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  REPORT - PORTUGAL
 

Portugal has modernized and enjoyed steadyeconomic growth
within the European nion. today,itis closing the developmentgapand
building its futureon exports, tourism and private investment

Strong ties with Europe offer the best prospects

An independent state since the 12th century, Portugal has spent much of its history facing away rom Europe and towards the Atlantic Ocean. One of the great seafaring nations, it ventured out to seekits fortune in the wider world, pioneering the Age of Exploration and establishing a vast trading empire that extended from Africa to Asia and South America.
The curtain fell on the Portuguese Empire at the end of 1999, when the last of the country’s colonies reverted to China.
Ties with Africa and Brazil remain, but modern Portugal sees its future firmly in Europe. Portugal joined the European Community (EC), the forerunner of the European Union, in 1986. In 1999, it became a founding member of the Eurozone, replacing its national currency, the escudo, with the euro in 2002. Portugal has twice held the EC/EU presidency, and today the head of the European Commission is a Portugese, José Manuel Barroso, who relinquished his job as Prime Minister to take up the post.
The economic benefits of Portugal’s membership in the EU have been enormous.
Over the years, a huge inflow of EU structural and cohesion funds has enabled the country to boost its economic performance through extensive modernization of its infrastructure. In the six years up to 2006, Portugal will have invested almost 50 billion euros (more than $60 billion) in regional development projects, with half the amount provided by the EU.
Soon after joining, Portugal became Europe’s fastest-rising economy, and for much of the 1990s enjoyed growth above the EU average.
Foreign trade remains central to the Portuguese economy, accounting for more than half of GDP over the last decade. EU states – notably Spain, Germany, France, Italy, and the United Kingdom – are the country’s main trading partners and the leading source of the significant foreign direct
investment it has received. At the same time, Portugal supports strong ties between Europe and the United States. It is a founding member of NATO, and has given strong backing to U.S. policy on Iraq. The Portuguese economy has followed the European trend, becoming diversified and increasingly service-based. New technologies have been introduced to modernize the agricultural sector and raise production levels. In industry, production of automotive components, electronics and pharmaceuticals is gradually shifting the balance away from the dependence on traditional products such as textiles, footwear, ceramics, and cork. Tourism represents approximately 8 percent of the GDP, providing employment for one in ten of the labor force. The sector is being upgraded to
give the country a broader appeal, with the aim of attracting visitors to areas beyond the beaches of the Algarve and to get them to come throughout the year.
Earlier this year, Portugal’s international profile was considerably enhanced when it successfully hosted the threeweek European soccer championship in June—an event on which it spent millions of dollars, building new stadiums and related infrastructure, and from
which the tourism industry is expected to benefit for years to come.
Driven by rising demand for Portuguese exports from its EU partners, economic recovery is under way after a downturn in recent years. GDP, which shrank by 1.3 percent in 2003, is forecast to grow by 1.4 percent this year.
The relationship with the EU remains at the heart of the economic and foreign policies of the government of Pedro Santana Lopes, who was appointed as Mr. Barroso’s successor as premier in July. The former Mayor of Lisbon has declared that his focus will be on consolidating the national budget and on investment. A prime objective is to meet the
The historic city of Porto, famous for port wine, is one of the countr y ’s leading industrial and economic centers
terms of the EU’s Stability and Growth Pact, which requires Eurozone members to keep their public deficits below 3 percent of GDP.
Over the past decade, Portugal has privatized state-owned enterprises, and key areas of the economy such as the financial and telecommunications sectors have been liberalized.
Recent structural reforms are aimed at increasing the country’s competitiveness and creating an optimum business environment. These include a new Labor Law intended to make the labor market more flexible, a reduction in corporate tax rates to 25 percent, with a further reduction to 20 percent from 2006 onwards, and administrative reforms to ease company licensing requirements.
Reforms have been
introduced and taxes
cut to increase
competitiveness
and create the best
possible business
environment

Mr. Santana Lopes has pledged to continue with the privatization program. Sale of state property outlined in the 2004 budget would raise 1 billion euros ($1.2 billion) this year alone.
On the list is part privatization of the national oil company, Galp Energia, and the national energy grid REN, and a further reduction in the state’s remaining stake in Electricidade de Portugal (EdP), the largest electric utility in Portugal and one of Europe's major electricity operators.

Portugal has actively promoted the liberalization of the energy market, and has been working with Spain on the creation of an integrated Iberian electricity market (see article, page 3).