Portugal cuts public deficit sharply

Debt-stricken Portugal, negotiating a massive bailout with the EU and IMF, said Friday it had made progress in reducing its public deficit, a key measure of the country's financial health. The government said the first quarter deficit - the balance between spending and revenues - tumbled 60 percent from a year earlier to 1.02 billion euros ($1.45 billion). It said it cut spending by 3.7 percent in the three months to March while revenues jumped 15 percent, as it tightened up the public finances in what proved to be a failed effort to avoid having to call in the European Union and International Monetary Fund. Parliament rejected the government's latest austerity measures last month, forcing the government's resignation and early polls on June 5. As the political crisis racked up the pressure on the money markets, Portugal faced the prospect of paying unsustainable rates of interest to raise fresh funds to cover debt or to seek outside help, which it did last week. Officials from the EU, IMF and European Central Bank began work in Lisbon Tuesday on working out the details of an expected 80-billion-euro ($116 billion) bailout package which is seen locally as a painful humiliation. After these technical talks, the package goes for the political discussions with the aim of securing a full agreement by mid-May. The EU and the IMF have have warned that Lisbon will have to implement more public spending cuts, tax rises and far-reaching privatisation reforms in return for help. The major political parties have said they accepted the need to ask for a bailout but the pressure of campaigning for polls could make the negotiations fraught with political calculations. For 2011, the public deficit was supposed to be reduced to 4.6 percent of Gross Domestic Product but in 2010, it blew out to 8.6 percent, way over the 7.3 percent target. In 2012, Portugal is supposed to reach 3.0 percent, the EU limit. Portugal has to repay some 5.0 billion euros ($7.2 billion) in debt by June 15 and most analysts believe it must have the EU-IMF rescue loans agreed by then if it is to make the payment and so avoid default.