Transcript

Transcript of a Conference Call on the Staff Report for the Seventh Review under the EFF for Portugal

June 13, 2013

IMF Mission Chief Abebe Aemro Selassie
IMF Senior Economist Stephane Roudet
IMF Media Relations Officer Simonetta Nardin

MS. NARDIN: Hello, and welcome to this conference call on the publication of the staff report on the seventh review of the IMF-supported program with Portugal. With me here in the room, our IMF Mission Chief, Abebe Aemro Selassie, and IMF Senior Economist Stéphane Roudet.

MR. SELASSIE: Good morning. Good afternoon to you all. Maybe I will make two or three quick points before we start with the Q&A. I think the first point I would like to make is that this has been a fairly complex review, for a couple of reasons.

The first reason was that one of the important milestones for this review was progress toward finalizing the public expenditure review. And that took a bit of time.

And, if you recall, we have revised the economic framework fairly significantly back in March, and we needed to do a bit of work on finalizing that framework.

And then, of course, we also had the Constitutional Court ruling, which created a gap for 2013 that needed to be filled but also implied some modification to the public expenditure review that the government was finalizing.

For these reasons, completing this review took longer than the usual. But the key thing is that we think the government has made very credible, very solid progress in terms of identifying measures to fill the gap created by the Constitutional Court ruling and, more importantly, in finalizing the public expenditure review.

The second point is on the program itself. Our assessment, of course, is that it is on track. We see challenges -- particularly the very weak growth outcomes that we've seen -- but we also see areas of progress. In particular, fiscal adjustment -- which is required given the debt situation and the financial constraint -- has advanced.

About 2/3 of the required fiscal adjustment under the program was done by the end of 2012, and there's more legislated for this year. We also see significant improvements and much better outcomes regarding the current account.

More importantly, given that the objective of the program is to get growth going over the medium term, we also see structural reforms in place, in a broad range of areas -- labor markets, product markets.

Implementation is now a key issue, a key challenge, and this translates into implementation issues. There is also a need to make sure that the desired level of competitiveness is being engendered.

Implementation issues are key, but very, very strong structure reforms have been put in place.

And third, most encouragingly, market access is being regained. This is partly for Portugal and euro area-specific reasons, but partly also due to global economic conditions. But had the government not been implementing the program as it stands, I don't think this level of market access would have been regained.

Progress on this front is also very encouraging; and if you consider that Portugal turned to official financial assistance from the E.U. and the IMF because it was shut out from markets, restoration of this market access -- or beginning of the process (inaudible) of full market access is, really, a very important landmark for the program.

Another point I would like to touch on is on the program design issues. And this links to the market access points to some degree.

In terms of the overall objectives of the program -- and I think this is true for everybody working on this program, from the government side and the other European partners -- the objective is clearly to get the Portuguese economy back into a vibrant position, where it can create the large number of jobs required to address the unbearably high unemployment situation.

And achieving this requires a comprehensive program. This is a very complex program, a very difficult program to try and implement, given the limited policy levers that are available -- given the depth of the economic challenges that Portugal faces. And progress is needed, both in terms of structural reforms, in terms of financial sector policy, but also on fiscal policy and fiscal adjustment.

Now, of course, pursuing this fiscal adjustment implies a drag on output, so the complexity of the program also arises from these competing objectives, in a way. You want to restore growth, but you also have to address the high fiscal imbalances that Portugal is facing, in light of the financing and debt constraints. In trying to address the fiscal deficit, you also have an adverse effect on growth.

The important thing, from our perspective, is to make sure to strike a balance.

Now from the program design perspective, since about the middle of last year, when Portugal started the road back to market access -- initially by issuing T-bill at ever-declining yields, lengthening maturities, and then to the point where government was able to issue the ten-year bonds -- the financing envelope increased due to increased market access. We have been trying to exploit that as much as possible, and reducing the pace of adjustment as much as possible.

But, overall the initial pace of fiscal adjustment was dictated by the financing envelope, which remains constrained. Of course, we must not lose sight of the fact that debt is high, so there's a limit as to how much the financing envelope can be pursued.

