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Economy of Portugal

The Portuguese economy experienced boosts when Portugal joined the European Union in 1986 and the European Monetary Union (EMU) in 1999. In recent years, however, it has suffered from sluggish to negative growth, a ballooning budget deficit, and low productivity and competitiveness, which, exacerbated by the onset of the eurozone debt crisis, have led to record-high spreads on sovereign debt, downgrades in credit ratings, and mounting pressure to seek an EU or IMF bailout. On May 3, 2011, Portugal’s Socialist caretaker government reached agreement with the European Commission, European Central Bank, and IMF on a €78 billion (approx. $111 billion), 3-year bailout package that will require Portugal to implement comprehensive measures, including privatization of state-owned enterprises and measures to reform its labor market and justice sector. On May 5, 2011, the caretaker government and the troika signed a memorandum of understanding on conditionality for the bailout package. The package was approved by EU and eurozone finance ministers in mid-May.

Portugal's membership in the EU earlier had contributed to stable economic growth, largely through increased trade fostered by Portugal’s low labor costs and an influx of EU funds for infrastructure improvements. Portugal's subsequent entry into the EMU brought exchange rate stability, lower inflation, and lower interest rates. Falling interest rates, in turn, lowered the cost of public debt and helped the country achieve its fiscal targets. Until 2001, average annual growth rates consistently exceeded those of the EU average. However, a dramatic increase in private sector loans led to a serious external imbalance, with large capital account deficits that year.

The Government of Portugal managed to keep the budget deficit under 3% in accordance with the eurozone's Stability and Growth Pact during 2002-2004. However, in 2005 Portugal’s budget deficit surged to a high of 5.9%. Subsequently, the Socrates government undertook efforts to bring the budget situation under control. In 2006, the government reduced the deficit to 4.1%, mainly through revenue-generating measures, including increased collection enforcement and higher taxes. The 2007 budget further reduced the deficit to 3.1% of GDP, through spending cuts and structural reforms. In 2009, however, the budget deficit soared to 10.1% of GDP as a result of a more than 11% drop in tax revenue. Portugal’s public debt reached 93% of GDP in 2010, with a projected increase to 97.3% of GDP in 2011.

Helped in part by a wider EU recovery, the Portuguese economy grew by 2.74% in 2007, up from 1.4% the previous year. But a slowing regional economy saw the Portuguese economy contract by 0.35% in 2008, short of predictions, and contract by 2.1% in 2009. The economy picked up in 2010 with annualized GDP growth of 0.91%, but is expected to contract 2% in 2011 as a result of higher taxes and public wage cuts introduced under the government’s austerity program.

Unemployment was 10.8% in 2010, up from 9.5% in 2009 and 7.6% in 2008. In the fourth quarter of 2010, unemployment reached 11.1%, up 1% from the same quarter of 2009 and up 0.2% from the previous quarter. The number of unemployed was estimated at 619,000, up 9.9% from the same quarter of 2009 and up 1.6% from the previous quarter.

The service sector, which includes public service, wholesale and retail trade, tourism, real estate, and banking and finance, is now Portugal's largest employer, having overtaken the traditionally predominant manufacturing and agriculture sectors since the country joined the EU in 1986. EU expansion into Eastern Europe has negated Portugal's historically competitive advantage of relatively low labor costs, particularly in the manufacturing and agriculture sectors. Under the leadership of Socialist Prime Minister Jose Socrates (currently caretaker prime minister), who was reelected in September 2009 on a platform of modernization and innovation, the government has been working to change Portugal's economic development model from one based on public consumption and public investment to one focused on exports, private investment, and development of the high-tech sector.

