It is a great pleasure for me today to address the OECD Council, chaired by Secretary-General Ángel Gurría, whose words of welcome I very much appreciate.
I am well acquainted with the OECD, from my times as a university student and lecturer, as Head of Research Department at the Bank of Portugal, later on as Minister of Finance and Prime Minister, and now as President of the Republic.
I would like to start by sharing a few thoughts on my vision of the OECD:
Camões, the 16th century Portuguese poet and the herald of the first Voyages of Global Discovery, said that “the world is composed of change; which forever takes on new qualities”.
The OECD, given its mission and its broad expertise, is the Organisation best placed to analyse this World of Change, understand its new qualities and, above all, to identify how to tackle the opportunities, risks and challenges for its Member States.
As it became clear with the deepest economic and financial crisis of the last few decades, or now, with the abrupt drop in oil prices, or even the geopolitical and military crises in the Middle East and around the Ukraine and Libya, uncertainty and complexity have become inescapable variables in analysis and forecasting. I would thus encourage the OECD to further develop its capabilities in terms of foresight or strategic forecasting, based on scenarios and mega-trends.
In order to build a better future, it is important to keep in mind the basic premise of the OECD: an open and free market economy, capable of giving equal opportunities to its citizens, of rewarding innovation and merit, is what best serves a representative and vibrant democracy and fosters justice and social conscience.
The OECD is a community of those who strive to adopt and share the best policies and best practices in each sector, to meet the highest economic, social, environmental and energy criteria, and of those who best promote world trade, stability, fairness and transparency in all markets.
The OECD can be expected to provide the best strategic outsourcing for a global, truly multilateral governance. To this end, it should reinforce its cooperation with other institutions and countries.
The 20th anniversary of cooperation between the OECD and China, which I visited last year, appear to represent a unique opportunity for a qualitative and quantitative leap. From Brazil, India, Indonesia and South Africa, we also see evidence of progress towards closer cooperation.
The OECD, I believe, should also keep an increasingly attentive eye on Africa. Going beyond the Development Cluster, the OECD seems well-suited to be a natural partner in various fields of public policy, particularly in the areas of education, innovation, investment, trade, energy and infrastructure. Portugal, with its links to Portuguese speaking countries, has undertaken an active role in the sphere of bilateral cooperation, but much more can be achieved to assist emerging economies in Africa in promoting sustainable development.
Besides, I consider that the OECD’s natural area of expansion lies in its multilateral activity, in which the Organisation stands as a unique provider of services for better global regulation.
In particular, I see the OECD as the best laboratory in the world to test and define credible multidisciplinary solutions that will enable us to overcome the economic and financial crisis, in Europe and the World.
In this vein, the OECD can and should play a leading role as far as the management of spillover effects is concerned, also by devising positive contagion and healthy trade-offs between policies and sectors.
In these turbulent times, the OECD must continue to be a beacon of excellence and a reference for the structural reform of national economies.
While taking into account national specificities, these structural reforms should contribute to a global economy that is more inclusive, more integrated, more sustainable and fair.
Let us not delude ourselves: hunger, poverty, social inequality, together with a sense of unfair distribution within and between nations, continue to be the greatest enemies of democracy. Also for this reason, I believe the work that the OECD is carrying out with a view to strengthen the confidence of citizens in their governing institutions is absolutely critical.
2015 is a year of great challenges on the grounds of sustainable development and the Climate. The OECD, as was shown with regard to the Millennium Development Goals, can play a quite significant instrumental role in the field of active negotiation in the United Nations, in defining Sustainable Development Goals, in the formulation of benchmarks, targets and indicators and, above all, in monitoring their implementation.
In regard to the COP 21 (Conference of the Parties) to be held here in Paris next December, the OECD will feature as “best supporting actor". In June, I must say, Portugal will organise the “Blue Week”, a high-level event dedicated to the Economy and Biodiversity of the Oceans.