Overall, a very ambitious program, a very complex program -- ambitious because the policy options available to effect the required adjustment in the economy are limited; complex because we need to tackle fiscal problems, financial sector issues, the growth challenge.

And, as much as possible, we've been using these quarterly program reviews to make sure that we continue to strike the appropriate balance, both in terms of advancing adjustment, but also avoiding any unnecessary strain on output and employment.

QUESTION: It seems, despite your positive, optimistic assessment in the beginning of the conference call, is this pretty dour? There's a very thin outlook.

Given all the gloomy statements, wouldn’t you say it makes sense for Portugal to restructure its debt? And if Portugal can't return to markets at a sustainable level, aren't you saying that it will need further financing assistance?

MR. SELASSIE: It is the nature of our reports to be very candid about the economic challenges that countries face. I don't think the tone here is any different to that of the previous reviews. But, of course the overall situation is a difficult one, as you well know. The growth outlook is weaker than we had envisaged earlier. But in terms of program implementation, as I said, we really are satisfied. That's the first point.

Second, also in terms of program outcomes, as I just mentioned the reason Portugal needed official financing was lack of market access. And this is an area where they've made very good progress, so we don't see the need to consider a radical change in program design at all at this stage.

QUESTION: Can I just follow up? Are you saying that you're not sure anymore -- even if the government would implement the reforms as needed, comprehensively -- that it'll be enough to offset the effects of austerity?

MR. SELASSIE: Sorry -- if you could explain -- I don't think I got your question.

QUESTION: Well, it seems as though you're saying that you're not sure anymore that the economic reforms, even if implemented comprehensively, will be enough to offset the effects of austerity. You talk about -- let's see -- "with only modest improvement in price competitiveness indicating" --

MR. SELASSIE: Oh, no, no. Not at all. I think that the point we're making is that there –external adjustment really far exceeds where we expected to be at this point. But competitiveness indicators haven't improved as much as the outcomes have, so there's some dissonance there.

But if you look at how exports have been behaving, generally, in the tradeable sector -- and a nice indicator of the relative health of the tradeable sector is also -- if you look at credit availability to the credit sector in some of the charts we have in the report, they all show the required adjustment very much taking place.

Our view remains that continuing to implement this program is what's needed to get the recovery that's needed, to allow job creation. We're not at all saying that things are gloomy; far from it. I think it's difficult now, but we think the government is laying the basis for a recovery over the near to medium term.

QUESTION: Hi. I'm wondering if the rate of the (inaudible) of the program (inaudible) 2014 -- and what's in this review with them, and what are the next steps? And in the background information of the IMF, the IMF said that, "However, the economic outlook is nothing worse than previously expected." Can you comment on that? Thank you very much.

MR. SELASSIE: I think one important point for everybody is that we are comparing to developments that we expected at the time of the sixth review, which took place back in December/January. At the time, if you remember, we had a very different outlook for growth for 2013. But, of course, as soon as we got the reading of the last quarter of 2012, which is in the March mission, we revised the growth down to -2.3 percent. That remains our central forecast.

When we are talking about the deteriorating outlook, we're talking about the deteriorating outlook relative to previous expectations. I think this probably goes back to the previous question also.

We are talking about the change in outlook, relative to what we had been expecting. Right now, in terms of the latest developments that we see they very much correspond to this outlook that we have in the report-- the current baseline. The high-frequency numbers that we've been seeing in the last several weeks, in particular, all point to the -2.3 percent GDP forecast being a likely outcome. Here, I'm referring, of course, to the April trade numbers. The revenue numbers that came in for May, also are somewhat encouraging.

I think we see high-frequency indicators basically supporting the forecast that we have. The current forecast is the current baseline. The comparison we're making in the report is relative to the previous forecast that we had at the time of the sixth review.

