PORTUGAL: IMPLICATIONS OF PRESIDENTIAL ELECTION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T01017R000403560001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: December 22, 2016
• Document Release Date: January 18, 2011
• Sequence Number: 1
• Publication Date: March 6, 1986
• Content Type: MEMO

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Memorandum for:
Attachment:
EUR M86-20031
DDI/EURA/WE/IA/
Distribution:
Original - PDB Staff
1 - DDI
2 - D/EURA
1 - EURA/PS
4 - IMC/CB
1 - C/PES
1 - C/WE
1 - WE/IA Chrono
1 - WE/ IA
1 - WE/ IA
1 - WE/IA Subject
(6 Mar 86)
E U R A
Office of European Analysis
Directorate of Intelligence
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PORTUGAL: Implications of Presidential Election
Cabinet crises and revolving door governments have been
a way of life for Portugal since the Revolution of 1974.
The short life-span of most governments--the longest-lived
lasted only 25 months--does not reflect sharp divisions over
fundamental issues, on which there is a broad consensus
among Portugal's non-Communist parties. Democratic
Portugal's history of weak and short-lived governments is
instead a product of the country's lack of democratic
tradition, its multiple party system, and--most
important--the highly personalized nature of Portuguese
politics. Other complicating factors are a list of economic
problems that would test the mettle of even a strong,
single-party government, and the existence of an
anti-democratic Communist party enjoying the support of
almost one in five Portuguese voters. Despite the
likelihood of continuing political uncertainty, we think
Lisbon's commitment to the Atlantic Alliance will remain
strong. Portugal is shifting, however, from an
American-oriented diplomacy to a more independent European
approach.
The election of the pro-US Socialist leader as
Portugal's first civilian president in 60 years put to rest
fears of a surge in Communist influence, but is unlikely to
end the personal and party differences that have undermined
government stability. Soares' backing in the second round
of the election by all of the parties of the left conveyed
an illusory impression of unity. In fact, only the
Socialist Party can be confident of benefitting from his
victory.
In contrast, there are many losers, of whom the most
conspicuous is outgoing President Ramalho Eanes. Eanes, who
has been at odds with Soares since 1978, made the mistake of
supporting a Socialist maverick, Salgado Zenha, in the hope
of ending Soares' political career and of regrouping the
left under his own stewardship. The Soares-Eanes feud has
contributed over the years to the institutional conflict
which has prevented implementation of any coherent policy
program. Eanes' failure has left him with only one way to
This tvaescriot was prepared byl with a contribution
Questions and comments may be addressed to the
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remain active in politics: to take over formal leadership of
the shaky left-of-center Democratic Renewal Party, whose
creation he quietly encouraged last year. If he does, we
expect renewal of the dueling between him and Soares.
The Communist Party is also reeling from the defeat of
Zenha, its first choice for President. The party opted in
the runoff to support its arch enemy, Soares, whom the
Communists regard as the lesser of two evils compared to
conservative Freitas do Amaral. The Communists acted
without receiving any commitments from Soares, and the
leadership is now under pressure to produce tangible
benefits from Soares to satisfy the rank and file. We
strongly doubt that Soares will cooperate, and we therefore
expect the Communists to revert to obstructionist tactics in
the parliament and on the labor front.
Threats to the Cavaco Silva Government
Prime Minister Cavaco Silva, who leads the Social
Democratic minority government, suffered his first major
defeat when rightist presidential candidate Freitas do
Amaral lost to Soares. Personal animosity is strong between
Soares and Cavaco Silva, both because Cavaco Silva brought
down the Soares-led coalition government in 1985 by pulling
the Social Democrats out, and because Cavaco Silva actively
campaigned for Freitas do Amaral in the presidential race.
Soares and Cavaco Silva have promised to put aside their
differences and focus on Portugal's burgeoning economic and
social problems, but Cavaco Silva's confrontational style
and Soares' inevitable involvement in foreign policy issues
will probably lead to renewed strains between the presidency
and the government.
