PORTUGAL

Portuguese Republic

República Portuguesa

COUNTRY OVERVIEW

LOCATION AND SIZE.

Located in southwestern Europe in the western part of the Iberian Peninsula, Portugal borders Spain to the north and east and the Atlantic Ocean to the south and west. The total area of the country—including the overseas territories of Azores (2,247 square kilometers/868 square miles) and the Madeira Islands (794 square kilometers/307 square miles), both autonomous regions of Portugal—is 92,345 square kilometers (35,655 square miles). The area of Portugal is thus slightly smaller than the U.S. state of Indiana. The capital and largest city is Lisbon, a major seaport situated in the west-central part of Portugal at the mouth of the Tejo (Tajo) River. Other major cities include Oporto (Porto) situated in the northwest at the mouth of the Douro (Duero) River; Coimbra, an industrial and university city on the Mondego River in central Portugal; and Faro, located in the renowned Algarve beach resort area in the south.

POPULATION.

The population of Portugal numbered 10,048,232 in July 2000. The population growth rate was estimated at a rather low 0.18 percent in 2000, and the net migration rate was 0.5 immigrants per 1,000 population in the same year. The Portuguese population declined slightly in the late 1980s due to a rapid reduction of the birth rate and steady emigration . The figures somewhat stabilized during the 1990s, and in 1999 the population was 1 percent higher than it was in 1991. Portugal still has one of the lowest fertility rates in Western Europe with approximately 1.4 children born per woman. In 1999, the number of births rose by 2.3 percent, but this increase was still insufficient to ensure long-term population growth. According to Portuguese demographic projections (assuming a recovery in the fertility rate to 1.66 per woman in 2020), the Portuguese population is expected to peak in 2015 at 10.18 million and then again begin to decline. As in many other European countries, Portugal has an aging population with 15.2 percent over 65 years of age in 1998 (up from 13.8 percent in 1991) and only 16.8 percent aged 14 years or younger (compared with 19.4 percent in 1991). Life expectancy was 72.24 years for men and 79.49 years for women in 2000. Aging will inevitably increase the strain on Portugal's already over-stretched health-care and social security systems.

The Portuguese population has been strongly influenced by migration processes. Many nationals emigrated in the 1960s, 1970s, and to a lesser extent in the 1980s in search of higher living standards in the more affluent economies of Western Europe and elsewhere. About 4.5 million Portuguese now live abroad, or almost one-half of the domestic population, but better domestic economic conditions in recent years—particularly since the country joined the European Union (EU) in 1986—have changed this. By 2000, Portugal experienced a net immigration of 0.5 people per 1,000 population. In 1998, there were fewer than 178,000 immigrants legally residing in Portugal. These immigrants originated mainly from the country's former African and South American colonies and from EU countries.

The Portuguese are primarily of Mediterranean descent, as their ancestry can be traced to ancient Iberians, Romans, Visigoths, and Moors (Arabs). Black African citizens who immigrated to the mainland during the de-colonization in the 1970s are fewer than 100,000 in number. Portuguese is the official language. Roman Catholicism is the religion of about 94 percent of the population, although a number of Protestants and followers of other denominations also live in the country. The main urban centers are concentrated around the Lisbon and Tejo Valley area on the Atlantic coast and in the vicinity of the city of Oporto. These 2 conurbations (zones) are home to nearly 69 percent of the population. The shift from inland rural areas to the cities was fueled by the agricultural crisis and the post-World War II industrial boom, which again gained momentum in the 1970s. The nation is still experiencing heavy migration to urban centers, along with the gradual depopulation of villages in Portugal's rural provinces.

OVERVIEW OF ECONOMY

In 2000, Portugal's economy was to a large degree modern and market-oriented, enjoying steady, although not spectacular, economic growth, decreased interest rates, comparatively low unemployment, and improved living standards. Nevertheless, it remained Western Europe's least developed country with a per capita gross domestic product (GDP) of US$15,975, or approximately two-thirds that of the large Western European economies. Portugal's GDP was the second lowest in the EU after that of Greece, which was estimated to have the lowest production on the basis of market exchange rates in late 2000. Portugal also continued to have a large trade and balance of payments deficit.

Following its past glory as an influential world power and the leading maritime and colonial nation in the 15th and 16th centuries, Portugal experienced economic decline, particularly after the loss of its Brazilian colony in 1822. After more than 6 decades of oppressive dictatorship, economic stagnation, and international isolation during the 20th century, Portugal was considered by many to be the laggard of Western Europe by the early 1970s. Following the country's return to democratic rule in 1974, the economy grew by an average of 5.3 percent annually during the period from 1975 to 1980.

Portugal joined the EU in 1985, and its GDP growth slowed down to less than 1 percent annually during the period of EU adjustment. After 1990, it achieved a satisfactory annual growth average of 2.1 percent, reaching 2.7 percent in 2000. In 1998, Portugal successfully qualified for the European Monetary Union (EMU) and joined with 10 other European countries in launching the European currency, the euro, on January 1, 1999. The euro will fully replace Portugal's currency unit, the escudo, in February 2002. EU and EMU membership should be considered a major success, given the condition of the Portuguese economy in the early 1970s.

EU membership has been particularly beneficial for Portugal, allowing the country access to development funds and creating favorable conditions for its economy to compete, integrate, learn from, and get closer to the advanced economies of Western Europe. The government is working to modernize the country's economic capacity and increase its competitiveness in the increasingly integrated European and world markets. Improvement in the education sector is critical to this process.

These successes notwithstanding, industrial development and restructuring in Portugal generally has been slower than in other EU countries. Its industrial base is still quite limited, often facing hardship from having to compete in the single European market. But driven by the pressing competition of lower-cost East and South Asian imports, some traditional Portuguese exporting industries, such as footwear, clothing, and textiles, have rapidly modernized since the 1990s. Growth has been also strong in services, especially in the financial and retail sectors, and in construction. Tourism has also been historically important, with its focus in the late 1990s moving from traditional mass-market beach holidays to high-end, quality, cultural tourism.

Portugal, like its EU neighbors, has developed a service-based economy, while agriculture and fishing— once major sectors—have become much less important. Although the agricultural sector represented just 3.3 percent of GDP in 1998, it still accounted for 13.5 percent of total employment, much higher than the average for EU countries. The slowness of farmers to adopt more productive agricultural technology has led to a loss of market share to the more efficient producers of Spain and France.

