuncular chief administrator in a double act that has held local power since 1980. There are rumors of a split, but if the partnership holds, it could be reelected for an unprecedented fourth term this December.

Meanwhile, establishing entrepreneurship in a rural area is no easy matter. Children of factory owners prefer to close down, sell out, and move to the capital. Several textile plants in Castelo Branco have already closed this way.

Local industrialists such as Ant'onio G'omes Filipe, managing director of Progurtes, Portugal's largest yogurt producer, want to export to Spain, 12 miles (20 kilometers) away as the crow flies. But the access road is a potholed nightmare, the border crossing is closed at night, and plans for a closer crossing are held up in a mountain of red tape.

And because neither Spain nor Portugal become full-fledged European Community (EC) members until the end of their transition period in 1992, exports between the two are made even more difficult through customs tax.

There are mixed fortunes, too, in the countryside. The market for the famous local handmade sheeps' milk cheese is being flooded with cheap fakes. Joao da Silva and his brother Jaime produce about 36 such cheeses daily. But the tradition means milking their flock of 500 sheep twice a day by hand and making the cheese in beaten dirt-floored outhouses inherited from their grandfather. Cheese farmers like the da Silvas are clamoring for EC help. But saving the farms is complicated by the fact that young people prefer the big city to tradition.

Twenty percent of Portugal's work force works on the land, yet the country imports half its food. EC grants, which cover half the cost of equipment and 100 percent of the cost of building a home, have meant that small fruit farmers in Beira Baixa can modernize and form cooperatives for marketing. But Portugal has a long way to go before it reaches the level of Spain, let alone the more established farmers in France and Italy.

Although new houses are being built in the countryside, locals complain that these are usually expatriates building holiday or retirement homes.

Finally, prices of agricultural land have risen twelvefold over the past seven years as foreign investors buy up land for eucalyptus and northern European pine plantations to feed the paper and pulp industries. These are now the Castelo Branco region's main agricultural product.