Due to weak economic growth, Portugal has lost ground relative to the rest of the EU since 2002. Portugal's 2009 per capita GDP stood at 80 Purchasing Power Standards (PPS) compared to the EU-27 average of 100 PPS, leaving the country in last place among its Western European counterparts after accounting for price differences (but ahead of EU’s newest members). Now among the weaker economies in the EU, and the third eurozone member (after Greece and Ireland) to request a bailout, Portugal aims to reduce its budget deficit to 5.9% (from 9.1%) of GDP in 2011, 4.5% in 2012, and 3% in 2013. In accordance with the terms of its bailout agreement, Portugal has until 2014 to bring its budget deficit back below the mandated 3% eurozone limit. In 2010, the government implemented a series of austerity measures, including cutting public sector wages, reducing attrition replacement hiring, decreasing pension benefits for early government retirement, and increasing taxes. It seeks to impose fiscal discipline and further reduce its deficit over the next 3 years through structural reform measures, as agreed upon with the EU and IMF.

GDP (2010 est.): €160.3 billion (approx. $208 billion).
Annual growth rate (2010 est.): 0.91%.
Per capita GDP (2010 est.): €18,453 (approx. $23,965).
Avg. inflation rate (2010 est.): 1.2%.
Services (75.4% gross value added: Wholesale and retail trade; hotels and tourism; restaurants; transport, storage and communication; real estate; banking and finance; repair; government, civil, and public sectors.
Industry (22.3% gross value added): Textiles, clothing, footwear, wood and cork, paper, chemicals, auto-parts manufacturing, base metals, dairy products, wine and other foods, porcelain and ceramics; glassware, technology; telecommunications.
Agriculture (2.3% gross value added): Livestock, crops, fish.
Trade (2009): Exports--€31.3 billion (approx. $42 billion): machinery and tools 16.2%; vehicles and other transport materials 11.8%; base metals 7.7%; clothing 6.8%; plastics and rubber 6.3%; food products 5.9%; minerals and mineral products 5.7%; agricultural products 5.4%; oil products 5.0%; chemical products 4.8%; wood pulp and paper 4.7%; textile materials 4.3%; footwear 4.0%; wood and cork 3.7%; optical and precision instruments 1.1%; skin and leather 0.3%; others 6.3%. Imports--€48.4 billion (approx. $65 billion): machinery and tools 19.1%; oil products 12.7%; vehicles and other transport material 12.2.1%; chemical products 10.3%; agricultural products 9.9%; base metals 7.7%; plastics and rubber 4.9%; food products 4.5%; clothing 3.1%; textile materials 2.7%; wood pulp and paper 2.5%; optical and precision instruments 2.3%; minerals and mineral products 1.6%; wood and cork 1.1%; skins and leather 0.9%; footwear 0.9%; others 3.5%. Export partners--Spain (26.7%); Germany (13.1%); France (12.3%); Angola (7.2%); United Kingdom (5.6%); Italy (3.8%); United States (3.2%); others (28.1%). All EU-27 (74.2%). Import partners--Spain (32.4%); Germany (12.7%); France (8.7%); Italy (5.7%); United Kingdom (5.4%); Netherlands (3.3%); United States (1.6%); others (30.2%). All EU-27 (78%).
U.S. trade with Portugal (2009): Exports--$1 billion: transportation equipment (22.5%); computer and electronic products (15.6%); machinery and mechanical appliances (10.2%); minerals and ores (8.9%); all others (42.7%). Imports--$1.5 billion: mineral fuels, oils (17.5%); wood products (10.2%); textile mills products (7.9%); chemicals (7.9%); all others (56.5%).
Foreign direct investment (FDI, 2009): Incoming FDI by industry: wholesale and retail 35.9%; real estate, rentals and services to companies 25.3%; manufacturing 22.6%; financial activities 7.2%; transport, warehousing, and communication 3.3%; construction 2.2%; electricity, gas, water 1.3%; other 2.2%. Incoming FDI by country in euros (total €31.8 billion; approx. $42.9 billion): France 18.4%; United Kingdom 15.6%; Spain 15.2%; Netherlands 15%; Germany 13.7%; Switzerland 4.2%; Luxembourg 3.8%; Canada 2.1%; Italy 2.1%; Belgium 1.8%; Ireland 1.1%; United States 1%; others 6%. Portuguese FDI abroad by country in euros (total €7.9 billion; approx. $10.6 billion): Netherlands 28.5%; Spain 15.6%; Angola 7%; Brazil 6.8%; Denmark 5.1%; Germany 4%; United States 2.1%; Mozambique 1.8%; others 29.1%.
Exchange rate: (2009) U.S. $1 = 0.74 EUR (€); (2010) U.S. $1 =0.77 EUR.