An important factor setting Portugal apart from the leading EU economies is its lower labor costs, with an average annual cost of US$13,084 per worker, compared, for example, with US$33,196 per worker in Germany. Cheap labor has attracted substantial foreign investment in several new industry projects, particularly in the automotive and electronics manufacturing sectors. A new technology park outside of Lisbon has attracted several high-profile computer software and hardware companies. However, alternative low-cost manufacturing locations are also growing across Central and Eastern Europe, at locations often better suited geographically to supply the main European markets. They too are becoming increasingly attractive for investors, and Portugal is aware that it can no longer rely on low wages alone to attract new investment. Preparations for EU enlargement in 2001-02 and beyond will be of crucial significance to Portugal. The country will have to strive to protect its interests in accessing the EU's development funds and protecting its market shares in competition with the new, poorer, and sometimes smaller EU members.

POLITICS, GOVERNMENT, AND TAXATION

For much of the 20th century, Portugal has been ruled by an oppressive right-wing dictatorial regime and has maintained, often by force, control of its large colonial empire. In 1974, Portuguese revolutionaries initiated broad democratic constitutional reforms. In 1975, the country granted independence to its African colonies— Angola, Mozambique, Guinea-Bissau, Cape Verde, and São Tomé and Príncipe. Its constitution was further amended several times, most notably in 1992 when the treaty that created the EU, known as the Maastricht Treaty, was ratified, reflecting the new political and economic conditions of a united Europe.

The political system that emerged from the democratic reforms in the 1970s is parliamentary, with the role of the president being largely ceremonial, although certain reserve powers are also vested in this institution. The president is directly elected for a term of 5 years by popular vote and a person can hold the office for a maximum of 2 consecutive terms. In the Portuguese executive branch, the leadership role of the prime minister is much more important. The prime minister is the head of government and is elected by parliament on a motion by the largest parliamentary party or coalition.

Legislative power is vested in the unicameral (one house), 250-member Assembleia da Republica (parliament). Members are elected for terms of 4 years by proportional representation , but elections can also be called by the president at an earlier date (the next parliamentary election is due in October of 2003). There are 20 constituencies (electoral districts) in Portugal and the electorate chooses between numerous competing party lists.

The most influential Portuguese political parties include the center-left Socialist Party (PS), the center-right Social Democratic Party (PSD), the Communist Party (PCP), and the conservative Popular Party (PP). The PS returned to power in October 1995 after 10 years in opposition and was reelected in October 1999 with 115 parliamentary seats—not a majority, but significantly more than any other party. Its major dissent on economic policy with the PSD (81 seats), the main opposition party of the PS, is the greater stress that the PS places on social welfare spending. Both parties support a market economy, privatization , and European integration. The PCP (17 seats, in coalition with the smaller Green Party), which used to be the most effective party in clandestine (secret) opposition to the dictatorship before 1974, is one of the few remaining hard-line leftist parties in Europe. The PCP still advocates an extensive role of the state in the economy. Its once strong base in the industrial suburbs of large cities and the rural south was weakened during the 1980s and 1990s as the economy improved and poverty diminished radically. The PP (15 seats), previously known as the Center Democrats (CDS), underwent a number of transformations in the 1990s. These were accompanied by acute internal crises, and the party finally emerged in the late 1990s as the voice of the new right, holding a populist and anti-European stance.

In January 2001, the socialist president, Jorge Sampaio, was reelected with 55.8 percent of the popular vote, but roughly a year into its second term, the PS government, led by socialist Prime Minister Antonio Guterres, came under controversy. The economic climate was deteriorating, GDP growth was expected to slow from 2.7 percent in 2000 to 2.3 percent in 2001, and acute budgetary disputes and depressing corruption charges plagued the government. Another major confusion was caused by the findings of the of the long-running "Camarate Affair" investigation into a 1980 plane crash that killed the then Prime Minister Francisco Sa Carneiro of the PSD, as it is now widely believed that Sa Carneiro was in fact deliberately murdered.

The government's role in the economy became very significant in the decade following the 1974 revolution. One of the chief results of the upheaval was the takeover of many important industries by the state. Following its joining of the EU in 1985, however, Portugal adopted, partly as an adjustment measure, an active privatization program aimed at making the public sector more limited and more profitable. As a result, the Portuguese public sector accounted for 19.7 percent of GDP and for 5.5 percent of the country's total employment in 1988, and by late 1997, the numbers had been further reduced to 8 percent and 2.6 percent, respectively.

The privatization of state companies has been generally very beneficial for the country. The approaches towards accomplishing privatization have been quite varied, including selling shares in selected companies through a public stock offering in the capital markets, private sale, or often by using both methods combined. On a number of occasions, however, the government has kept a controlling share for itself that gives it the right to overrule strategic corporate decisions in the privatized companies. From 1989 to 1998, approximately 150 sales involving the shares of nearly 100 companies generated proceeds of more than US$21 billion, and 52 percent of the revenue was used for the repayment of existing public debt.

In 1998, 58 percent of the total market capitalization in the Lisbon Stock Exchange (BVL) was accounted for by the market capitalization of these privatized firms. In addition to some further expected sales of the stock of state-owned companies such as the telecommunications firm, Portuguese Telecom (PT), and the electricity company, Electricidade de Portugal (EDP), there are other major state firms still in the initial stages of privatization. These include the state airline, TAP, and a new energy holding company that combines the government's interest in petroleum refining and natural gas transmission.

In taxation, the government is trying to bring the Portuguese system closer to those established in other EU countries. A major reform of direct taxation took place in 1989 to that effect, but it was widely believed that occasional gaps remained between the law and its actual enforcement practices. The 1989 tax code defined taxable income as the profits of firms involved in commerce, industry, or agriculture. All income gained by local companies abroad is taxable, but tax liability may be cancelled or decreased by various tax treaties. The income of resident corporations and branches of foreign (non-resident) companies is taxable at a rate of 32 percent. The actual tax rate in many regions of Portugal is in fact 35.2 percent because some local surcharges exist, usually at a rate of 10 percent of the base tax.

The government intends, however, to cut corporate taxes by nearly one-eighth before 2003, and companies with revenues of less than Esc100 million would be granted even more preferential treatment. The introduction of the value-added tax (VAT) in 1986 helped the tax authorities detect and prevent widespread tax evasion by individuals and companies who were still plaguing the economy at that time. Tax evasion has been further reduced since the government was forced to dramatically improve its tax collection efficiency and to reduce its budget deficit without introducing new taxes. The government was forced to do this in order to qualify for the requirements of the EMU in 1998. A 20 percent advance tax is applied to all payments by businesses to independent contractors and all self-employed individuals with an annual income of Esc2 million or higher.

