Portugal Wants to Sell Off Industries

EUROPEANS have grown accustomed to governments telling them that selling off state assets to the private sector will somehow wave a magic wand over industry and bring in the good times. But nowhere in Europe has privatization faced as many obstacles as in Portugal. For a country that has never really been capitalist, gearing up to the free market is a tough undertaking.

``The government needs to accept that they are not the driving force in the economy anymore,'' says Jaime d'Almeida, a banker and president of Finseco, an investment services company. ``They need to be pragmatic. They must create a favorable investment environment and stop trying to interfere too much.''

Such pragmatism is a hard lesson to learn for Portuguese governments.

Forty years of dictatorship created a protected business sector in which competition was not allowed to develop. Sweeping nationalizations under the aegis of Portugal's Stalinist-oriented Communist Party followed the 1974 revolution.

Now the Social Democratic government of Prime Minister Anibal Cavaco Silva wants to roll back the state. He plans to sell off banks, insurance companies, telecommunications, petrochemicals, and energy industries.

For now, he is blocked by the fact that the 1976 Constitution forbids such action through Article 83, which reads: ``All the nationalizations made after 25 April 1974 are the irreversible conquests of the working classes.''

The government has managed to negotiate a pact with the opposition Socialist Party enabling it to remove this article by autumn. But the price has been the retention in the Constitution of a guarantee of job security. (Inefficiency in Portugal's state-owned industry is attributed largely to massive overstaffing.) In the meantime, the government has gotten around the Constitution by ``49 percent privatization,'' with the remaining 51 percent under state control. It announced its intention last month of partly selling off several industries and financial institutions.

One Lisbon businessman could not see any attraction for investors. ``Who wants to invest in a company which is still government controlled and can never make a profit unless it fires a lot of people, which it cannot do?''

MANUEL DE OLIVEIRA MARQUES, president of Alianca Seguradora, a middle-ranking Porto-based insurance company that is up for partial privatization, remains optimistic. ``The surplus-personnel situation does not necessarily jeopardize a privatization plan. It can be part of the solution, as to a certain extent it was in Spain.''

Since the Madrid government removed constitutional job security, unemployment shot over 19 percent. In Portugal, it is just over 6 percent, but labor unions are worried. This month workers from Electricidade de Portugal, the state electric utility staged a two-day strike to protest against post-privatization job losses. The government, however, has yet to announce its plans for EDP, the country's largest company.

Meanwhile, Portugal's industry, which is in urgent need of modernization, has received a one-two punch from the economy. Inflation has shot past the government's 5 percent target to more than 12 percent, eroding earnings and making the cost of borrowing between 18.6 and 25 percent.

Thus, some potential foreign investors, conscious of an inevitable rise in labor costs, are reconsidering. Though foreign investors poured $900 million into Portugal last year, and double is expected this year, their tax status has been thrown into confusion. A single corporate tax rate, imposto unico, of 36.5 percent was introduced last year, but businessmen still do not know how this will affect foreign investors.