QUESTION: My first question is, in the report, you say that the political and social consensus on the program has weakened significantly, and that the risk of the attainment of the program's objectives is high, and that the scope for more financing is limited. The way I read this, it seems like the IMF believes that the probability of success of the program as it is is low. My question is, will the IMF be willing to review the program, either on the nature of the objectives, or on the time we have to achieve them? My second question is, President [Cavaco Silva] has recently said that the Troika sometimes speaks with different voices and expresses different opinions within itself, and that he would like to see a new composition for the Troika in which the IMF would have a less important role. I would like a comment on that. Thank you.

MR. SELASSIE: On your first point, we very much are of the view that the program's core objectives remain achievable. There's no change in our assessment.

When we refer to a program being on track, it basically means that we think that the program's core objectives are achievable, and so we proceed.

Again, the risks to program attainment of these core objectives, we've always considered to be significant, and I think it's in the nature of the program, part of the complexity of the program, how broad-based the economic challenges are, how widespread the challenges are, and the limited policy levers that we have. This characterization is no different to what we've had in the past.

Lastly, on the points about composition of the Troika, et cetera, I'm not sure about the context in which these remarks were made. It's difficult for me to comment. I saw some headlines, but I think these questions are best directed to him.

QUESTION: I have four questions, if that's all right. First of all, I want to know if you think there will be some kind of impact on the Portuguese program from the Greek report [Ex-Post Evaluation] that the IMF published last week. Will you consider some adjustments to the Portuguese program in light of the conclusions about the Greek one?

Second question -- our Prime Minister and Minister of Foreign Affairs are already saying that the fiscal targets in 2014 will be very difficult to attain. Do we think there's some scope to a new flexibilization of the deficit?

And on this report that you published today, you say that some of the growth in our exports are due to less imports, and that when the economy picks up, the imports will go up again. Considering that, do we think that the external adjustment that Portugal has done so far is sustainable in the future, when the economy picks up?

And lastly, about unemployment. You don't mention many times unemployment on the report. You say that's a problem, but we don't really see any solutions or measures that can tackle the problem. I just want to get some of your thoughts on that. Thank you.

MR. SELASSIE: On your first point, about what lessons are being learned -- I think it goes back to the point I was making at the beginning. I think, first of all, Greece and Portugal are very different programs, very different circumstances. If you look at the degree of program implementation, the commitment to program goals, as well as in terms of outcomes that the programs have engendered – these are very different trajectories. Initial conditions are also very different.

I think one has to be very, very careful in making these comparisons. Again, I go back to the fact that market access is being restored as an example.

But going back to the point I was making at the beginning -- I think in the Portuguese program, more so than anywhere else, we've been very aggressive in using program reviews to learn, recalibrate and revise the program parameters, as we've been going along.

Again, going back to at least middle of last year, when the financing conditions improved, we've been adjusting the program's fiscal parameters fairly significantly, basically, to strike a better balance between adjustment and supporting activity as much as possible. We have been using these program reviews very aggressively.

Second, on the 2014 deficit, as always, from the start of the program, we've been saying that automatic stabilizers should be allowed to operate. And that policy remains in place.

The 2014 deficit goals will be adjusted for developments in the economy, and we'll see how things go on that front.

Third, on exports, on the current account improvement. I think if you go back to the sixth review, we had an Article IV report and some supporting studies where we discussed this extensively.

The improvement in the trade account and current account is both due to lower imports as a result of the weak economic conditions, but also strong export growth. Going forward, this is exactly the kind of rebalancing that you want to see -- more imports being replaced by domestic production, and higher exports.

And we have no reason to think that -- while we expect imports to go up, we have no reason to think that exports are going to slow down -- far from it. We would expect exports to continue increasing.

If you look at our projections over the medium term, we show trade account deficits of the order of two percent of GDP, and this compares with the 10/12 percent of GDP Portugal had before the crisis. We see the adjustment enduring and the program delivering that as well.

Lastly, on unemployment, jobs remain really a very key focus of the program. And the question is how to bring that about in a durable way. Almost everything has been done -- in terms of allowing automatic stabilizers to operate; easing the deficit targets is of course intended to help output, which is ultimately what helps unemployment.

