In Portugal, Capitalists Rule by Another Name

After Socialist Party victory: privatization

After elections last October, the Socialist Party came to power in Portugal after a 10-year absence.


"Don't be afraid of names," says Antnio de Sousa Franco, finance minister. "The socialist tradition is no longer what it used to be."

That may be an understatement. Mr. Franco, during a visit to Boston late last month to promote private investment in his country, outlined his government's economic aims - all solidly capitalistic in nature:

*A massive privatization of state holdings, many taken over by the state after a leftist revolution in 1974-75 overthrew Antnio de Oliveira Salazar, the nation's virtual dictator for decades.

*A solid decline in the size of the budget deficit. Franco expects the deficit to be equivalent to 4.2 percent of gross domestic product (GDP) this year. He has a goal of only 3 percent next year, the maximum level set by the Treaty of Maastricht for nations wanting to join the European Monetary Union. Only a few European nations are expected to qualify at first. With an economic slump shrinking government revenues, even Germany has a deficit that exceeds the 3 percent level.

*Stable prices. Inflation is "historically low," Franco says, and was just 2.4 percent between March 1995 and March 1996.

*A strong currency. The escudo has been fairly stable in value. In fact, it has appreciated against the German mark - "perhaps too much," he says.

*Not raising taxes this year. The previous government, of the center-right Social Democrat Party, did hike taxes.

"We have stability in all its dimensions," he says. "We are interested in reinforcing the private framework of our economy."

Fernando Teixeira dos Santos, secretary of state for treasury and finance, says "somewhat of a consensus" exists among the political parties, except for the Communist Party, on the need to make Portugal attractive for private enterprise.

Mr. Santos and Franco met with institutional investors in New York and Boston to tell them of investment possibilities in Portuguese stocks and in the shares of companies to be privatized.

Pestana Teixeira, general manager of the Lisbon Stock Exchange, says the stock market, though small in size, is based on sound legislation and a strong and independent regulatory authority that ensures a "safe market." Turnover of shares last year amounted to about $57 billion. The market is a computer-based market, more like Nasdaq in the United States than the open-outcry auction of the New York Stock Exchange.

On the list of state-owned companies to be sold in total or part are the telecommunications company (Portugal Telecom), a cement firm (Cimpor), an electric utility (EDP), a pulp and paper company (Portucel Industrial), and an investment bank (Banco de Fomento e Exterior). Telecom shares are already listed on the New York Stock Exchange. The government expects to raise $2.5 billion this year from the sales.

The Socialist government, under Prime Minister Antnio Guterres, had been counting on 2.5 percent real growth in Portugal's economy this year. But the Bank of Portugal forecast last week that growth may be as low as 1.75 percent.

Portugal is one of the poorer nations in Europe, with a per capita GDP of about $10,000. But it has been catching up with the more prosperous countries to its north.

The economy benefits from some $4.3 billion in remittances from Portuguese who have emigrated to other European nations the US, or Canada. The government hopes to sell some shares of its privatized companies to these expatriates, as well as to workers at home.

Growing unemployment is one reason the Socialist government is seeking foreign investment. It has grown from 4.5 percent of the labor force four years ago to 7.2 percent.

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