Geography of Portugal

Area: 92,391 sq. km.; includes continental Portugal, the Azores (2,333 sq. km.) and Madeira Islands (828 sq. km.); slightly smaller than the State of Indiana; located in Europe's southwest corner bordered by Spain (North and East, 1,214 km.) and the Atlantic Ocean (West and South, 1,793 km.). Major cities: Lisbon (capital, metropolitan area pop. 2.1 million); Porto (metropolitan area pop. 1.9 million). Terrain: Mountainous in the north; rolling plains in the central and southern regions. Climate: Maritime temperate (Atlantic-Mediterranean); average annual temperature is 61°F. Temperatures may drop into the low 30s (°F) at night during the coldest months, with daytime highs in the 50s and 60s. The remainder of the year is normally sunny with minimal rainfall. Days are pleasant, with temperatures seldom exceeding 95°F, except in the southern interior of the country; afternoons and evenings are breezy, with nighttime temperatures in the 60s and low 70s; May-October (dry and warm), November-April (cool with rain and wind in the north, mild in the south).

Government of Portugal

Portugal moved from authoritarian rule to parliamentary democracy following the 1974 military coup against Marcelo Caetano, whose rule embodied a continuation of the long-running dictatorship of Antonio Salazar. After a period of instability and communist agitation, Portugal ratified a new constitution in 1976. Subsequent revisions of the constitution placed the military under strict civilian control; trimmed the powers of the president; and laid the groundwork for a stable, pluralistic liberal democracy, as well as privatization of nationalized firms and the government-owned media. Portugal joined the European Union (EU) in 1986 and has moved toward greater political and economic integration with Europe ever since.

The four main branches of the national government are the presidency, the prime minister and Council of Ministers (the government), the Assembly of the Republic (the parliament), and the judiciary. The president, elected to a 5-year term by direct, universal suffrage, also is commander in chief of the armed forces. Presidential powers include confirming the prime minister and Council of Ministers; dismissing the prime minister; dissolving the assembly to call early elections; vetoing legislation, which may be overridden by the assembly; and declaring a state of war or siege. The Council of State, a presidential advisory body, is composed of six senior civilian officers, former presidents elected under the 1976 constitution, five members chosen by the assembly, and five selected by the president.

The government is headed by the prime minister, who is nominated by the assembly for confirmation by the president. The prime minister then names the Council of Ministers. A new government is required to present its governing platform to the assembly for approval.

The Assembly of the Republic is a unicameral body composed of 230 deputies. Elected by universal suffrage according to a system of proportional representation, deputies serve terms of office of 4 years, unless the president dissolves the assembly and calls for new elections. The national Supreme Court is the court of last appeal. Military, administrative, and fiscal courts are designated as separate court categories. A nine-member Constitutional Tribunal reviews the constitutionality of legislation.

The Azores and Madeira Islands have constitutionally mandated autonomous status. A regional autonomy statute promulgated in 1980 established the Government of the Autonomous Region of the Azores; the Government of the Autonomous Region of Madeira operates under a provisional autonomy statute in effect since 1976. Continental Portugal is divided into 18 districts, each headed by a governor appointed by the Minister of Internal Administration.