All of this using the room for maneuver financing-wise -- this is all, of course, with the focus of trying to support the economy.

What matters about output is job creation. That very much is what we're doing this whole program for.

QUESTION: I have two questions, one of which is related to the issue of market access, which, as you said, most encouragingly, Portugal did manage to return to market. With recent volatility in bull markets, we have seen Portuguese bonds sell off quite severely, and I'm wondering whether you're concerned about whether conditions, perhaps, in the first quarter of the year were unusual, in terms of the global search for yield, and whether, therefore, there could actually be some doubts around market access for Portugal, particularly given the large amount of market financing they might need to raise next year. And my second question has to do with the long-term growth prospects for Portugal. One of the long-running concerns has been that, prior to the crisis and during the boom period, Portugal's growth was extremely low. How do you see growth -- what is the growth potential once all these measures are implemented, and is that sufficient to start reducing the debt from the extremely high levels it's at? Thank you.

MR. SELASSIE: Thank you. On your first question, we've always been of the view -- and I think the report discusses this very clearly -- that we see two factors having made market access possible over the last year, year and a half or so.

The first one, I think, is the progress both in Portugal, but also in the broader euro area level in setting up crisis-fighting policies, and in thinking about the steps that have been taken to try and strength euro area architecture -- the discussions are going on. And then the second one, of course, is global liquidity -- and, as you noted, the quest for yield by global investors. I think both these factors have been at work. What we've seen in the last couple of weeks is more the latter factor -- the uncertainty regarding policies by the Fed and others.

But when you look at the overall picture, what you see is yields declining from -- for 10-year -- around 15 percent about this time last year -- or somewhat earlier last year -- to where they are now, around the 6.4 mark.

We have to look at that overall trend. For what it's worth, in terms of the debt sustainability analysis, we still maintain a market re-access rate of seven percent, tapering off very gradually over the medium term.

I think one has to see it in that broad context. The other key issue in terms of market access is that the financing need for the remainder of the year is effectively covered on current policies and outlook. Going forward we'll see Portugal deepening and expanding on the market access it has enjoyed. The progress on this front is overall very encouraging, and we need to step back and look at the bigger picture, rather than kind of the week-to-week, day-to-day improvement in yields.

On your second question, on long-term prospects for growth -- again, this is something we discussed at length in December, in our Article IV staff report. But, quickly, I would say two things.

One is that if you look at why growth was low historically -- or at least in the euro period in Portugal -- we think that there were a lot of policy-induced obstacles to productivity increases. The ability of the economy to shift resources from less productive to more productive factors, in terms of labor, in terms of capital, was handicapped a lot by the lack of competitiveness, by labor market rigidities, labor market and other regulations.

And the program very much goes towards tackling those head-on -- increasing competitiveness, reducing as much of the policy-induced labor market regulations which made Portuguese labor market an outlier, and inefficient at helping reallocate resources to high-productivity sectors. The program is very much addressing those barriers to productivity improvement.

That's one way in which the program is helping. But second, once these rigidities have been improved, if you look at where Portugal's per-capita income is, relative to its euro area trading partners, I think there's a very large gap. Even if you abstract from the productivity increasing/enhancing aspect of the reforms that have been adopted, simple catchup growth itself, I think, would allow fairly significant growth in Portugual.

In sum, we expect over the medium to long term, two percent growth rate, and we think that's a fairly conservative projection, in light of the reforms that have been taking place, but also the scope for catch-up. It's not a high bar, per se.

One last point I want to make -- this is an issue that we've been working on. If you look at Portuguese growth between 1999 and 2007, it's averaged 1.7 percent. Now if you include the global financial crisis period, you get a lower number. But if you look at the pre-crisis period -- again, '99 to 2007 -- it was 1.7.

Our medium-term projection of two percent growth on the back of all these reforms really is not extremely ambitious, relative to the historical record. 1.7 versus two -- I don't think is very ambitious -- as long as we can get to two, the debt outlook is going to be manageable, and should be able to come down signficantly.

QUESTION: Hello --I have just one simple question. You say there's been adjusting to the objectives, but I have to ask -- have mistakes been made in the Portuguese program?

