Political instability knocks down Portuguese economy

08:48, April 06, 2011      

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Portuguese political instability is taking its toll on the country's economy. The interest rate on the Portuguese debt in the secondary market is near 10 percent Tuesday for the five year Treasury bills, as the rating agency Moody's downgraded the sovereign debt one level, from A3 to Baa1.

The agency stated that the country's rating is still under surveillance with a negative outlook.

The risk for the Portuguese debt is larger than the risk for the Irish debt. The Credit Default Swaps for the Portuguese debt is 598 basis points as for the Irish debt mounts to 587 basis points.

The Portuguese government announced Tuesday that it would pay for the bonds that the national railway track company Refer would not be able to reimburse, due this week. The company had its rating downgraded from BB to B+ by Standard & Poor's on April 1 and has difficulties getting funding in the market.

Since the parliament rejected the budget cutting measures, the rating for the Portuguese sovereign debt was downgraded by five levels by Fitch rating agency. The other agencies also reduced the country's rating.

After the parliamentary decision, Portuguese Prime Minister Jose Socrates resigned and the country will have general elections on June 5 and a new government by the end of that month. Until the inauguration, the government is not constitutionally able to take decisions that would commit the country for the next years.

Source: Xinhua
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