The politics of structural reform in Portugal: a tragic story

The story of Portugal’s economy is a sad one, but feeble first quarter data for variables such as unemployment, consumer optimism or investment are of little importance in this plot.

Claims of “failure” and “catastrophe”, while understandable, are mere examples of shallow opposition play. Neither these bad news, nor the new government’s rash “reversal” and “giving back” policies, and not even the instability in Brazil and Angola, key trade partners for Portugal, are enough to expect an economic or financial crash in the near term.

In practice, this kind of discussion only elevates the already high level of noise in the Portuguese policy debate, and diverts attention from the main issue at hand: the lack of apparent conditions for economic growth over the coming years to be any different from the pre-crisis years.

This is what concerns current and potential investors, who are mostly oblivious to internal politics, but value the existence of solid wide-ranging agreements that can lead to structural reform measures. Measures in different fields that can remove obstacles to investment and to the reallocation of resources to tradable sectors, to innovation, and thus truly foresee an increase of potential growth.

It seems tragic, thus, that the current majority in Parliament does not seem capable of generating commitments towards designing and implementing effective reform. Moreover, it is actively opposed to other agreements with the opposition parties that could allow for reform. The dynamics of the coalition currently in power may be very stimulating for political commentary and unprecedented in a still young Portuguese democracy, but have reinforced short-termism in the policy process.

PM António Costa, the Government and its backers have successfully been able to erase this issue from the public debate. The Stability Programme and National Reform Programme were not even voted in the Parliament, as was common practice (even if not legally mandatory). This went completely unnoticed, when it is evidence to the fundamental issue at hand. Those who compare how this Government was formed to the wonderful world of Borgen will have certainly missed those episodes in which, for example, all of the parties spent a weekend in the countryside negotiating a reform package for social benefits.

To recall all of this, more than one month after the National Reform Programme was approved, is to recall the missed opportunity it represents.

Before anything else, it is important to stress – given the highly divided political atmosphere in Portugal – that “structural reform” does not necessarily need to be translated into liberalizing or privatizing measures. They must, rather, be framed by consistent, well-designed, comprehensive programmes, with a clear, well-defined strategy and guaranteed conditions for implementation over a multi-year period.

Within this definition, we can have, for a given policy challenge, different solutions that, from an ideological perspective and in terms of social impact, can be more friendly to one or another side of the barricade. Or, ideally, result of a compromise between both sides. The blockages in the Portuguese economy, some of which are even adequately identified in the National Reform Programme, require this kind of responses.

It is also good to remember that the National Reform Programme stems from a recent innovation in euro area governance. A step in the right direction, which lacks, however, credibility: there are no serious feedback mechanisms, nor to verify ex post the degree of execution of measures proposed in these Programmes. What happened to the 2015 National Reform Programme?

Certainly, these are prepared taking into account the Council’s recommendations and are later evaluated by the Commission. But none of this is anchored in concrete measures nor in adequate indicators to verify their implementation.

In fact, the National Reform Programme should be but a pro-forma: it should naturally emerge from the policy process. Any government should take office already having a solid idea of the problems at hand, broad goals and how to achieve them. But looking at the different parties’ electoral manifestos, parties are still not doing their homework seriously (even if, last year, there was a positive innovation in the Socialist Party’s “economic manifesto”).

But not everything was bad. This year, the National Reform Programme was used as a political marketing tool, and was given greater media impact. A graphical identity was created for it, and political discourse has highlighted its role: the Government used the Programme to explain its options in diverse policy areas.

This was good for the government parties, of course, but also for the quality of public debate, which was stimulated by this initiative, which is an opportunity civil society must take to be further involved in the policy debate. Here at IPP we are launching some contributions (here) focusing on the Programme’s different “pillars”. Inevitably, our analysis is more on what’s missing in the Programme than on the measures therein.

But the lack of strategy and political conditions lead to a dramatic conclusion: despite all the talk around the National Reform Programme, the political establishment seems set on leaving true reform for later. But can we afford to wait?

This article translates a column originally posted in the Portuguese online newspaper Observador.


(the opinion expressed herein is binding only on the author)

Luís Teles Morais

Research Fellow