It is only natural that Portugal sees the OECD as a partner in the structural reforms that have been, or still need to be carried on in the economic and financial post-adjustment stage. It is much through comparative knowledge, based on empirical evidence, that we have strived to build up a new economy in a time of globalisation and interdependence. An economy that explores new sources of growth, new capabilities and skills, which is centred on people and able to create quality jobs in a sustainable manner; an economy which is committed to innovation and clean energy, which is able to provide the right incentives for business and productive investment.
The OECD reports on Portugal have played a very helpful role, by providing not only an independent evaluation of public policies and structural reforms, but also a benchmark for the best international practices. The “Economic Outlook – Portugal” survey is always a reference for economic policy. Various other important projects are underway between Portugal and the OECD, with a particular reference to the strategy on skills and the regional development indicators.
Let me now give you a few highlights on what Ángel Gurría calls “Go National”: what Portugal is doing for itself, and also for Europe.
The last four years were, as you may well know, particularly difficult for my country. Very heavy sacrifices were imposed on the Portuguese, with all the consequences at the social level. Today, after exiting Economic and Financial Assistance Programme with no need to resort to a second rescue package, Portugal has seen its credibility restored and regained access to sovereign debt markets. The Portuguese economy has become more competitive, more sustainable and more integrated into the global economy.
Let us see what we have accomplished so far, the main indicators and the good news.
The unemployment rate, which rose sharply after 2009, and reached levels above 17%, began to decline rapidly from mid-2013. Currently it is around 13%, so we still have a long way ahead. This is a most important issue, given the personal and social impact of unemployment.
The Portuguese economy started to pick up from the last quarter of 2013. In 2014, real GDP increased by 0.9%; and growth is expected to accelerate to 1.5% in 2015. However, the recent fall in oil prices and the depreciation of the Euro may lead the 2015 growth rate projection to be revised upwards to around 2%.
Over a short period of time, we have achieved a significant structural adjustment. We have moved from a budget deficit of 11% of GDP in 2010 down to less than 4% in 2014. For 2015, the government projects a budget deficit below 3% of GDP. If this occurs, Portugal will be in a position to leave the Excessive Deficit Procedure. This would be an important milestone in bolstering the confidence of investors and the market. Achieving a budgetary adjustment of this magnitude represents a very sizeable effort. Deeds – not words – are the cement of trust.
Additionally, the primary balance moved from a deficit of 7% of GDP in 2010 to a slight surplus in 2014, which is expected to increase to 2% in 2015.
With the end of the Financial Assistance Programme, greater stability in the Eurozone and the increased capacity for intervention showed by the ECB, interest rates on the Portuguese sovereign debt have reached historic minimum levels. While public debt still amounts to around 129% of GDP, prospects are that the government debt ratio will start to decline in 2015. Portugal will be repaying the loans contracted with the IMF ahead of schedule. Markets have recognised the sustainability of our debt and the significant improvement in both the Portuguese economy and its public finances, as shown by yields on 10-year government bonds currently standing below 2%.
The relative weight of the export sector has gone from 31% of GDP in 2010 to 40% in 2014. Portuguese companies have shown a remarkable capacity to adapt and to improve market share, especially outside the European space. External accounts have improved from a deficit in the order of 10% of GDP in 2010 to an estimated surplus of 2.8% in 2014.
Balancing both public finances and the external accounts continues to be a priority. An open economy like that of Portugal cannot develop if it is burdened by indebtedness and excessive deficits.
Budgetary consolidation has been accompanied by a number of important structural reforms. These have deeply changed the product and labour markets, the fiscal and legal structures, and the business environment. I would like to emphasize the social partnership which enabled reforms to be implemented in a context of social cohesion.
As regards education, we have invested, over the years, in the successive enlargement of preschool coverage, we have managed to reduce school dropout and failure rates, and we have extended compulsory education to 12 years. We have also diversified the range of educational options, with special emphasis on vocational training.
