Portugal to slash deficit to avoid IMF, minister says

Portuguese Finance Minister Fernando Teixeira dos Santos said Wednesday Portugal needs to cut its public deficit to avoid seeking help from the IMF.

"We have to concentrate on reducing the budget deficit in order to keep the IMF scenario away," Reuters quoted Teixeira dos Santos as saying at a news conference in Lisbon. "We have to take the measures, as hard as they may be, that are necessary to reach this objective."

The austerity budget for 2011 aims to cut the shortfall on the government's books to 4.6 percent of GDP next year from a projected 7.3 percent his year.

There has been heavy renewed pressure of late on the government debt of Portugal and other peripheral countries in the euro zone, sparking fears of the need for a bailout along the lines of the one drawn up for Greece earlier this year. The European Union and the IMF have agreed a temporary contingency fund for the euro zone as a whole.

Yields on Portugal's benchmark 10-year bond on Wednesday moved above 7 percent in the secondary market, a level Teixeira dos Santos had said last month could lead the government to consider the need for external help. "Aware of our debt levels and with a responsible attitude, we cannot ignore the consequences and difficulties the country would face if interest rates remain high," Teixeira dos Santos said Wednesday.

The Portuguese debt management agency IGCP issued 1.242 billion euros in bonds due 2016 and 2020 at tenders held on Wednesday. The average yield on the six-year bond climbed to 6.156 percent from 4.371 percent at the previous tender in August, while the yield for the 10-year bond rose to 6.806 percent from 6.242 percent. The amount issued was just below the top end of the IGCP's target.

Teixeira dos Santos said the tenders went "well" and described the spike in yields as "transitory." However, Credit Suisse analysts described the financing conditions of Portugal and Greece as "unsustainable" and suggested they may have to tap the EU emergency fund.

Teixeira dos Santos attributed the sell-off to uncertainty over the shape of a proposed permanent rescue fund for the single-currency zone. "No one is demonizing or blaming the market," he said. Germany has suggested that bondholders foot part of the bill for restructuring the debt of countries in difficulty.

"We have to make an appeal at the European level for the European institutions to rapidly, with the greatest possible urgency, clarify the terms in which this mechanism will function," Bloomberg quoted Teixeira dos Santos as saying.