Portugal has an external debt estimated at US$13.1 billion in 1997. The debt is not considered disproportionate or burdening for the economy, and Portugal handles its financial obligations properly.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Portugal's membership in the EU was beneficial for the country's infrastructure . This was so not only because of the economic improvement due to European integration, but also because the country received support in financing its infrastructure projects from the union's funds. The greatest portions of these funds were raised through the European Regional Development Fund. Between 1987 and 1998, Portugal received approximately US$24 billion in development funds from the EU. Economic growth over the 1990s has been accompanied by some ambitious infrastructure improvements, most notably by the completion of an extensive system of modern highways.

Additional infrastructure projects are expected to be launched between 2001 and 2005, including additional roads, dams and ports, a new international airport (to be built at Ota, north of Lisbon), a new metro (subway) system at Oporto, modernization of the country's railroad system, and an upgrade of the natural gas pipeline system. As a result, the country has a well-developed transportation network with 59,110 kilometers (37,000 miles) of paved roads, including 797 kilometers (498 miles) of expressways, 2,850 kilometers (1,780 miles) of railroads, and some 820 kilometers (513 miles) of navigable inland waterways (of relatively little importance to the national economy). Once a great maritime nation, Portugal has many ports and harbors in Aveiro, Funchal (the Madeira Islands), Horta (the Azores), Leixoes, Lisbon, Porto, Ponta Delgada (Azores), Praia da Vitoria (Azores), Setubal, and Viana do Castelo. The country also runs a sizable merchant fleet of 151 ships totaling 1,061,267 dead-weight tons (DWT). Portugal is served by nearly 40 airports and by its major national airline, TAP.

The energy industry is largely state-controlled, but energy output in Portugal is still quite low. Its dependence on foreign energy sources is thus correspondingly high. No oil or natural gas has been exploited in the country, known reserves of coal are limited (only about 30 million tons), and there are no nuclear power facilities. With financing from the EU, Portugal allocated Esc470 billion to the construction of a natural gas network to connect with the pipeline from Algeria to Europe, which opened in November 1996. The country expects the connection to the pipeline to support one-tenth of its energy

needs. In 1998, electricity was generated mostly by thermal plants, using fossil fuel (63.14 percent), hydropower (33.46 percent), and other (not nuclear) sources (3.4 percent). The country is a major net importer of energy.

The Portuguese energy market in the 1990s was served by 4 government-controlled companies: the partly privatized oil company Petrogal, the partly privatized electricity utility Electricidade de Portugal (EDP), and the 2 gas companies, Transgas (operating the new natural gas pipeline) and Gas de Portugal (GdP). In 1999, the government created a new state-controlled holding company, Gas e Petroleos de Portugal (Galp) by merging Petrogal with the 2 gas companies. This process was aimed at developing an energy group that would be able to compete effectively with larger Western European utility companies in the increasingly liberalized market.

In telecommunications, Portugal is a small market lacking a culture that is particularly technology-oriented. Furthermore, Portugal has a relatively low saturation in terms of consumer telecom services compared with other, more developed EU countries. In 1996, 3.72 million fixed telephone lines were in use, and there were 887,216 mobile phone subscribers in 1999. For comparison, these statistics are quite lower than in Scandinavia, but still higher than in Germany. Portugal joined Finland and Venezuela as one of the only countries where, for various reasons, mobile phone penetration has overgrown the fixed phone market. About 23 percent of Portuguese homes had cable TV in 2000. Although 20 Internet service providers operated in 1999, the Portuguese still lagged well behind most other Europeans in using the Internet. Business and consumer broadband and data faster-access Internet services, popular elsewhere in Europe, are still almost non-existent.

The legacy of the decades-long Portuguese dictatorship with its nationalistic, isolationist economic policies, combined with its comparatively late entry into the EU, has resulted in Portugal's reputation as the EU's telecommunications laggard. The country started implementing the EU services directives to harmonize its telecommunications industry with the markets of its larger, more developed neighbors for the first time in the early 1990s. Portugal liberalized its basic telecommunications services in January 2000, becoming the second-to-last EU member to open its market to foreign competition, and its regulatory regime was set to manage the transition period to free competition. By early 2001, the state-run Portugal Telecom (PT) had kept its monopoly control on traditional segments such as fixed telephony, leased lines, and multi-channel television. The cable television market is still dominated by the PT's cable division (under the brand names of PT, Multimedia, and TV Cabo), which operates a nationwide fiber optic cable network covering nearly 95 percent of the consumer base.

However, PT faces robust competition in newer telecom services in the liberalized market environment. While PT's basic fixed line telephone market is considered rather dysfunctional, under-developed, and shrinking, its strongest competitive advantage is TMN, its mobile service operator and only serious business presence in non-traditional markets. Competition in new service segments started gaining ground when the second mobile phone operator, using the European GSM system, was launched in 1992. The liberalization of the data services market in 1994 led to several new data service entrants. Competition in non-traditional services has forced PT to reinvigorate its efforts to secure its thinning margin of leadership in market share in these segments. In January 2000, with the entry of 8 new basic services operators, competition entered the traditional market.

In 2000, the government filed for EU approval to privatize a 34 percent stake in the TAP airline, demonstrating its intention to sell it to Swissair. Other deals in the government's ambitious infrastructure privatization program include a 20 percent share in the state electricity giant EDP and the last 10 percent of state-owned stake in national telecommunications company PT, which was sold to foreign investors in 2000. In 2001, the privatization of the state's remaining 15 percent stake in the expressway operator holding, Brisa, is expected, as well as the partial privatization of the energy holding company Galp, one-third of which has already been bought by the Italian energy group ENI. However, the government's handling of the TAP, EDP, and Galp privatizations has turned highly controversial, and political and legal inquiries into the matter could delay further privatization steps.

ECONOMIC SECTORS

In 1998, the largest contributor to the Portuguese economy, as elsewhere in Western Europe, was the services industries. This sector is responsible for nearly two-thirds of the GDP, while industry, utilities, and construction together contributed more than one-third, and agriculture, forestry, and fishing contributed about 3.3 percent. By European standards, however, a disproportionately high percentage of the labor force was employed in agriculture. The 13.5 percent of the population that works in this industry apparently still lag behind their counterparts in other EU nations in using modern technologies and enhancing effectiveness.

AGRICULTURE

Although its contribution to GDP is very small, agriculture still employs a considerable number of Portuguese. Chief crops and production figures for 1998 include vegetables (including tomatoes, 2.2 million metric tons), fruit (including grapes and olives, 1.7 million tons), root crops (including potatoes, 1.1 million tons), and cereal grains (including corn and wheat, 1.3 million tons). Portugal is traditionally one of the world's leading producers of wine (including the world-renowned Porto and Madeira wines) and olive oil. Livestock in 1998 numbered 1.3 million cattle, 6.3 million sheep, 2.2 million pigs, and 33 million poultry. Fishing is also a major industry. Portuguese farmers and fishers—like their colleagues elsewhere in Europe—rely heavily on EU subsidies , but their slowness to adopt more productive technology has resulted in a loss of EU market share to competitors from Spain, France, and Italy.

