Introduction

When Portugal joined the EC in 1986, the country’s borders and minds opened up. “I think everyone from the government to the people on the street realized that this was our chance to progress or lose the possibility of catching up with the modern world,” says Elisa Ferreira, Minister of Planning.
Since then European community funding has been key to modernizing Portuguese infrastructure. “Investment in the public sector has focused on our roadways, highways, railways and ports,” she says. “Congestion in urban areas has boomed so we have invested in waste management and water supply and there is nationwide coverage of natural gas.” Modernized infrastructure has fueled private sector confidence and the country now has the latest high-speed tilting trains, electronic toll systems and a whole lot more besides.

“The traditional sectors of our economy have undergone a fast and profound process of modernization,” says Joaquim Pina Moura, the former Portuguese Minister of Finance. “We have now created new clusters of industry in areas such as vehicle sales, auto parts and telecoms.” For the last seven years, GDP has grown at a steady 3% and per capita income has risen from 56% to 74% of the EU average. Despite a difficult year for industry, the economy as a whole continues to operate with near full employment. The banking sector in Portugal is now one of the most efficient in Europe.

Still, many wish the country were travelling a whole lot faster. The dangers of this approach have been highlighted in the latest Organization for Economic Cooperation and Development (OECD) survey. The Portuguese current account deficit stands at 10.25% and the OECD considers that the economy could be over-heating. The OECD also believes that efforts should be focused on re-energizing the privatization program and encouraging greater market competition. The Prime Minister Antonio Guterres is trying to convey this reality to the voters. “Productivity, productivity, productivity” was his message defending the government against an opposition censure motion recently. The government is already taking tight fiscal measures to bring inflation to within less than 1% above the EU average. “Since the end of the nineties we have seen an increase in income,” says Mr. Pina Moura. “The priority now is to decrease the undesirable rate of growth in public expenditure.”

But it may be hard to apply the brakes, for the Portuguese people want the chance to spend their hard-earned spoils. Both the government and the banks are aware of the threat to the country’s economy when EU funding stops in 2006 and are looking to maintain confidence in all sectors of the economy. Here the message is: consolidate current strengths and diversify into new areas, such as tourism and IT, a strategy that appears to be working.
For the first time, revenues from tourism have exceeded 1 billion escudos (US$4.5 million) and the wine industry is booming. Telecoms have grown at a phenomenal rate exceeding the European average. The country is adapting quickly to the needs of the IT sector and seeks to attract greater levels of foreign investment to boost training and R&D in this area.

“We are linking our young people with new technologies and providing advanced expertise. Portugal is no longer backward and rural. This is a country where a lot of people have university educations, whose emigrants are no longer cheap labor but scientists or financial experts who compete at the highest levels in research institutions and corporations,” says Mr. Ferreira, “Science and technology, culture, urban renewal, and transport, these are all areas where the country is moving very fast toward the future.”