Monday 28 June 2010

Summer, World Cup or both?

   Suddenly, all the discussion about the Portuguese economy faded away, shadowed by the World Cup in South Africa, and by arrival of Summer.
   Still, the worrying fundamentals did not disappear. We will have to come back to them soon.
   Meanwhile, this month taxpayers will be hit by the increase in taxes announced some weeks ago. At the same time, the Ministry of Finance is making available a new instrument of public debt, for long term investments (apparently, for more than 5 years, it pays more than current instruments to the small investor). Good news that Portuguese families can invest at a rate higher than time deposits and Government get funding below rates in international markets.
   I did not went to look into the details of the product, but I would look for clauses that prevent "opportunistic" behavior by future Governments in case rates in international markets fall below that of this new instrument (based on past decisions, future Governments may change conditions, hurting long term small investors).
   However, access to public debt is not yet a couple of clicks away in our computers...

1 comment:

  1. I totally agree with Pedro Pita Barros' comments on
    (i) the importance of a new financial product stimulating the allocation of medium-term domestic savings to portuguese public debt; and
    (ii) the importance of confirming whether the government will (not) be able to arbitrage with foreign interest rates;

    Indeed, part of my post of June the 1st included idea (i), under the name of a putative "virtuous forced saving":
    "has the Portuguese government done everything to its reach in order to contain the indebtedness of Portuguese entities? I do not think so.
    Public expenditure should be significantly reduced, which I haven't seen so far (at least compared with Ireland and Spain's immediate measures). And -- a crucial 'and', for me -- renewed incentives for residents to hold public debt should be created. The Portuguese twin deficits will only be tackled if and when the Government actually stops spending inefficiently and sucking resources from the public to finance that spending; and when it creates virtuous 'forced savings', instead of the vicious ones that have been recently implemented (increased taxes)."