Q What are the main challenges facing Portugal?
A Our first big challenge is to put our public finances in order. The second is economic growth and the third is to improve the education and training of our labour force. The most difficult challenge of all is to pursue all three of these goals at the same time, which is what we have to do.
Q How are you addressing these issues?
A We are in the process of making deep structural reforms in Portugal. Two years ago the main danger was macroeconomic. We had the biggest budget deficit in the EU and, in the first quarter of 2005, economic growth was negative.
We were approaching the country’s second recession in three years. Oil prices were increasing. We were feeling the impact of European enlargement as new entrants began competing with Portugal for inward investment and facing the challenges of globalisation as competition from China and India affected our traditional textile and shoe industries.
Over the past two years we have cut the budget deficit from 6.8% of GDP to 3.9%. Economic growth was better than expected last year at 1.3%. This is a clear signal of the beginning of an economic recovery.
At the same time, we have been making important structural reforms. To give you just one example, we have completely reformed our social security system.
Today, the minimum retirement age for public sector employees is 65, the same as in the private sector. Two years ago it was 60. We have also introduced a “sustainability factor”. This means people will have the choice of working a little longer or receiving a slightly smaller pension as average life expectancy increases.
We believe this is one of the most ambitious and deepest social reforms to have been made in Europe and it was definitely the fastest. Sweden, for example, took 15 years to negotiate the reform of its social security system. We have done it in just two years.
Q What do you see as Portugal’s main attractions for foreign investors?
A We have a very stable political situation. We are close to the top of the international rankings for good governance and international comparisons show that Portugal is also one of the safest countries in the world.
Foreign investors are very pleased with their operations in Portugal. They’re profitable in themselves and they are making an important contribution to the growth of the economy. Foreign investors have everything they need in Portugal to develop business operations and make products that are at the cutting edge of technology.
Q How is this reflected in government policy?
A We have made a very strong commitment to improving skills. Over the next seven years we will invest 37% of European structural funds in education and training, compared with only 26% in the previous seven years. This is an important political priority for the government that means we will have less money to invest in other areas such as infrastructure.
In the government budget for 2007, we made spending cuts in every area except in science and technology, where public investment will increase 64%. Macroeconomic problems such as the budget deficit can be solved in two or three years.
A much bigger problem for Portugal is our structural deficit in education and training. We cannot wait for the next generation to replace the existing workforce. That would take too long. So we are providing education and professional skills training for people already in employment.
By 2010, we aim to have a million more employees with an educational level equivalent to full secondary schooling.