INDUSTRY

Although the country's economy is progressively shifting its weight to the services sector, manufacturing retains significant importance in Portugal, employing (with construction and mining) more than one-third of the labor force. Major traditional manufactures include processed food, textiles, metals, machinery and ship repair, chemicals, wood (particularly cork), glass and pottery items, refined petroleum, and building materials. Annual production in the late 1980s included about 27,400 metric tons of processed sardines, 285,900 metric tons of refined sugar, 1.3 million metric tons of chemical fertilizers, and 386,900 metric tons of steel products. The products of Portuguese cottage industries, such as lace, pottery, and tiles, are world famous, and the shoe industry also performs particularly well. Some new sectors, such as automobiles and automobile components, electronics, and plastics, have also become increasingly important over the 1990s. The prosperity of the manufacturing sector generally improved during the 1990s, with output expanding by a yearly average of 3.1 percent. This was due in part to the presence of a new generation of Portuguese entrepreneurs and the appearance of major foreign investors. Industrial policy in the 1990s focused on attracting foreign capital, mostly by way of privatization, but also by offering state and EU subsidies and assistance to investors. The government intends to further privatize several manufacturing facilities, notably in power generation, chemicals, and construction materials (cement). Not all foreign investments have been successful, however, and the government has been criticized for not properly securing guarantees for the future performance of many of them. Between 1995 and 2000, for example, 2 automobile manufacturers, Ford and the French company Renault, have terminated production in Portugal.

A considerable number of Portugal's more traditional manufacturing businesses are still run by the most powerful families. Nonetheless, a new generation of family management has been successful in meeting the challenges of the European single market through technological innovations, developing export markets, and making use of the country's low wage structure. However, many of these industries face increasingly tough competition from the Asian economies, where wage levels are even lower and where currency devaluations in the 1990s have increased their competitive edge. Many firms have been unable to adapt to these new market realities, resulting in a decline in the production of textiles, clothing, and footwear between 1995 and 2000. Difficult economic conditions are expected to continue until 2005, as companies shift their output to more value-added products. Raising productivity is an important priority for Portuguese manufacturing, but its record in research and development is weak. In 1997, it spent only 0.63 percent of its GDP on research and development, less than one-third of the average amount of EU nations.

Nevertheless, the 1990s saw positive developments in the newer manufacturing sectors as well. A joint venture with Ford and Germany's Volkswagen (VW), Auto-Europa, was launched in April 1995 with the purpose of building multi-purpose passenger cars for export. At the time, it was Portugal's largest manufacturing operation. This US$2.6 billion investment package received the highest level ever of union subsidies in the EU at nearly US$1 billion. From the beginning, however, company executives admitted that production and employment would not meet forecasts because of weaker than expected European demand for the vehicle being produced. Ford gradually pulled out and VW acquired full ownership of the venture. Despite these setbacks, this modern plant has had a very positive impact on the economy, producing nearly 130,000 cars per year. They are almost all produced for export, generating sales of US$2.3 billion and accounting for some 12 percent of the total worth of Portuguese exports (1997 est.). The plant employs 3,000 workers and has helped to create more than 5,000 other jobs. At its full capacity, it could add as much as 15 percent to the value of Portugal's total exports and 6 to 7 percent to its import bill. The AutoEuropa plant is situated in a new industrial park outside of Lisbon in Palmela, where many of its main suppliers are located as well. Taguspark, also located outside of Lisbon in the city of Oeiras, is a science and technology park built in 1992 that housed about 100 new technology companies in 2000.

SERVICES

FINANCE.

As Portugal's economy moved towards a focus on services, particularly on banking and finance, this sector gained importance in the 1990s. Following the gradual but thorough privatization of state banks begun in the late 1980s, the Caixa Geral de Depositos (CGD) remained the only state-controlled financial services firm in 2000 (the government has ruled out its privatization for the time being).

The privatization of the sector has been followed by a wave of bank mergers and acquisitions. Coping with a relatively small but increasingly crowded market as a result of the European banking liberalization policies, Portuguese banks took the opportunity to form larger and more efficient groups. In 1995, Banco Comercial Portugues (BCP) and the insurer Imperio jointly bought the country's largest private bank, Banco Portugues do Atlantico (BPA). Industrialist Antonio Champalimaud acquired half of the second largest bank, Banco Totta e Acores, and added it to his Banco Pinto e Sotto Mayor (BPSM). In 1999-2000, the banking sector underwent further consolidation when the major Spanish bank, Banco Santander Central Hispano (BSCH) tried to acquire a controlling stake in the Champalimaud group. Because it was in violation of EU legislation, the deal was banned by the government, but a compromise led to the split of the Champalimaud group and a new reorganization of the sector. BSCH acquired 2 of the splinter Champalimaud banks, Banco Totta e Acores and Credito Pre-dial Portugues; CGD acquired the group's most valued assets, BPSM and the insurance group Mundial Confianca. This reorganization concentrated 70 percent of the country's retail banking market in 4 institutions: CGD, BCP, Banco Portuguese do Investimento (BPI), and Banco Espirito Santo (BES). BSCH of Spain controls 11 percent of the market share. Insurance firms are strongly connected to the banking groups, and 3 of them dominate the market: Mundial Confianca, acquired by CGD; Imperio, controlled by BCP; and Tranquilidade, in which BES has a major stake.

By 2000, banking services in Portugal were modern and mature. Yet as the competition from foreign banks increased with the implementation of the EU banking liberalization policies, profit margins of Portuguese banks began to shrink. Even though the Internet offered the possibilities of cost advantages such as online banking, no Portuguese bank was in a position by 2000 to use fully the Internet for significant cost savings. None had close enough ties to a major foreign bank that would have been able to provide adequate support. Decreasing lending margins in the late 1990s, on the other hand, have prompted most Portuguese retail banks to raise their commissions on customer transactions in order to stay profitable. For example, debit cards in Portugal have an annual charge of US$9.25 a year and credit cards have an even higher annual charge. As a result, commissions vary radically from bank to bank, and it is often the poorer customers who are actually bearing the burden of such dubious banking policies.

