Portugal bailout negotiations start as IMF comes calling

Portugal on Tuesday kicked off the demanding process of negotiating a rescue package to help resolve its debt crisis as a team of experts from the International Monetary Fund, the European Commission and the European Central Bank arrived in Lisbon.

The "technical assessment" team will pave the way for a "policy" mission due to arrive in Portugal on April 18. Negotiators are looking to arrive at an agreement on what is expected to be an 80-billion-euro loan from the IMF and the EU's European Financial Stability Facility (EFSF) before a May 16 meeting of European finance and economy ministers.

Portugal is expected to be able to meet debt redemptions and coupon payments due on April 15, but there is a question over whether it will be in a position to do so for further debt maturities on June 15. But an agreement before May 16 would allow enough time for the country to receive emergency funding to meet its obligations.

The business end of Lisbon's humiliating request for help got underway amid another public display of bickering between the Socialist Party of Prime Minister José Sócrates and the Social Democrat Party (PSD) ahead of general elections on June 5, as they swapped accusations of responsibility for having to call in the IMF.

Led by the PSD, the opposition defeated a battery of deficit-cutting measures proposed by the government on March 23, sparking the resignation of Sócrates. Those measures, which include a commitment to reducing the shortfall in the government's finances from 8.6 percent of GDP last year to 4.6 percent this year, 3 percent in 2012 and 2 percent in 2013, will form the starting point for the loan talks.

The EU and the IMF are insisting on a cross-party accord and the animosity between the country's two main political groups is unlikely to prevent an agreement eventually being reached. President Aníbal Cavaco Silva on Monday highlighted "the urgent need to obtain external assistance to assure the funding of the state and the economy."

The EU last week said the three pillars of the commitments that would be demanded of the government were rigorous fiscal consolidation, an "ambitious" privatization program and structural reforms, particularly in the labor market.

The need for the latter to set the country on a sustainable growth path is highlighted by the fact that the Portuguese economy has suffered from weak economic growth for the past decade. The IMF estimated Monday that Portuguese economy would shrink by 1.5 percent this year, with a further contraction of 0.5 percent expected next year.