Portugal finances 'out of control'

Durao Barroso: "No need for Portugal to remain one of the EU's most backward countries."

LISBON, Portugal -- Portugal's government is so short of cash it cannot afford to pay armed forces salaries for the full year, its new prime minister has said.

The country's public finances are "totally out of control," Jose Durao Barroso told Parliament in his first address since his conservative coalition government took power earlier this month.

"Portugal is going through one of the most difficult periods in its history," The Associated Press reported Durao Barroso as saying. He went on to blame the damaging "patronage, cronyism and weak management" of the previous Socialist government.

If the decline continues, "Portugal is at risk of becoming internationally irrelevant," Durao Barroso said. Portugal's economic growth is expected to have been about 1 percent last year.

Overspending last year may have pushed the state budget deficit over the 3 per cent limit permitted for members of the euro single currency, he said. The initial deficit forecast for 2001 was 2.4 percent, but that figure has probably been surpassed, he said. This would bring a heavy fine from the European Commission and embarrass the Portuguese authorities.

Durao Barroso announced several spending cuts and austerity measures as part of an emergency programme to achieve a balanced budget by 2004.

Durao Barroso, who holds only a slim majority of support in the 230-seat parliament after elections last month made turning around the country's economic problems the central theme in his campaign.

He promised to cut corporate taxes from 30 percent to 20 percent, privatise state-owned companies and hand some state health care responsibilities to the private sector.

The Social Democrats narrowly ousted the incumbent Socialist party by 40.12 percent of the votes compared to 37.85 percent -- returning to power after a six-year absence.