Shrinking bank profit margins, increasing bank commissions, and allegations that banks frequently gave misleading information on their charges or applied the charges after the accounts had been opened prompted the government to introduce new voluntary regulations on banking services. These regulations allowed for even the poorest citizen to have a bank account without depositing a minimum amount and to pay only low predictable charges. Only the state-owned CGD, the country's largest financial group, had previously provided a full table of its prices for any visitor to its web page to see. Several major banks adopted the new rules in 2000, but others declined for reasons of commercial secrecy.

Although Internet banking hardly exists in Portugal, its national system of automated teller machines (ATMs), Multibanco, is a leader in Europe. The new Netpin electronic technology, compatible with the system, offers unprecedented security against fraud. Netpin's developer, the Portuguese technology-based company Grupo de Apoio a Industria Nacional (GAIN), manufactures most of the terminals distributed across the SIBS (Sociedade Interbancaria de Servitos) system, parallel to Multibanco. The Netpin system offers the services available at a regular ATM (withdrawals; balance inquiries; payment of tax, water, and energy bills; recharging of electronic "purse cards") and could serve as the basis for development of electronic commerce in Portugal. The company is considering marketing the product in foreign markets, concentrating on those where the Multibanco system already has a foothold, such as Brazil, Colombia, Spain, and Costa Rica.

Between 1994 and 1998, due to very easy and active mortgage financing, household debt (in home mortgages) rose from 28.6 percent to 60.8 percent of the disposable income in the country and from 21.1 percent to 44.1 percent of GDP. While the Portuguese government believes that such levels are not dangerous, the rapid growth of the debt is hardly sustainable. If household income suddenly drops, a banking crisis could be triggered by households unable to make payments. There are thus some worries that these high debt levels could worsen any future recession . Furthermore, household disposable income can be rapidly affected even if no recession occurs, simply due to changes in interest rates by the European Central Bank. Finally, the easy availability of home mortgage loans has contributed to an exaggerated and burdensome increase in real estate prices.

TOURISM.

Tourism is one of the most important sectors of the Portuguese economy, with foreign currency earnings accounting for an estimated 4.8 percent of GDP in 1999 and employing 6 percent of the active population. Foreign exchange revenue from tourism amounted to US$2.4 billion in 1997. Nearly 25 million foreigners visit Portugal every year, and about half of them are tourists. Most of the visitors are Central and Northern Europeans attracted by the sun and beaches of the southern Algarve region and Madeira. In the mid-1990s, as mass beach tourism declined worldwide, the sector went through a sluggish period, in contrast to the tourist boom in neighboring Spain. The authorities launched a program to diversify attractions by promoting sports, culture, and conference facilities, and public investment in the late 1990s was directed into providing facilities in undeveloped areas to encourage investment by the private sector . The government is restoring historical and cultural assets such as castles and monasteries, with the EU meeting one-third of the costs. A renewed tourism promotional campaign helped increase revenue in 1997 and 1998. The favorable exchange rate for visitors from Britain (Portugal's most important tourist market) and the celebration of the World Fair Expo '98 in Lisbon brought in additional visitors as well. The World Fair alone contributed a 20 percent increase in foreign visitors in 1998 and a 17 percent increase in tourist revenue.

RETAIL.

Portugal is slowly following general European retail trends, with a proliferation of hypermarkets and shopping malls gradually replacing small traditional retailers. These new forms of retailing thrived during the consumer boom of the late 1990s. Both foreign and domestic investors have participated in the retailing revolution, with principal domestic investors being the Oporto-based group Sonae Investimentos and Lisbon's Jeronimo Martins.

Portugal's franchise retail market, after the boom period of the 1990s, entered a phase of consolidation in 1999. At that time, 357 franchisers were already operating in the market. Of the total number of brands, 35 percent were Portuguese and 42 percent were Spanish. Banks specializing in small and medium-sized businesses, like the state-owned Banco Nacional Ultramarino, help franchises get started. Famous franchise names include Printemps and Carrefour (French supermarket chains); McDonald's, Pizza Hut and Baskin-Robbins (U.S. fast-food chains); Goody's, a Greek fast-food chain claiming to be the third largest in Europe; and Italian and French apparel stores like Massimo Dutti and Faconnable. Ready-to-wear clothes account for more than one-third of all franchised outlets. A series of new retail centers, such as the large Colombo Center in Lisbon that opened in 1997, have provided excellent opportunities for retail licensing and franchising. The company Sonae Imobiliaria, a unit of Sonae Investimentos, accounts for more than half the market for new retail centers. The next phase of retail development will most likely be the emergence of retail parks or factory outlets, and Sonae Imobiliaria, as well as its rival Mundicenter, are preparing to develop this market.

Since the late 1980s, mail order and TV sales have become popular direct marketing methods. Between 1996 and 1997, sales growth was calculated at 15 percent, and there are presently around 50 direct marketing firms. The most popular sectors are cultural, instruction and training, and amusement materials (33 percent of sales) and apparel and clothing (17 percent of sales). Other strong areas are housewares, perfumes, cosmetics, art, and collectibles. The success of direct marketing is more impressive given that Portuguese mailing expenses are considered high.

E-commerce is still lagging behind most of Europe, but several companies have emerged in the late 1990s that offer online shopping for office supplies, computer accessories, and groceries. Consumer protection regulations and laws in Portugal are considered generally adequate for online shopping, although inspections often are ineffective.

INTERNATIONAL TRADE

In 1996, Portuguese imports totaled US$34.1 billion and exports US$23.8 billion. Principal imports typically were mineral fuels, machinery and transportation equipment, and food and livestock. Principal exports included clothing, textile yarns and fabrics, and wood and paper products. Leading purchasers of exports were Germany, Spain, France, the United Kingdom, the Netherlands, the United States, Italy, Belgium, and Sweden; chief sources for imports were Spain, Germany, France, Italy, the United Kingdom, and the Netherlands. Foreign exchange revenue from tourism, amounting to US$2.4 billion in 1997, helped to compensate for the nation's chronic trade deficit . The World Fair Expo '98 in Lisbon considerably enhanced the country's profile in this respect.

MONEY

Portugal and 10 other members of the EU have started changing over from their national currencies to the single European currency, the euro, for all transactions as part of their participation in the EMU. Use of the euro began in January 1999, although only for electronic bank transfers and for accounting purposes. Euro coins and bills will be issued in 2002, at which time the Portuguese escudo will cease to be legal currency. The EU members have established the European Central Bank (ECB) in Frankfurt,

Germany, responsible for all EU monetary policies . Since 1999, the control over Portuguese monetary issues, including interest rates and the money supply regulation, has been also transferred to the ECB.

