Portuguese fiscal consolidation and public sector reform: the influence of EU and IMF

This paper investigates the influence of the European Union (EU), the European Central Bank (ECB), and the International Monetary Fund (IMF), under the so-called “troika”, on Portuguese fiscal consolidation and on its... [ view full abstract ]

This paper investigates the influence of the European Union (EU), the European Central Bank (ECB), and the International Monetary Fund (IMF), under the so-called “troika”, on Portuguese fiscal consolidation and on its public sector reforms.
The Eurozone crisis was a result of different dynamics triggered by the 2008 financial crisis, which broke out in the US. The crisis comprised both the rising of international credit costs, which were unsustainable for some of the most fiscally vulnerable member states, and the failing of national banks, which forced governments to bail banks out, thus increasing public debt burdens. It showed the economics debilities of the Eurozone and of some of its member countries, and the difficulties in meeting the strict financial EU rules.
For those countries like Portugal, with a fragile financial and economic structure, they had to be bailed-out, and follow the rigorous requirements imposed by the IMF and the EU. The bail-out represented entering a loan-program, and imposed the obligation to implement an austerity program to recover the finances and the economy, in order to repay the loan. Hence, Portugal had the fiscal decision-making process undergoing a rigorous monitoring and control by the troika. It also had to implement fiscal austerity measures imposed by these institutions and ensuing public sector reforms.
Several studies have already analysed the impacts of fiscal consolidation from the economic perspective. This paper analyses the influence of EU and IMF on Portuguese political decision-making process in the different stages of the fiscal crisis, enabling us to answer the following research questions: What was the influence of the EU and IMF on the domestic fiscal consolidation? and How did the fiscal measures affect public sector reforms? It focuses on the political decision-making process on fiscal consolidation and public sector reform. It also analyses the several measures taken to improve public financial management reforms, which were imposed by the troika in key policy areas during the regular 'reviews' as conditions for the loans.
The literature about the influence of fiscal crisis on public administration points out that each country’s response to the crisis is according to their specificities. Therefore, there are as many responses as countries (Kickert, Randma-Liiv and Savi 2015). To understand the dimension of the economic and financial crisis in Portugal and the influence of consolidation measures in public sector reforms, the paper analyses the politics of consolidation and the austerity effects on the living conditions of people, the protest and unrest. The study contributes to enhance the empirical knowledge and theoretical understanding of the lessons learned from the many years of fiscal austerity and reforms. The particularities of the Portuguese case, when compared with other bailed-out countries, led to a different course of events and outcomes which are worth being analysed.
The study applies a descriptive style to explore and explain the process of crisis management from 2008 to 2014. The empirical study is based on extensive official document analysis from domestic and international institutions.