Financial Reforms Approved in Portugal Bailout

According to the Wall Street Journal (WSJ), the officials from the European Union and the International Monetary Fund conducted their fourth evaluation of the country on Monday. According to Finance Minister Vitor Gaspar, in his speech after the proceedings, the 78 billion euros bailout program is on track and doesn't need any adjustments. The fiscal adjustments have been pushed forward along with the stringent financial reforms demanded by the European Union and the International Monetary Fund in exchange for the loan. The reforms targets are supposed to make Portugal's deficit meet the target of 4.5% of gross domestic product in 2012 and 3% of the GDP in 2013. The next stage of the package for Portugal is 4 billion euros, which according to Mr. Gaspar is needed to fulfill the financing requirements and fulfill the program's adjustment progress. In an article of the WSJ, “Mr. Gaspar said that the Portuguese financial system is stronger than a year ago, and its banks will be the most capitalized lenders in Europe following capital injections by the state.” So far the government is on track with the EU and IMF demands but the predicted growth of GDP is dismal and unemployment has risen to 15.2 percent which is a record, according to The Seattle Times. Also from the Seattle Times, Portugal has profited from the political consensus in enacting the bailout program which was signed by three separate political parties. The Socialists have been calling for more policies focusing on growth because the bailout program has created the highest unemployment rate on record in Portugal. The Seattle Times provided an announcement that the Finance Ministry will be injecting more than 6.6 billion euros into three of the largest banks in Portugal, these banks need the money to meet the new capital requirements. Some of the much needed aid will come from government recapitalization funds and the issuance of self-financing bonds. The laws that European banks are required to follow have become more complex and demanding in lieu of the cascade in economic recessions and bailout aid requested. The ratio between capital-to-risker assets held is up to 9 percent, according to The Seattle Times. This required cushion is like the U.S banks, which are holding more capital in their vaults than they have in years.

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