IMF Agrees 26 Billion Euro Portugal Bail-Out

The International Monetary Fund has approved a 26 billion euro bail-out loan for Portugal to help the struggling eurozone member recover from its debt crisis.

The International Monetary Fund headquarters in Washington DC

The IMF, whose boss has quit amid a sex scandal, said it would immediately disburse 6.1 billion euros to ease investor concerns over the country's financial problems.

The organisation said total fiscal support to Portugal in 2011 will include about 12.6 billion euros from the IMF and another 25.2 billion euros from the European Union.

The funding is part of a 78 billion euro bail-out package by the IMF and European Union.

The Portugal deal follows a 110 billion euro package for Greece last May and an 85 billion euro programme for Ireland in November.

IMF managing director Strauss-Kahn resigned this week after being accused of sexual assault and attempted rape in a New York hotel.

"The financing package is designed to allow Portugal some breathing space from borrowing in the markets while it demonstrates implementation of the policy steps needed to get the economy back on track," an IMF statement read.

According to the agreement, Lisbon will have to make deep spending cuts, raise taxes, reform its labour and justice systems, and embark on an ambitious privatisation scheme.

"The Portuguese authorities have put forward a program that is economically well-balanced and has growth and job creation at its centre," IMF acting managing director John Lipsky said.

"It addresses the fundamental problem in Portugal - low growth - with a policy mix based on restoring competitiveness through structural reforms, ensuring a balanced fiscal consolidation path, and stabilising the financial sector."

John Lipsky, the IMF acting managing director

The leader of Portugal's opposition Social Democrats, Pedro Passos Coelho, warned earlier this week that the country has no room for failure in meeting the austerity conditions of the programme.

The austerity measures included in the bail-out are expected to contribute to a contraction in the Portuguese economy of 2% both this year and next.

Mr Lipsky said the support from Portugal's main political parties for objectives and policies under the programme indicates a "resolve to tackle the Portugal's long standing problems".