IMF endorses Portugal's financing plans Portugal's hopes of returning to government bond markets next year and avoiding the need for a second bailout have been boosted by a firm endorsement of the country's financing plans by the International Monetary Fund. Abebe Selassie, head of the IMF mission to Portugal, said Lisbon had presented international lenders with a credible plan, "which we approve of," to regain market access by September 2013, the current assumption under its three-year adjustment programme. The IMF's seal of approval comes as heated opposition to the government's latest package of austerity measures began to spread to some sections of big business, the Catholic Church and the parties supporting the ruling centre-right coalition. Mr Selassie said that in the event of increased market stresses hitting peripheral eurozone countries, European leaders had "always said that they are ready to support Portugal in [regaining] market access." The IMF also expected the European Central Bank "to play a very helpful role" in Portugal's return to the markets after announcing plans to assist struggling eurozone economies by buying government bonds. "I see this as one of the most important test cases of European solidarity," Mr Selassie said in an interview. The Portuguese have been implementing the adjustment programme in a very steadfast way and it has been yielding some very credible results. The IMF, which requires financing insurance for 12 months ahead to continue disbursing funds to assisted countries, is expected to approve a further €1.5bn instalment of Portugal's €78bn bailout package in October. A further €2.8bn tranche is due to be approved by the European Union after the so-called "troika" of the European Commission, IMF and ECB this week completed its fifth quarterly review of Portugal's progress with the adjustment programme, saying it remained "broadly on track." The troika agreed to ease the fiscal adjustments required under the programme, giving Portugal an extra year to meet previously agreed deficit-reduction targets. Lisbon is not asking for any additional bailout funds or more time to pay. Olli Rehn, the European Union's top economic official, said the fact that Lisbon expected to be able to cover any additional financing needs arising from the new timetable was "further testimony to Portugal's enhanced credibility." Mr Selassie said the extra financing requirements were "limited and manageable." The sharp fall in Portugal's government bond yields over recent months was a further "sign of the credibility that the adjustment programme has with markets," he said. The yield on benchmark 10-year debt has dropped to close to 8 per cent, the lowest level since March 2011, shortly before Lisbon asked for a bailout, and down from more than 17 per cent in January. Lisbon planned to take a number of "important and credible steps" to facilitate bond market access, said Mr Selassie. "We were never of the view that this is a binary thing, where you go from zero to full bond market access overnight," he said. This is a more gradual process and it has already started with the lengthening of Portugal's Treasury bill maturities. The stock of T-bills is also higher. This work is going to continue and we see it proceeding very well. He said that the decision to give Lisbon an extra year to meet agreed budget deficit targets reflected an effort "to be supportive of the political consensus [behind the adjustment programme] that has prevailed in Portugal so far." "In all our discussions with opposition parties, trade unions, employers" federations and other social partners, one point which certainly came across was the desire for a longer timeframe over which the adjustment could be made," he said. Analysts fear Portugal's political consensus could be shaken by growing resistance to new austerity measures, particularly a plan to increase workers" social security contributions next year from 11 per cent of their earnings to 18 per cent, while cutting employers" contributions from 23.75 to 18 per cent. The government adopted the measure, which applies to both public and private sector employees, after the constitutional court ruled that other proposals that would cut only public sector pay were discriminatory. Mr Selassie said the reduction of company labour costs was "a form of fiscal devaluation" that would support employment by making it easier for firms to invest and create jobs. It would also put pressure on prices and help make Portuguese exports more competitive. Fully supported by the EU, IMF and ECB, "it was one of the ideas on the table and everybody analysed its technical soundness using model simulations," he said. Measures would be introduced to mitigate the adverse impact on the low-paid. Alternative measures to keep Portugal on track with the adjustment programme "would have caused just as much political debate." Portugal had already made substantial adjustments "faster than we had foreseen," he said. In two and a half years, the current account deficit had fallen from about 10 per cent of economic output to 3 per cent. About 60 per cent of the targeted reduction in the primary structural fiscal deficit (excluding interest payments) had already been achieved. However, this rapid shift in the composition of output towards exports had led to a fall in tax revenue, as exports were subject to less taxation. "We thought it made sense to revise the deficit targets to reflect this change in the structure of the economy," said Mr Selassie.