Is Portugal in the Green or Red?

By GRANT DE GRAF

[Adapted and sourced from an article in WSJ By CHARLES FORELLE]

BRUSSELS—Portugal had about €2 billion ($2.77 billion) in cash at the end of 2010, an official of the country's debt-management office said.

Fresh borrowing and other public transactions suggest Portugal has this year likely increased that number to around €4 billion. The official said in an email that the figure had risen but didn't elaborate.

The figure underscores the urgency of Portugal's predicament: On April 15, it must spend more than €4 billion to repay one of its long-term bonds. In all, Portugal needs a total of around €20 billion this year to repay bonds and to cover its government's persistent budget deficit.

Portugal's leaders have said repeatedly that they don't need a bailout, and that a program of economic reform and austerity the country has embarked upon will convince financial markets to lend it what it needs. Portugal has been able to issue both long- and short-term debt this year, albeit at high interest rates.

The relatively small amount of cash Portugal has on hand stands in contrast with Ireland, which has roughly similar borrowing needs this year. But Ireland had about €13 billion in cash in its main accounts heading into 2011, plus tens of billions more in a pension-reserve account that has acted as a rainy-day fund.

Still, Ireland's huge exposure to government-guaranteed banking liabilities forced it into a bailout last year. Greece, which took a bailout last spring, did so because it couldn't attract enough borrowing at reasonable rates to meet two large bond redemptions.

So far this year, Portugal has raised €5 billion from selling short-term Treasury bills and spent about €7 billion redeeming them. It has raised about €4.5 billion in long-term debt, after subtracting money spent on debt buybacks. The government ran a deficit of €282 million in January; February's figures aren't yet available.

It wasn't immediately clear what Portugal has taken in through other vehicles, like retail savings bonds or private placements.

In the long term, Portugal would be justified in converting its debt to a loan with more favorable terms provided, by the ECB. Portugal has been compelled to adopt severe austerity measures as a result of being part of the EU. Many may argue that this is the cost of being part of the EU. Alternatively, it has had to sell the viability of its economy to potential bondholders, who may view austerity as a positive.

http://online.wsj.com/article/SB10001424052748703752404576178434210328672.html