MR. SELASSIE: In what area?

QUESTION: Since you say you've been adjusting certain objectives –

MR. SELASSIE: The deficit target, you mean?

QUESTION: For instance, some first reviews that have not gone as expected -- do you think there's been some mistakes since the beginning of the program?

MR. SELASSIE: Okay. Two points, I think. One, if you look at how we make out projections even now or back when the program started, they're always conditional on expectations of what outlook for global economy, trading partners is going to be like.

If you look at where output is now, in comparison to where it started off -- where we expected it to be, at the start of the program, it's fairly different.

I mean, through 2012, it was about the same, but over the forecast horizon through 2015, we're going to have a 4.5/5 percentage points difference, in terms of where outlook is.

And, again, if you unpack that -- if you look at what the contributing factors there are, a significant part of that has been because of the much worse external environment in the euro area. I don't think the program expected -- nobody anticipated that conditions would be as difficult as they turned out to be in the rest of the euro area.

I think that's something which the program didn't anticipate. The point is, the projections that we make are conditional on assumptions that we make about the development, in trading partners, and the like -- and if they are different, then, of course the program parameters warrant adjusting. And that's exactly what I'm talking about, in terms of adjusting them.

Another factor, of course, has been somewhat more drag from fiscal adjustment on growth, so domestic demand has been weaker, also. It's not just the external environment. And, again, in response to that, we've been adjusting the program parameters.

This is the point I was making earlier, also, about the reviews being used to fine-tune the program.

QUESTION: I have three simple questions, I think. The first one is, I wanted to just mention of the broad agreement of that the scope for more financing was limited. I wonder, why did you even discuss this scope for more financing? What is the problem? What are the risks? Do you believe that somehow, even in a limited way, (inaudible) for more official financing, if that's what you mean?

My third question is related to a further advance on fiscal consolidation. Given the track record -- and direct from consolidation on the outlook, on growth -- measures like the modification of the [pension measure] for public sector employees -- could that reform be another drag on the output, given if we are looking on the short term?

And my last question is a very concrete thing about the one figure that you mentioned in your report. You say that the way to build reform will generate at least 2.2 billion euros of savings. But I further note that the number associated of savings referred by Prime Minister was about, like, half a billion euros. Can you explain to me the difference between these two numbers? Thank you very much.

MR. SELASSIE: Okay. Again I think it is very important to clarify what we mean in the discussion that you mentioned: the balance between adjustment and financing.

The way we look at the situation is that there's basically, in a circumstance such as this -- when countries got shut out of markets -- one needs to strike a balance between adjustment, and how much you finance is available to close the gap, basically, for adjustment versus financing .

And the point we're making, I think, in that discussion -- which is in the staff appraisal -- is that it's not so much that there's a financing constraint, but, rather because the market access that's now being enjoyed, the level of cash balances that there are available now -- but the issue is that you cannot keep doing more financing without an implication for the debt trajectory, okay?

When we talk about the scope of financing as limited, we're meaning it in the sense of its impact on debt -- if you keep financing and not adjusting, then, of course, the debt continues to increase.

So, the debt trajectory itself is also something that you have to worry and be concerned about. That's what we have in mind by financing -- the fact that you cannot keep just doing financing.

Second, on the public expenditure review (PER) and its impact -- these are already incorporated in the macroeconomic projections that we have. We try to estimate the impact on disposable income, et cetera, so those are incorporated.

And then, thirdly, you mentioned this 2.7 billion. I'm not sure from which table -- but I would like to stress that these numbers are not comparable to what the government has shown. The numbers you said the Prime Minister had discussed earlier -- I think there are differences between gross versus net. In some of our tables, we compare, relative to previous years. And there are also assumptions that we make about what the numbers would look like in terms of the baseline scenario, but would include policy changes. You have to be very careful in terms of making these comparisons.