Although Portugal qualified for the initial stage of the EMU in 1998, its public finances are still considered quite unstable. In 2000, the ECB decision to hold interest rates steady was welcomed in Portugal, but financial policy challenges were still very serious. The late 1990s, years of rapid economic growth and increasing tax revenues, allowed the government to boost public spending growth in 1998 and 1999 and still meet its deficit reduction targets. But revenue growth slowed dramatically in 2000 due to the domestic economic slowdown and the government's highly controversial energy policy.

By allowing the rate of the petrol tax to fluctuate disproportionately to oil prices, the government hoped to prevent a dramatic rise in oil prices that might fuel consumer price inflation . That policy, however, turned into a massive drain of the public finances while budgeted revenue targets were missed by about 0.7 percent of GDP. The government, quite luckily, met its budget deficit target of 1.5 percent of GDP in 2000, as required by the EU standards, but that was only thanks to the boost of US$360 million from the sale of 4 operating licenses for third generation mobile phone operators. It was otherwise estimated that the deficit would have been almost 2 percent of GDP.

The weaknesses of Portugal's public finances were analyzed in 2000 in reports by the European Commission (the EU executive body), the International Monetary Fund (IMF), and the Organization for Economic Cooperation and Development (OECD), all of which offered a gloomy account of the situation. The government admits that, with the economy entering a period of slower growth, it has few options but to implement structural spending reforms (public spending cuts) if it is to meet future deficit reduction targets. A new public finance committee was scheduled to present proposals on spending cuts in the first half of 2001.

Financial markets in Portugal are doing considerably well by most accounts, although important pieces of legislation regarding their development are still pending in parliament. The Lisbon Stock Exchange's (Bolsa de Valores de Lisboa, or BVL) capitalization and turnover have grown rapidly in the late 1990s, fueled by the govern-ment's massive privatization program and by the Portuguese people's growing enthusiasm for share ownership. The privatization of a 30 percent stake in the electricity utility EDP in June of 1997 substantially increased the exchange capitalization and liquidity , and the number of shareholders increased from 1 percent to 6 percent of the Portuguese population. This considerable growth in activity, value, and capitalization transformed the exchange from an emerging market into a developed one. The launching of a new market in Oporto in 1996, which merged with the Lisbon one in 1999, gave an additional impetus to stock market trading.

After dropping slightly in 1995, the BVL price index (the Portuguese counterpart for the United States' Dow Jones) increased by 32 percent in 1996, by 65 percent in 1997, by 26 percent in 1998, and by 10.2 percent in 1999. It reached its record high of 6,511 on March 3, 2000. The increase was driven by the soaring prices of a limited number of telecom, media, and Internet stocks, although concerns in Europe and the United States about overvaluation of Internet-related stock has since led to a dramatic cooling of market enthusiasm for the "new economy" stocks. The stock market also experienced a still rising tide of public offerings in this sector in 2000, including PT Multimedia and PT.com(the media and Internet subsidiaries of PT), Sonae.com(the Internet division of the other major domestic telecom operator, Sonae), and Impresa (a major media group). Nonetheless, the Portuguese stock market suffers from a lack of liquidity similar to that of other European exchanges, reflecting its disproportionate dependence on a small number of blue-chip (large and profitable company) stocks, the most influential of which, PT and EDP, are still largely controlled by the government.

The long expected New Market (Novo Mercado) for small, high-growth companies, a replica of the American Nasdaq market, failed to launch by its planned deadline of December 2000. The disappointment in Portugal was considerable as this failure was largely regarded as a sign that the BVL was lagging behind at a time of rapid transformation of European securities markets. BVL executives decided that an alliance with other exchanges would keep it from being left out of this period of European expansion. Negotiations were started for an association with the Euronext exchange group, which serves to unite stock exchanges in Amsterdam, Brussels and Paris, although there were no guarantees that the larger markets would agree to accept Portugal's much smaller exchange as an equal. In late 2000, the BVL also struck an agreement with the Spanish derivatives market, MEFF, to launch trading in financial products listed in each other's markets. The Portuguese stock market commission declared that in January 2001 the exchange would adopt several new indicators, with the current index, the BVL 30, being replaced by the Portuguese Stock Index 30. It would also be joined by other existing indexes. The indexes planned to be included in the deal are PSI 20, PSI General, PSI TMT (technology, media, and telecommunications), PSI NM (New Market, as soon as it becomes operational), and another new index for medium-sized service and industrial companies. This change has been seen largely as a cosmetic measure, however. There have been many discussions of fundamental change at the BVL, but little has been decided upon, and the market continues to suffer from large gaps between the intentions of its executives, the needed but still pending legislation, and actual achievements.

POVERTY AND WEALTH

After long decades of relative poverty for the rural and urban masses during the dictatorship, Portugal's living standards have been on the rise since the mid-1970s. Conditions particularly improved after the country joined the EU and aligned its social policies with the Union's regulations. Poverty and social exclusion, characteristic of the country earlier in the 20th century, are presently almost non-existent. Many remote, depopulated rural areas benefit vastly from EU programs on regional development. After the democratic revolution in 1974, the government implemented, under socialist and communist influence, a number of measures for more equitable distribution of income and land ownership.

One measure of economic inequality, the Gini index , gives Portugal a ranking of 35.6, lower than that of the United States (40.8) or the UK (36.1), though it is still much higher than those of Nordic EU members such as Denmark, Sweden or Finland. Yet Portugal's per capita GDP is still comparatively low by European standards, and the bank indebtedness of ordinary households is remarkably high.

Portugal's rate of inflation rose through much of 2000, exceeding the ECB price stability limit of 2 percent and the Portuguese government's original inflation target of 2 percent for the year (later revised to 2.7 percent). The actual inflation rate for 2000 was double the euro-zone average. The inflation rise reflected rising food prices, the effect of the euro's weakness against the U.S. dollar on 2000 import prices, and the impact of higher energy bills. Despite the government's decision to freeze the prices of retail oil products in April 2000, both producer and consumer prices continued to increase. The extremely tight labor market and rising inflation notwithstanding, average wage growth (based on collective pay agreements for non-public-sector workers) showed very

little increase in 2000. Real wages were likely to decline by the end of 2000. As a result of this, ordinary Portuguese felt rather pessimistic about their current economic prospects.

WORKING CONDITIONS

By 1997, the total labor force in Portugal was approximately 5 million. Although unemployment still averaged about 4 percent (one of the lowest in the EU), many considered Portugal to have almost achieved full employment and that there was little opportunity left for redirecting underemployed workers from agriculture to more productive sectors. The proportion of working women was already higher than in most other EU countries. Since the late 1980s, powerful syndicates (labor unions) controlled more than 55 percent of the labor force. The labor market is accordingly tight and many industries are suffering from a labor shortage.