Science is a critical element for growth and competitiveness, and Portugal and its scientific, academic and entrepreneurial communities are working to ensure that scientific knowledge can be disseminated to companies and to Portuguese society as a whole.
In the field of ocean sciences, which is of particular interest to Portugal, we observe that the number of scientists in Portugal is far higher than the average in the most innovative European countries in the area of ocean science and technology. The Horizon 2020 programme will provide a strong boost for Portugal and its scientific, academic and entrepreneurial communities to take on an increasingly prominent role in science, innovation and competitiveness.
Summing it up, I would say that all these results were only possible because we invested heavily in restoring our credibility, by honouring our international commitments and by engaging in a programme of genuine and sustainable economic transformation.
Everything that depends on Portugal and the Portuguese will continue to be done, and all commitments will be honoured. We wish the OECD to remain by our side as a strategic partner in this process.
But let us not delude ourselves: our success can only be effective and complete if the European Union, the Eurozone and, to some extent, the international community led by the G20, also do their part in the structural reforms for shared prosperity.
More than 85% of European Economies are operated by SMEs, but in countries under greater pressure, they have difficulty getting access to financing. The next ministerial meeting of the OECD will be centred on Investment, and this debate could not be more timely.
Portugal not only needs to grow, but has also to converge within the framework of the Single Currency and the Single Market. Now, it so happens that the economy can hardly grow, let alone converge, if credit markets remain fragmented, precluding the financing of innovative and profitable projects based only on their geographical origin.
Nevertheless, it is important to recognise that, in recent years, Europe has taken major steps as regards the Economic and Monetary Union. By extending multilateral surveillance to excessive macroeconomic imbalances, the EU has made it clear that budgetary discipline is not enough, it is fundamental to coordinate economic policies. At this stage in Europe there is, in fact, no economic policy – and also no social policy, I would say – without spill-over effects. Everything today can be contagious because interdependence is a reality.
Therefore, Portugal supports an effective Economic and Monetary Union. Also, we support the further deepening of the single market in the areas of the digital economy and energy, as well as a distinct, contracted, monitored application of European funds, focused on employment growth and tangible economic returns. It is worth remembering that, for many countries under pressure, European funds, including those from the European Investment Bank, are the only source of public investment available.
Portugal is in favour of a stronger tax cooperation and the OECD is particularly perceptive on this stance. It is not enough to discourage tax havens. Greater coordination is needed to prevent hidden tax havens and forestall financial markets prone to creating serious distortions.
Hence, we argue that the success of the Eurozone demands a closer and stronger coordination of policies for growth and solidarity. With a fixed exchange rate regime in effect in the Eurozone, it is vital that economic coordination ensures that restrictive domestic demand policies in countries with external deficits are matched by more expansionist policies in surplus countries, in order to avoid stagnation (or even recession) and unemployment throughout the Eurozone, and excessive sacrifices in countries with deficits. This may require more political integration.
Ladies and Gentlemen,
Portugal is doing everything it should do. Still, this may not be enough, especially if the European Union does not join us in this effort, by devising policies for growth and job creation.
Let me conclude by saying that the OECD is an excellent forum to study, test, compare and offer advice. Be brave and be open to call attention to these new global challenges, to address the new, amplifying, factors of inequality, which may eventually jeopardize peace and democracy. It is in the spirit of this appeal, and in the context of the OECD’s increasing global importance, that I would like to challenge you to look towards the South, in addition to investing strategically in Southeast Asia. In terms of membership, the OECD is present in all continents except one: Africa; the continent with more countries. Take this opportunity to let the world know that the OECD intends to be global, with a presence in all continents without exception. A future regional programme with sub-Saharan Africa will consolidate the role of the OECD as a worldwide player.
The wealth of this Organisation also lies upon the social and cultural diversity of the democracies that constitute it. The scope of your mission goes beyond economic and social thinking. The stakes are, indeed, higher: strengthening the trust between citizens and their governing institutions through the quality of public policies.
Thank you very much.