QUESTION: Hi, my first question is on the European Central Bank (ECB) Outright Monetary Transactions (OMT) program. You do mention in the report that eligibility for that program would help Portugal secure long-term market access. Do you think that Portugal has come to a point that is already eligible for that program? And, if so, do you know if there's been any sort of talks between the country and ECB in that respect?

Also my last question, if I may -- just going back to deficit targets -- and I'm sorry for that. But the report does say that deviation from current fiscal deficit path is tight or minimal because of debt sustainability concerns. Does this mean that you would be less able or available to ease deficit targets in the future, in the program, if that's what's needed, because of the economic conditions being worse?

MR. SELASSIE: Okay. Firstly, on OMT, we think the ECB has been fairly pragmatic in the way it has responded to the difficulties in the periphery. I mean, you can go back to the two Long-Term Refinancing Operations (LTORs) that were done, a less sexy topic, but issues like the collateral easing that they've done for banks to access facilities.

They've been very pragmatic in trying to address the difficult financing conditions in the periphery.

We see OMT and other possibilities that have been mentioned as part of the series of steps that they are considering to help address the issue.

Now for us, whether it's OMT or other steps that are taken, I think the key outcome that we want to see is less fragmentation, and what we see by way of high lending rates in Portugal being addressed as quickly as possible.

OMT is one option, but, the ECB has also talked about other options. I think, for us, right now, the key challenge is more on this front -- trying to reduce lending rates for firms and anything that can be done in that area. We're relatively open to what particular tools that they use to do this.

And on the market access, we've seen Portugal achieving market access without OMT. I think we see more the need intervention by ECB or policies by ECB to help facilitate greater credit access for small and medium enterprises. I think that's the key for us.

Your next question was on deficit targets. As I said earlier, really, there's no change in our stance, in terms of our whole approach. I think, as warranted, automatic stabilizers should be allowed to play, and this has been a principle in the program from the start.

This is exactly also why we focus on the underlying structural adjustments in the program, and not so much the headline targets. We continue to be of the view that this is important. But in terms of the room for maneuver, when we're talking about limited financing scope, what we're talking about is in terms of being able to ease the structural adjustments, further, beyond what we have now. We think that the room for that is limited.

QUESTION: The first question relates to the last answer you were giving to my colleague. You said that's very limited room of maneuver to leave on the structural consolidation. But if there's a risk to growth and for the deficit consolidation to affect growth even more -- and if that risk materializes, what's the option then?

Also I want to ask you about the fact that the report states that the appetite for reforms in Portugal is waning. Do you think that maybe the report about Greece that was made public last week can increase the reticence for reforms in countries like Portugal?

And, also there was [talk] of a special contribution from pensioners. And the government intends not to go ahead with this measure. I want to know, will the Troika act, put an alternative measure in the next review? Has the government committed to present an alternative in the next review?

And last, there seems to be a huge problem with corporate debt. And despite the fact that you stressed some measures that were taken by Portugal to restructure all the corporate debt, are there any plans to push further with these? Can you elaborate a bit more on this matter? Thank you.

MR. SELASSIE: On your first question, on fiscal consolidation -- I really don't know what else I can add. I think, again, the principle remains that we will allow automatic stabilizers to operate. Every review, we have extensive discussion about the appropriate fiscal stance. We will continue to do that.

We are very pragmatic, and we remain of the view that the key really is to strike a balance. And to the extent the financing conditions allow, we will strike that balance, and avoid undue strains on the economy. I think that's the principle that we'll follow. This is almost the first topic of discussion that we have with the government.

Appetite for reform. I think we're being, again, very candid, in terms of what we see on the ground, in terms of support for measures. It's still there. We really admire and support what the government has been doing -- but, also, it's fair to say that broader support for reforms is weaker than it was a year, year and a half ago.

I think we're just conveying that to the Executive Board and the broader international community in those remarks.

Pensions -- again, more broadly on the public expenditure review -- I think you all heard me say this -- the specific measures that should be part of the public expenditure review have to come from the government.

In terms of the way we approach this, I think you can look at the memorandum of economic financial policies. What we do is, we outline, we lay out what the government has, so far, identified as measures. And there's language here -- I think if you look at paragraph eight, towards the end -- where these measures have been identified. The government is going to have a public consultation period.

