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TITLE: PORTUGAL ECONOMIC POLICY AND TRADE PRACTICES
DATE: FEBRUARY 1994
AUTHOR: U.S. DEPARTMENT OF STATE
Key Economic Indicators
(Millions of dollars unless otherwise noted)
1991 1992 1993e
Real GDP (1985 prices) /2 23,912 24,127 24,127
Real GDP growth (pct.) 2.5 l.l 0.0
GDP (at current prices) /2 68,788 80,300 80,300
Agriculture 4,058 4,576 4,118
Energy and Water 2,682 3,212 3,212
Manufacturing 19,260 21,990 21,990
Construction 4,540 5,620 5,920
Services 38,521 45,770 45,928
Net Exports of
Goods and Services -742 -156 n/a
Real Per Capita GDP ($,'92BPS) 2,440 2,483 2,483
Labor Force (000's) 4,787 4,340 4,274
Unemployment Rate (percent) 4.1 4.5 7.0
Money and Prices
(annual percentage growth)
Money Supply (M2) 20.1 16.0 14.0
Base Interest Rate /3 17.8 16.0 11.5
Personal Savings Rate 16.2 15.0 13.9
Retail Inflation 8.1 7.4 6.0
Consumer Price Index 11.4 8.9 7.0
Exchange Rate ($/PE)
Official 144.5 135.0 160.3
Balance of Payments and Trade
Total Exports (FOB) /4 16,242 18,206 17,500
Exports to U.S. 617 590 n/a
Total Imports (CIF) /4 24,001 27,714 28,000
Imports from U.S. 884 916 n/a
Aid from other countries 2,134 3,163 3,300
External Public Debt 17,260 18,673 20,000
Debt Service Payments (Paid) 3,575 3,570 3,450
Gold and FOREX Reserves 26,100 24,461 22,500
Merchandise Trade balance -7,855 -9,508 -10,500
Balance with U.S. -267 -326 n/a
1/ 1993 Figures are all estimates based on available monthly
data in October 1993.
2/ GDP at factor cost
3/ Figures are actual, average annual interest rates, not
changes in them.
1. General Policy Framework
The government's fundamental economic goal is to modernize
Portugal's markets, industry, infrastructure, and work force in
order to match the productivity and income levels of the more
advanced European Union (EU) partners. With 1992 per capita
income equaling only 57 percent of the EU average, Portugal's
catching up is a long-term process.
The government's medium-term economic objective is to be in
the first tier of EU countries eligible to join the Economic
and Monetary Union (EMU) as early as 1997. Portugal's
inflation rate, five points above the EU average at the end of
1992, is the key impediment to attaining this goal. As a
result, economic policy in 1993 focuses on reducing
inflationary pressures by lowering the fiscal deficit,
maintaining a stable escudo, moderating wage increases, and
encouraging increased competition. Policymakers appear to be
willing to accept slower growth rates and higher unemployment
levels as the price for membership in the EMU. The official
1993 inflation target range is five to seven percent. Many
private observers expect actual results will be about seven
The crisis in the European Monetary System that erupted in
September 1992 had a negative impact on Portugal's balance of
payments position and forced two devaluations of the escudo.
International reserves, large by EU standards, fell by $1.5
billion in 1992. At the end of 1992, all barriers to capital
movements were eliminated.
For the second consecutive year, the rate of growth of the
Portuguese economy slowed. During 1992, real GDP growth
reached only an estimated 1.1 percent real growth rate, down
from an average 4.5 percent growth in the fast-paced 1986-1990
period. The recession in the EU, which accounts for 75 percent
of Portugal's international trade, is the key factor explaining
recent economic performance. The cyclical downturn has been
accentuated by structural adjustment problems in traditional
industries. There is a growing evidence that the economy will
register little or no growth in 1993.
Prime Minister Cavaco Silva and the Social Democratic Party
(PSD) won a renewed absolute Parliamentary majority in 1991.
With this four year mandate, the government has continued its
program of wholesale restructuring of the economy through
privatization of the public sector, encouragement of private
sector modernization, and opening the domestic economy to
increased external competition.