Current Administration
Socialist Party (PS) Prime Minister Jose Socrates resigned March 11, 2011 after his minority government’s austerity plan was rejected by the parliament. He remains the caretaker Prime Minister pending new parliamentary elections on June 5, 2011. Elections on September 27, 2009, had given the Socialist Party a plurality for incumbent Socrates, although his party lost the absolute majority it had enjoyed since 2005. During the early months of its second mandate, Socrates’ minority government faced numerous challenges, including attempts by the opposition to block key legislation. While the Socialists aligned with left-wing parties on social issues, such as same-sex marriage, they looked to right-wing parties for support on fiscal and budgetary policies. Ultimately, Socrates’ government fell under the weight of rising unemployment and a growing budget deficit exceeding the mandated eurozone limit, with right-wing parties sensing an opportunity to return to power and refusing to sign on to additional austerity measures. Socrates was subsequently forced to seek a bailout from the EU and International Monetary Fund (IMF) that will pose additional challenges for the next government. Polls show voters split between returning the Socialists to power and turning the government over to the more conservative Social Democratic Party.

Social Democrat Anibal Cavaco Silva, a center-right candidate and former prime minister (1985-1995), won the Portuguese presidential election on January 22, 2006 with 50.6% of the vote, becoming Portugal’s first center-right head of state in 3 decades. He was re-elected on January 23, 2011 with 53% of the vote and was sworn in on March 9, 2011.

Principal Government Officials
President of the Portuguese Republic--Anibal Cavaco Silva
Prime Minister--Jose Socrates (caretaker)
Minister of Foreign Affairs--Luis Amado
Minister of State and Finance--Fernando Teixeira dos Santos
Minister of the Presidency of the Council of Ministers--Pedro Silva Pereira
Minister of Defense--Augusto Santos Silva
Minister of Internal Administration--Rui Pereira
Minister of Justice--Alberto Martins
Minister of Economy and Innovation--Jose Vieira da Silva
Minister of Parliamentary Affairs--Jorge Lacao
Minister of the Environment--Dulce Passaro
Minister of Culture--Gabriela Canavilhas
Minister of Agriculture, Rural Development and Fisheries--Antonio Serrano
Minister of Public Works--Antonio Mendonca
Minister of Labor and Social Security--Helena Andre
Minister of Science, Technology and Higher Education--Jose Mariano Gago
Minister of Education--Isabel Alcada
Minister of Health--Ana Jorge
President of the Government of the Autonomous Region of the Azores--Carlos Cesar
President of the Government of the Autonomous Region of Madeira--Alberto Joao Jardim
Ambassador to the United States--Nuno Brito

Portugal maintains an embassy in the United States at 2012 Massachusetts Avenue, NW, Washington, DC 20036; tel. 1-202-350-5400; fax 1-202-462-3726 and consulates general in New York City, Boston, San Francisco, and Newark, NJ; consulates in Providence, RI and New Bedford, MA; and honorary consulates in Honolulu, Los Angeles, Houston, New Orleans, Chicago, Philadelphia, Miami, San Juan, and Waterbury, CT. The Portuguese National Tourist Office in the United States is located at 590 Fifth Avenue, New York, NY 10036 (tel: 1-212-354-4403).

Type: Republic.
Constitution: Effective April 25, 1976; revised 1982, 1989, 1992, 1997, 2001, 2004, and 2005.
Branches: Executive--president (head of state), Council of State (presidential advisory body), prime minister (head of government), Council of Ministers. Legislative--unicameral Assembly of the Republic (230 deputies): PS=97, PSD=81, PCP=13, CDS/PP=21, BE=16, PEV=2. Judicial--Supreme Court, District Courts, Appeals Courts, Constitutional Tribunal.
Major political parties: Socialist Party (PS); Social Democratic Party (PSD); Portuguese Communist Party (PCP); Popular Party (CDS/PP); Left Bloc (BE); Green Party (PEV).
Administrative subdivisions: 18 districts (Lisbon, Leiria, Santarem, Setubal, Beja, Faro, Evora, Portalegre, Castelo Branco, Guarda, Coimbra, Aveiro, Viseu, Braganca, Vila Real, Porto, Braga, Viana do Castelo); 2 autonomous island regions (the Azores and Madeira).