If the consultation period yields in a desire to change some of these specific measures, then alternative measures will be found. And I think you'll see language to that effect in the memorandum of policies.

That's how we approach this. I think the specific details of policy have to come from government.

But just to say something on the public expenditure review -- on this overall architecture -- I think it's unavoidable when you have about 1/3 of total spending, for example, falling on pensions; 15 percent of GDP falls on pensions, 10 percent of GDP also comes on public wages. I think it's unavoidable that you need to have reforms in these areas, if you're going to have public expenditure reform.

Pension spending between 2000 and 2011 in Portugal increased, in real terms, by something like more than 60 percent -- I think 68 percent, to be precise. And only about half of this can be explained by the aging of the population, and the remainder reflects increases in real pensions, increase in the amount of people being covered by pension systems, et cetera.

When you have these very large increases in pension entitlement, I think it is unavoidable that you need to look, to see if any savings can be generated.

And, as we discussed last time, the key is that in terms of its effectiveness in reducing poverty, the pension system is not among the strongest in the euro area. Both for equity reasons -- in terms of improving the effectiveness of the pension system in addressing old age poverty – but also to generate savings, I think that it's unavoidable that the government needs to look at doing some pension reform -- again, much the same in the area of public sector wages.

There are studies that show that there is a premium in public sector wages of around 10 percent, relative to comparable private sector wages. The premium is even higher at the lower end. And, of course, as I said earlier, it's a significant part of government outlays. So looking at this is unavoidable if you want to do a credible public expenditure reform.

But, again, to stress -- specific measures, we leave to the government. They're in a much better position to know the constraints, and come up with the measures.

I think your last question was on corporate debt. In the program, we approach this from two sides. There are lots of things being done in the program, in terms of strengthening the corporate insolvency regime, to allow corporate debt workouts. I mean, this is actually one of the features of the program, which is unique, almost, to Portugal.

We've done a lot of work with the Ministry of Justice, but, also with Banco de Portugal (BdP) and other relevant institutions, to strengthen the corporate sector. There's a box on page 13 of the report which discusses extensively what is being done to try and strengthen the framework.

And we think the best way to facilitate any restructuring that's needed is to allow these workouts either outside the courts or through the court system. That's one approach.

And then, secondly, from the banks’ balance sheet side, I think we've done a lot to recapitalize the banks, and we're still doing a lot of things with BdP to strengthen supervision and avoid ever-greening so you allow corporate debt restructuring to take place.

We're doing a lot of work on that front, and I think it will take some time to see the effect.

QUESTION: The last three months have been filled with ups and downs. We know that there was a huge disagreement about one of the measures in specific -- the contributions for pensioners. And I want to hear, is the IMF worried about the future of the coalition? Does the IMF think that we're reaching a boiling point? Just to hear a few thoughts about this matter. Thank you.

MR. SELASSIE: I have nothing to say on this, really.

QUESTION: Okay. I have a question. The thing is that the letter from the Portuguese government to Troika, sent on the beginning of May, points to savings of 4.7 billion euros on public expenditure reform, until 2015.

But now, in the memorandum of economic and financial policies, I believe it's on page 70 -- it is said that this total package of measures will be in place on next year.

My question is, did the government commit itself to anticipate these measures in one year?

MR. SELASSIE: Again, the numbers in this table are not strictly comparable to those published by the government. In the wake of that letter, we had another mission, and we had discussions, and the government also changed the package of the measures that would be taken for 2013 budget purposes. I think there were a number of changes that were made to the package.

I don't think these tables are comparable. The key, however, is that there isn't more adjustment being done relative to that letter in 2014 or 2015. We haven't asked for more adjustments to be done. I think that's the key point. But I don't think the numbers in the previous letter and this one are comparable, because the baseline has changed a bit and things like that. But, again, I stress, the key is, there isn't more adjustment that has been sought.

MS. NARDIN: Thank you very much. This concludes our conference call Thank you all very much for participating.