Economy Struggling Portugal easily raises $2 billion in new debt In return for the cash, Portugal is having to cut spending sharply

By Barry Hatton

Associated Press

LISBON, Portugal (AP) -- Portugal comfortably raised ¤1.5 billion ($1.97 billion) in a short-term debt auction Wednesday despite recent market jitters about its fiscal soundness.

Portugal has one of the 17-nation eurozone's feeblest economies and needed a ¤78 billion ($102.5 billion) bailout last year to prevent it going bankrupt.

In return for the cash, Portugal is having to cut spending sharply and increase taxes. At a time when Europe's economy is grinding to a halt, the austerity measures are hitting the Portuguese economy hard, which is lumbering with an unemployment rate of 13.6 percent. The Bank of Portugal is expecting the economy to contract by 3.1 percent this year.

Portugal's tepid economic performance has raised fears that the country won't be able to persuade investors to buy its long-term debt next year, as planned under the bailout deal agreed with the country's European partners and the International Monetary Fund. Portugal's borrowing rates in the markets have spiked sharply this year at a time when some of the tensions over Europe's debt crisis have eased somewhat.

If it can't return to bond markets, Portugal would likely have to follow Greece and ask for more bailout money as well as a longer period to restore its fiscal health. Its failure to meet fiscal targets would also perpetuate the eurozone's sovereign debt crisis.

Standard & Poor's last month became the last of the three major international ratings agencies to downgrade Portugal's credit worthiness to junk status.

Interest rates in the sale of three- and six-month Treasury bills were lower amid strong demand, the government debt agency said.

The agency said it raised¤750 million ($988 million) in 3-month bills at a rate of 4.068 percent, down from 4.346 in November. The ¤750 million in 6-month bills went for 4.463 percent, lower than the 4.75 percent two weeks ago.

The Treasury doesn't need the money because Portugal's financing needs are covered by the bailout, but it wants to maintain a presence in the market. It aims to raise ¤17.4 billion ($22.9 billion) in short-term bills this year.

Prime Minister Pedro Passos Coelho said late Tuesday that Portugal is determined to abide by the demands of the bailout agreement, including sharp spending cuts and economic reforms, ''come what may.''

''It'll be hard, very hard, there's no doubt about it, but we will comply,'' he said.

Published: Thu, Feb 2, 2012