carlos da silva costa : crisis management, resolution and recovery in small european countries on an imf programme. comparative presentation - the experience of portugal address by mr carlos da silva costa, governor of the bank of portugal, at the conference held by the central bank of iceland “ looking back and looking forward & # 58 ; how do we preserve monetary and financial stability? ”, reykjavik, 12 july 2019. * * * 1. introductory remarks good morning. i would like to thank governor mar gudmundsson for his kind invitation to participate in today ’ s conference and to share with you the portuguese experience in regard to adjustment programmes, including those of the international monetary fund ( imf ). ten years after the start of the great financial crisis, the portuguese economy is in a growth phase, economic agents continue to benefit from favourable financing conditions, the public accounts have improved and the banking sector is stronger. unemployment is now below precrisis levels and private and public leverage ratios have improved. in the coming years, economic activity in portugal is expected to continue to benefit from a relatively favourable economic and financial environment. this is good news, because growth is a key ally in the process of rebalancing the economy. however, not only in portugal but in any economy, we cannot ignore the fact that growth periods also tend to lead to a greater propensity to take on excessive risk. and, in the absence of a sense of emergency stemming from bad economic performance or imminent financial market pressure, policymakers ’ continued commitment to economic reform and social consensus becomes much harder. this is why it is crucial in the current environment to bear in mind the lessons learned from the crisis and, above all, to prevent the resurgence of the factors that led up to it. the conference today will certainly help enhance the level of awareness of all the participants. 2. portugal had to resort to assistance programmes on three occasions – with similar problems, but different monetary policy regimes and prescriptions as you know, in the first half of 2011, portugal had to resort to official financing under an assistance programme negotiated with the european union ( eu ) and the imf. public and private indebtedness had accumulated as a result of a credit boom dating from the mid - 1990s, and large current account deficits emerged. after twelve very difficult months, recourse to official financing under an assistance programme became unavoidable. before speaking about the 2011 assistance programme and the factors that led to it, let me say

financial assistance for the 2011 – 14 period was set at €78 billion, of which €52 billion corresponded to funding through the european mechanisms ( the european financial stabilisation mechanism and the european financial stability facility ) and €26 billion to assistance from the imf, under an extended fund facility. of this total amount, €12 billion was allocated to a bank solvency support facility. overall, eleven disbursements were made, which corresponded to approximately 97 % of the agreed package. the programme expired on 30 june 2014. during the programme years, 12 review missions took place. remarkable progress was achieved with the implementation of the financial assistance programme : the budget deficit significantly declined and public debt was put on a downward trend ; private sector deleveraging is ongoing ; and the banking sector is more robust, with a stronger liquidity position, higher solvency ratios and improved asset quality. the portuguese adjustment programme has widely been regarded as a success story. in my view, this success was due to three factors : programme ownership. portugal was committed to the implementation of the programme, its urgency was understood and accepted by the general public and there was a constructive dialogue with social partners. this ensured the success of the quarterly reviews. the speed and intensity of the response from the tradable sector, in particular exports, was key to the rapid rebalancing of the external accounts and mitigation of the impact of lower domestic demand on the non - tradable sector. the preservation of confidence in the banking sector, as evidenced by the behaviour of deposits. this was crucial to preventing the economy from collapsing with a credit crunch and avoiding the imposition of capital controls. the macroeconomic adjustment has continued after the programme ended in 2014, with encouraging results. after the end of the programme, portugal was subject to post - programme monitoring / surveillance by the imf and the european institutions. the post - programme monitoring by the imf ended upon the conclusion of the early repayment of the imf loan in december 2018. an early repayment strategy was possible thanks to a marked improvement in portugal ’ s market access conditions. this strategy sent a positive signal to the markets, improved the maturity profile of public debt and generated important interest savings. 6. what lessons has portugal learned from the 2011 crisis and the adjustment programme? the portuguese experience shows that when investors ’ concerns about the sovereign ’ s capacity to pay back debts intensify and a country is unable to fund itself on the international markets, an