2. Exchange Rate Policy
In April 1992, the government formally adhered the escudo
to the six percent-wide band of the Exchange Rate Mechanism
(ERM) of the European Monetary System. Until the ERM crisis
erupted in September 1992, the escudo had been one of the
strongest currencies in the grid, usually trading at the upper
end of the band.
When Portugal did not accompany the Spanish peseta's first
devaluation in September 1992, speculation against the escudo
intensified. The Bank of Portugal intervened heavily to
support the escudo and hiked short-term interest rates. In
November 1992, however, the escudo was forced to devalue in
line with the peseta and again, albeit partially, in May 1993.
In August 1993, all currencies in the ERM were allowed to
fluctuate within a band plus or minus 15 percent of their
central parity rates. In spite of the instability in the ERM,
the government maintains its commitment to exchange rate
stability as a key element in its plans for economic
restructuring, investment, and combatting inflation.
3. Structural Policies
The Portuguese government continues to liberalize economic
structures to stimulate growth and bring the country more in
line with EU standards. EU assistance programs aimed at
reducing structural imbalances in Portuguese agriculture,
industry, commerce and regional development will approach 3.7
percent of GDP in 1993. As a result of decisions at the
December 1992 Edinburgh Summit, Portugal expects to double, in
real terms, EU financial assistance flows in the 1993 to 1999
period. As these programs require significant Portuguese
Government counterpart funding, the government's budget cutting
options are limited.
The privatization program, begun in 1989, accelerated in
1992. The government received 214 billion escudos ($1.6
billion) in privatization revenues in 1992, by far the most
important year in the privatization program.
There is no uniform procedure for privatization
operations. One of the government's concerns has been to
assure that Portuguese groups are not overwhelmed in the
bidding by European or other investors with substantially
deeper pockets. Maximum foreign ownership percentages are
normally set on a case-by-case basis. The government may
retain a substantial voice in management of selected firms.
4. Debt Management Policies
Total external debt stood at $18.6 billion at the end of
1992, or equal to 23 percent of GDP. As recently as 1989, the
external debt represented 39 percent of GDP. Portugal's debt
is well structured and can be comfortably serviced. Large
international reserves, and the ability to raise resources in
the international capital markets on favorable terms, will
enable Portugal to manage its balance of payments deficit. In
May 1993, a leading international credit rating service
upgraded Portugal's credit rating from A to AA. Portugal is an
aid donor nation and closely follows development issues in its
former African colonies.
5. Significant Barriers to U.S. Exports
As of January 1, 1993, all barriers to trade, capital flows
and labor mobility between Portugal and its EU partners were
eliminated. Most barriers to U.S. exports, therefore, are
common to all EU member states.
Policymakers see foreign investment as a crucial pillar in
building a more competitive economy. The government offers a
very generous package of incentives to investors (including to
100-percent, foreign-owned subsidiaries). The package of
incentives can range from 25 to 70 percent of the total
investment. However, private and foreign participation is
restricted or excluded in some sectors, including sewage
treatment, postal, transportation and water.
Portugal follows EU directives for standards, testing,
labeling and certification. The Portuguese Quality Institute
establishes national standards and implements EU directives.
The Portuguese Telecommunications Institute sets standards for
telecommunication products, and the National Laboratory Civil
Engineering sets Construction Standards.
Low voltage electrical and electronic equipment must meet
the requirements of EU directive 73/23/EEC. Imported textiles,
apparel and leather goods must carry a label indicating country
of origin and composition by percentage of the fabric.
Government procurement legislation makes no distinction as
to country of origin. Portugal's list of entities covered by
the Government Procurement Code was accepted by the GATT in
Quantitative import restrictions remain for the following
products: automobiles, fabrics and nets, fuses, parts of
footwear, iron and steel tubes and pipes, and weaving machines
from certain countries.
6. Export Subsidies Program
Portugal has no programs designed to directly subsidize its
exports. However, EU grants to modernize Portuguese industry
and agriculture may indirectly subsidize Portuguese exports.