According to the available data from the third quarter of 2000, 30,000 new jobs were created in Portugal during that period, and the rate of employment growth accelerated to 1.8 percent. New job creation was boosted mainly through the traditionally unstable construction sector, where employment rose by 11.5 percent, while service sector jobs increased by only 2.1 percent, and industrial employment fell by 3.3 percent. Growth in the number of employees reached 2.6 percent, of which fixed-term contract employees were responsible for 1 percent and permanent contracts for 0.7 percent. The tightness of the labor market was somewhat lessened by a rise in the number of persons who applied for a job for the first time. Nevertheless, the economy continued to operate in conditions of near full employment. Portugal's participation rate still remains well below the EU average, increasing the heavy strain on overburdened social security and health-care systems.

Although Portugal is ruled by a socialist government and enjoys friendly relations between the government and the unions, labor disputes are often quite passionate. In May 2000, after a series of nationwide railroad strikes, the government ordered 1,700 state-employed train operators back to work, claiming their actions were harming the economy and the people's lives. Legislation provides grounds for such an order as a rarely used emergency measure if key public services are at risk. The loss-making national railroad company, Caminhos de Ferro Portugueses, is Portugal's only train service provider. Once the period covered by the order expired, however, train operators decided to resume their action.

Earlier in 2000, the socialist government was shaken by the worst wave of public sector protests since it took office in 1995, when a general strike by civil service and transport unions hit services in Portugal. Schools, health centers, buses, and the Lisbon Metro were affected by the stoppages. The main communist and socialist-led union federations called upon labor opposition to push for higher wages. The strike was the latest in a series of events that had been gathering momentum since annual wage talks were aborted in March 2000, and the government fixed a 2.5 percent wage increase for public administration workers. When the government later announced an average increase of more than 11 percent in fuel prices, unions feared that real wage increases would erode. Antonio Guterres, the prime minister, warned that public sector wage increases had to be kept moderate to prevent higher inflation that could threaten Portugal's compliance with the EMU stability pact.

The dire economic forecasts in early 2001 suggest that hidden wage pressure may be still growing. Public-sector unions have demanded wage increases between 4.5 percent and 6 percent in 2001, expressing their serious concern about the fact that the government may miss the inflation target (on which wage negotiations are based) for the third consecutive year. The government, which has resisted these pressures, is still expected to agree upon an average pay raise in the public sector of about 3.7 percent for 2001 (up from 2.5 percent in 2000), which, on the other hand, may over-stretch the already very fragile public finances and fuel higher inflation.

Furthermore, with labor market conditions remaining very tight, there is a risk of even greater pressure for wage increases on the private-sector, raising the threat that even higher inflation could become inevitable. The traditional loyalty between the government and the trade union federation could, in the event that this happens, come under additional strain. Good labor relations, nonetheless, will most likely continue to be the norm. On the other hand, improvements in the quality of the work-force through education and training, which have been generously funded through EU programs, will be conducive to wage growth.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

2ND CENTURY B.C. Present-day Portugal territory becomes a part of the Roman province of Lusitania.

5TH CENTURY A.D. The area is conquered by the Visigoths.

8TH CENTURY. The region is conquered by Muslim Moors.

997. The land between the Douro and Minho rivers is taken over by Bermudo II, the Spanish Christian king of Leon.

1064. The lands to the south of the Douro and Minho rivers, including Coimbra and including several Spanish fiefs, are united into a feudal entity by Ferdinand I, Spanish king of Castile and Leon. The northernmost of the fiefs, the Comitatus Portaculensis, situated around the old Roman seaport of Portus Cale (Oporto), later gives its name to Portugal. A feudal, agriculture-based economy develops.

1093. Henry (Henrique) of Burgundy becomes Count of Portugal.

1139. Alfonso Henriques, son of Henry of Burgundy, declares Portugal independent from the kingdom of Castile and Leon and becomes king. Aided by the Templars and other knights' orders, he extends the kingdom southward to the Tejo River.

1185. Portuguese settle in the reconquered area in self-governing municipalities. The Cistercian monks promote more efficient agricultural methods.

1248-79. The Moors are driven out of the southern province of Algarve, and the capital of Portugal is moved from Coimbra to Lisbon. The king starts governing with the help of a Cortes (a representative assembly of the nobility, clergy, and citizens).

LATE 13TH CENTURY. Diniz, "the Farmer King," encourages agriculture, founds the first university at Coimbra, develops the Portuguese navy into the strongest in all of Europe, and negotiates a commercial treaty with England.

LATE 14TH CENTURY. Under the lead of Prince Henry the Navigator, son of King John I, a century of exploration and conquest begins with exploring the African coast for a route to the Indies. Portugal later becomes a great colonial power as its navigators explore Madeira, discover the Azores Islands, and take a foothold in Africa.

MID-15TH CENTURY. Using the caravel, a tall ship adapted for Atlantic voyages, Portuguese sailors reach present-day Cape Verde, Sierra Leone, Ghana, and Angola.

1488. Bartholomeu Dias becomes the first European to sail around the southern tip of Africa, opening the sea route to the East Indies.

1494. After Christopher Columbus's voyage to America, Portugal and Spain sign the Treaty of Tordesillas, which allocates to Portugal all undiscovered lands east of a line 370 leagues west of the Cape Verde Islands.

1497-99. Vasco da Gama reaches India by the Dias route and starts a lucrative trade in spices and other luxuries. The Portuguese later conquer Goa (in present-day India), Malacca (in present-day Malaysia), the Moluccas Islands (in present-day Indonesia), and Hormuz Island in the Persian Gulf. Under pressure from Spain, Portugal expels all Jews and Muslims, depriving Portugal of much of its enterprising middle class. Trade is begun with China, and Portugal later acquires the trade colony of Macao from China.

16TH CENTURY. Portugal settles Brazil and introduces the Inquisition at home to enforce Roman Catholic loyalty. Political decline follows internal struggles for the throne, and Portugal is subdued by the Spanish Habsburgs and gradually loses its positions in the East Indies to the Dutch and the English.

1640. With help from France, Portugal restores its independence, and John IV of Braganza takes over the throne and renews ties with England. British merchants gradually come to dominate Portuguese trade, monarchy becomes more despotic, and the Cortes lose their significance.

1750-77. Chief Minister Sebastiao Jose de Carvalho e Mello encourages industry and education and ends the foreign monopoly of trade.

1807. The armies of French Emperor Napoleon threaten Portugal, and the royal family withdraws to Brazil, making Rio de Janeiro the seat of government. In 1811, Portugal is free of French influence, but the royal family remains in Brazil and makes it a separate kingdom in 1815. Brazil proclaims its independence in 1822.