In short, we think Soares' election has probably made the
Cavaco Silva government even more fragile. In addition to
the strains between the prime minister and Soares, the
government will probably be buffeted by renewed attacks in
parliament by the leftist parties. The timing of any
challenge will depend on tactical considerations rather than
policy issues--on each party's perception of how much it
stands to gain or lose from bringing down the government and
forcing another early election. Even though the Socialists
and the Democratic Renewal will want time to rebuild, we
think a minority government could prove too tempting a
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Cavaco Silva's government could fall from within,
however, if opponents in the party conclude that he is
vulnerable. Many party members objected to Cavaco Silva's
support for Freitas do Amaral and may take advantage of the
opportunity to unseat him if the government suffers setbacks
in parliament. Cavaco Silva himself might try to force an
early election to take advantage of popular approval for his
government's expansionist economic policies and to preempt
possible opposition. If his government's economic stimulus
program continues to persuade the public that he is
correcting some of the ills in the economy, he would be in a
strong position to gain seats.
Prospects for the Economy
Constant political manuevering over the last eleven
years has seriously impeded implementation of effective
economic policies. Cavaco Silva now has relaxed the Soares
government's austerity program--which improved the current
account from a $3.3 billion deficit in 1982 to a $100
million surplus last year--and initiated a recovery program
aimed at lessening the financial drain of state support for
inefficient public enterprises. He is also aiming to
reverse the downward trend in private sector investment and
real income. The government's measures for 1986 include a
four-percentage point cut in domestic interest rates, a
series of tax cuts, and a four-month suspension of the
monthly 1-percent devaluation of the escudo. The latter is
designed to hold down inflation, currently hovering around
19 percent, by containing the cost of imports. Other
promised measures include reviving the stock market and
revising the rigid labor laws which make it almost
impossible to dismiss workers. The government hopes to
achieve annual economic growth of 4 percent over the next
year.
Prospects for such a recovery are mixed. We estimate
that economic growth will increase slightly over the 1985
rate of 1.8 percent but is not likely to reach the
government's expectations. GDP should rise 2.8 percent this
year, as real income grows about 1.5 percent and private
investment increases by as much as 5 percent. We think
inflation will come down to around 15 percent. The
government's expansionary policies, however, will probably
lead to a current account deficit this year because
Portuguese import demand is highly sensitive to changes in
income. EC membership is also likely to cause Portugal's
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trade gap to widen as the liberalization of import barriers
opens the economy to West European competition and the
required shift to higher priced EC agricultural goods
increases Portugal's import bill. We would not be surprised
if the deficit approaches $1 billion, which could force the
government to seek EC or IMF financial support. Such aid
would almost certainly be contingent on another policy
reversal--a return to more restrictive economic policies.
Moreover, the government's present economic policy only
partially addresses the fundamental problems plaguing
state-owned enterprises which account for 40 percent of
domestic borrowing and 95 percent of foreign debt, but only
14 percent of gross domestic product. The promise of turning
over much of the huge state sector to private enterprise has
been welcomed by the business community. The process of
reprivatization, however, will be slow and painful because
Cavaco Silva needs the support of parliament to revise the
Socialist-oriented constitution. The Socialist Party is
likely to be reluctant to support such efforts since their
trade union arm is as opposed'as the Communist-dominated
trade unions to the inevitable layoffs and factory closures.
But without major reforms in the mammoth state-controlled
sector of the economy, Portugal will not make much headway
in its drive to move into the mainstream of modern,
industrialized Western Europe.
Implications for the United States
Despite the likelihood of continuing governmental
instability, Portugal will probably not undergo a marked
shift to the left or right over the next few years. All of
the political elites are committed to the democratic system,
and the voters overwhelmingly opt for the moderate and
centrist parties. We think Portugal will also remain
generally pro-US and a member of the Atlantic Alliance. But
the nature of the bilateral relationship with the United
States is changing, and Portugal--traditionally among the
most cooperative allies--is likely to become a more prickly
partner. This is partly a result of Portugal's entry into
the EC and partly a result of the growing belief--encouraged
by the center-right parties as well as by the left--that
Portugal has not been treated fairly by the United States in
economic matters or security assistance.
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