Also, government support to public firms, primarily designed to
make them more attractive for eventual privatizations, also may
be considered an indirect subsidy.
7. Protection of U.S. Intellectual Property
Portuguese laws for the protection of intellectual property
are adequate. The government is improving enforcement, but
small-scale copying remains fairly common. Portugal is a
member of the World Intellectual Property Organization and is
party to the Berne and Universal Copyright Conventions and the
Paris Industrial Property Convention.
Trademarks are granted for 10 years and are renewable.
Duration of copyright is life of the author plus 50 years.
Computer programs are not explicitly protected under
copyright. Enforcement action against unauthorized copying of
software and audio and video cassettes is common.
Patents are granted for 15 years and are not renewable.
Enforcement is sometimes weak, but enforcement agencies are
being strengthened. In 1991, Portugal enacted patent
protection for chemical products, pharmaceuticals, and food
products. Portugal's patent law also contains compulsory
license provisions for insufficient use.
8. Worker Rights
a. Right of Association
Workers in both the private and public sectors have the
right to associate freely and to establish committees in the
workplace to defend their interests. Unions may be established
by profession or industries. Strikes are permitted for any
reason, including political causes. They are common and are
generally resolved through direct negotiations between
management and the unions involved. There are two principal
labor confederations. The General Confederation of Portuguese
Workers Intersindical (CGTP-IN) is linked to the Communist
party. It was expected to make its entry into the European
Trade Union Confederation (ETUC) in 1993, but this did not
occur, partly as a result of conflicts within the CGTP itself.
The General Union of Workers (UGT) is a pluralist, democratic
federation affiliated with the International Confederation of
Free Trade Unions and the ETUC.
b. Right to Organize and Bargain Collectively
Unions are free to organize without government or employer
interference. Collective bargaining is guaranteed by the
Constitution and practiced extensively in the public and
private sectors. When collective bargaining disputes lead to
prolonged strike action in key sectors, the government is
empowered to order the workers back to work for a specific
c. Prohibition of Forced or Compulsory Labor
Forced labor does not exist. This prohibition is enforced
by the General Labor Inspectorate.
d. Minimum Age for Employment of Children
The minimum employment age is 15 years. It will be raised
to 16 when the period for nine years of compulsory schooling
takes effect on January 1, 1997. The UGT and CGTP-IN have
charged that a number of "clandestine" companies in the
textile, shoe and construction industries in northern Portugal
exploit child labor. The General Labor Inspectorate is
responsible for enforcement of child labor laws but suffers
from a lack of money and an inadequate number of inspectors.
e. Acceptable Conditions of Work
The national monthly minimum wage was last adjusted on
January 1, 1993, and is generally enforced but legally does not
apply to workers below the age of 18. Current legislation
limits regular hours of work to 8 hours per day and 44 per
week, but the workweek will be reduced to 40 hours by 1995.
Overtime is limited to two hours per day, up to 200 hours
annually. Workers are guaranteed 30 days of paid annual
leave. Employers are legally responsible for accidents at work
and are required to carry accident insurance. Accidents
average between 70,000 and 75,000 per quarter. These figures
have focused government attention on improving worker safety in
the construction sector. There is also considerable concern
about the poor environmental controls in the textile industry.
f. Rights in Sectors with U.S. Investments
Legally, worker rights apply equally to all sectors of the
economy. As noted above, child labor and worker safety are
problems in the textile and construction sectors.
Extent of U.S. Investment in Selected Industries
U.S. Direct Investment Position Abroad
on an Historical Cost Basis - 1992
(millions of U.S. dollars)
Total Manufacturing 379
Food & Kindred Products 129
Chemicals and Allied Products 149
Metals, Primary & Fabricated D
Machinery, except Electrical 2
Electric & Electronic Equipment 62
Transportation Equipment -8
Other Manufacturing D
Wholesale Trade 318
Finance and Insurance D
TOTAL ALL INDUSTRIES 1,160
(D)-Suppressed to avoid disclosing data of individual companies
Source: U.S. Department of Commerce, Bureau of Economic
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