1826. Pedro IV (former Pedro I of Brazil) takes over the throne in Lisbon and introduces a parliamentary regime subordinated to the monarchy. Acute internal political strife more than once requires the intervention of other European powers and popular dissatisfaction with the monarchy grows.

1910. The army and navy lead a revolution establishing a republic. A liberal constitution is then adopted, and Manuel Jose de Arriaga is elected president. Portugal is shaken by political turmoil and in 1916 begins participation in World War I fighting for the Entente.

1926. An army coup deposes the 40th successive cabinet since the founding of the republic. Antonio de Oliveira Salazar, professor of economics, is appointed minister of finance.

1932. Salazar becomes prime minister and dictator, and Portugal becomes a incorporated state with a planned economy, called the Estado Novo (New State).

1943. Portugal remains neutral in World War II but allows the Allies to use the Azores as a naval and air base. The planned economy collapses as the fishing industry declines, refugees fill the country, and the East Indies colonies are threatened by Japan.

1945. Unemployment and poverty are rampant after the war, but opposition to the Salazar regime is suppressed.

1960s. India annexes Portuguese Goa in 1961. Uprisings start in Angola, Guinea, and Mozambique and fighting continues into the 1970s. The United Nations (UN) blames Portugal for waging colonial wars. Loans help finance domestic irrigation and construction projects and some economic growth occurs.

1974. Led by Antonio de Spinola, a 7-man junta takes power and promises democracy at home and peace in Africa.

1974-75. Guinea-Bissau, Mozambique, the Cape Verde Islands, São Tomé and Príncipe, and Angola become independent.

1975. The Movement of the Armed Forces (Movimento das Forcas Armadas, MFA) assumes a formal role in the government by establishing a single trade union confederation and starting to reform economic and social life. Heavy industry and banking are nationalized and large agricultural holdings are expropriated and redistributed. The Socialists win elections for a constituent assembly, but after a series of clashes between Socialists and Communists, the MFA assumes control. In the same year, Portuguese Timor is occupied by Indonesia.

1976. New parliamentary elections bring the Socialists into office and Mario Soares becomes prime minister.

1979. The Conservative Democratic Alliance wins elections and its leader, Francisco Sa Carneiro, takes office as premier but is killed in a plane crash a year later. The military Council of the Revolution is dismissed by a constitutional amendment.

1983. Socialist Soares comes back into power as prime minister. He introduces an austerity program and conducts negotiations for joining the European Community (now the EU) that are finalized in 1986.

1992. Mass student demonstrations are followed by strikes involving public employees demanding wage increases and doctors protesting plans to privatize some health services.

1996. Portugal and its former colonies of Angola, Brazil, Cape Verde, Guinea-Bissau, Mozambique, and São Tomé and Príncipe form the Commonwealth of Portuguese-Speaking Countries (CPLP), an organization seeking to preserve the language, coordinate diplomatic efforts, and improve cooperation between the countries.

FUTURE TRENDS

The Portuguese economy is very closely dependent on the overall developmental trends of the EU and its efforts to match the requirements of the single European economic space. Over the first decade of the 21st century, it will continue to progress towards more private enterprise and competition. Privatization will continue to be an important issue in telecommunications, manufacture, and the other utilities, although the government is likely to retain special rights in key companies. It will also seek international strategic partners for those companies. Incentives to attract foreign direct investment will receive more attention, and Portugal may attract some new additional investment from its close links with Spain and Latin America. Gradual discarding of EU quotas on imports of textiles and clothing will create conditions for increase in Portugal's exports to the union members. The possibility of further negotiations on multilateral trade liberalization within the World Trade Organization (WTO) may also contribute to the future reinvigoration of the Portuguese export sector.

Trade with non-EU countries, including its former African, Asian and Latin American colonies, should continue to increase. A major simplification of corporate taxation is expected before 2003, and the corporate tax rate might be reduced to 30 percent (although indirect taxes may rise). Improved investment incentives may come under further EU scrutiny while stock market liquidity and capitalization will increase, boosted by further privatization. Due to the limited size of the domestic capital markets, more medium-sized businesses will increasingly seek funding in the international markets. A further consolidation in the financial sector and the emergence of more powerful banks, able to better realize economies of scale, compete in the single European market space, and make use of the Internet revolution, is also expected.

Work on the government's ambitious road building program and the new urban rail networks in Oporto and Lisbon will continue. The main seaports will be upgraded, and Lisbon is expected to receive a new international airport.

Portugal will experience more serious problems as new Central and Eastern European members of the EU with more pressing needs start competing for development funds. Agriculture and fishing may face a corresponding decrease in subsidies. It is logical to expect that Portugal, along with Greece, would not be overzealous in the process of the new members' accession to the EU. No major dangers for the economy have been envisaged (projected) and growth is forecast to decrease only slightly below the EU average in 2001 and 2002. Yet the current high levels of household indebtedness and the recent rise in house prices suggest there could be a risk of a severe decrease in consumer spending, particularly if interest rates go higher than expected. Such developments may significantly harm retail and domestic consumer goods manufacturers.

DEPENDENCIES

Portugal has no territories or colonies.

BIBLIOGRAPHY

Economist Intelligence Unit. Country Profile: Portugal. London: EIU, 2001.

Solsten, Eric. Portugal: A Country Study. Washington, DC: Library of Congress, 1993.

U.S. Central Intelligence Agency. World Factbook 2000. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed August 2001.

U.S. Department of State. FY 2000 Country Commercial Guide: Portugal. <http://www.state.gov/www/about_state/business/com_guides/index.html>. Accessed January 2001.

—Valentin Hadjiyski

CAPITAL:

Lisbon (Lisboa).

MONETARY UNIT:

Escudo (Esc). One Portuguese escudo equals 100 centavos. There are banknotes in denominations of 10,000, 5,000, 2,000, 1,000, and 500 escudos. Coins come in denominations of 200, 100, 50, 20, 10 and 5 escudos. The escudo will remain in circulation until February 28, 2002, when it will be completely be replaced by the new European currency, the euro.

CHIEF EXPORTS:

Clothing and footwear, machinery, chemicals, cork and paper products, food and beverages, and hides.

CHIEF IMPORTS:

Machinery and transport equipment, chemicals, petroleum, textiles, and agricultural products.

GROSS DOMESTIC PRODUCT:

US$151.4 billion (1999 est.).

BALANCE OF TRADE:

Exports: US$25 billion (1998 est.). Imports: US$34.9 billion (1998 est.).