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History of Portugal

Portugal is one of the oldest states in Europe. It traces its modern history to A.D. 1140 when, following a 9-year rebellion against the King of Leon-Castile, Afonso Henriques, the Count of Portugal, became the country's first king, Afonso I. Afonso and his successors expanded their territory southward, capturing Lisbon from the Moors in 1147. The approximate present-day boundaries were secured in 1249 by Afonso III. By 1337, Portuguese explorers had reached the Canary Islands. Inspired by Prince Henry the Navigator (1394-1460), explorers such as Vasco da Gama, Bartolomeu Dias, and Pedro Alvares Cabral made explorations from Brazil to India and Japan. Portugal eventually became a massive colonial empire with vast territories in Africa (Angola, Mozambique, Cape Verde, Guinea Bissau, Sao Tome) and Latin America (Brazil), and outposts in the Far East (East Timor, Macau, Goa). Dynastic disputes led in 1580 to the succession of Philip II of Spain to the Portuguese throne. A revolt ended Spanish hegemony in 1640, and the House of Braganca was established as Portugal's ruling family, lasting until the establishment of the Portuguese Republic in 1910. During the next 16 years, intense political rivalries and economic instability undermined newly established democratic institutions. Responding to pressing economic problems, a military government, which had taken power in 1926, named a prominent university economist, Antonio Salazar, as finance minister in 1928 and prime minister in 1932. For the next 42 years, Salazar and his successor, Marcelo Caetano (appointed prime minister in 1968), ruled Portugal as an authoritarian "corporate" state. Unlike most other European countries, Portugal remained neutral in World War II. It was a charter member of NATO, joining in 1949. In the early 1960s, wars against independence movements in Portugal's African territories began to drain labor and wealth from Portugal. Professional dissatisfaction within the military, coupled with a growing sense of the futility of the African conflicts, led to the formation of the clandestine "Armed Forces Movement" in 1973. The downfall of the Portuguese corporate state came on April 25, 1974, when the Armed Forces Movement seized power in a nearly bloodless coup and established a provisional military government.

People of Portugal

Portugal is one of the oldest states in Europe. It traces its modern history to A.D. 1140 when, following a 9-year rebellion against the King of Leon-Castile, Afonso Henriques, the Count of Portugal, became the country's first king, Afonso I. Afonso and his successors expanded their territory southward, capturing Lisbon from the Moors in 1147. The approximate present-day boundaries were secured in 1249 by Afonso III.

By 1337, Portuguese explorers had reached the Canary Islands. Inspired by Prince Henry the Navigator (1394-1460), explorers such as Vasco da Gama, Bartolomeu Dias, and Pedro Alvares Cabral made explorations from Brazil to India and Japan. Portugal eventually became a massive colonial empire with vast territories in Africa (Angola, Mozambique, Cape Verde, Guinea Bissau, Sao Tome) and Latin America (Brazil), and outposts in the Far East (East Timor, Macau, Goa).

Nationality: Noun and adjective--Portuguese (singular and plural).
Population (2011 est.): 10.6 million. Ages 0 to 14 years--1.6 million (male 830,611; female 789,194). Ages 15 to 24 years--1.2 million (male 609,177; female 585,072). Ages 25 to 64 years--5.9 million (male 2,917,633; female 3,013,120). Ages 65 years and over--1.9 million (male 787,967; female 1,099,715).
Population density: 114 per sq. km. (44 per sq. mi.).
Annual population growth rate (2008 est.): 0.8%.
Ethnic groups: Homogeneous Mediterranean stock with small minority groups from Africa (Angola, Cape Verde, Mozambique), South America (Brazil), and Eastern Europe (Ukraine, Romania).
Religion: Roman Catholic 92%, Protestant 4%, atheists 3%, others 1%.
Language: Portuguese.
Education: Years compulsory--12. Literacy (2004)--93.3%.
Health (2009 est.): Birth rate--9.4/1,000 (1.07 male/female). Death rate--9.8/1,000. Infant mortality rate--3.25/1,000. Life expectancy--78.70 years.
Work force (2010 est.): 5.57 million. Government and services (59.8%); industry and manufacturing (28.5%); agriculture and fishing (11.7%).