The regional government in Portugal’s Madeira Islands failed to report debts amounting to more than 1 billion euros (US$1.4 billion), the Bank of Portugal and the National Statistics Institute said on Friday.
The revelation was a setback for Portugal’s efforts to reduce its unsustainably high debt load through austerity measures that include tax hikes and welfare cuts.
The discovery of the hidden debt was also likely to fuel market jitters about the fiscal health of the eurozone, which includes Portugal. Greece’s financial woes stemmed in part from underreporting its debt load to European authorities.
BAILOUT
Like Greece, ailing Portugal needed a bailout and got a 78 billion euros loan from its European partners and the IMF earlier this year to spare it from looming bankruptcy.
The Madeira Islands off northwest Africa elect their own regional authorities but receive funding from the central government in Lisbon and the EU. It gets most of its own revenue from tourism.
The finance ministry said the failure to report the true extent of Madeira’s debts was a “grave irregularity.”
Polish Finance Minister Vitor Gaspar said earlier this month that Madeira’s authorities had asked the Lisbon government for help in putting its finances in order. A special rescue package is due to be announced by the end of the month. Unconfirmed reports say Madeira may need 5 billion euros.
Portugal’s Audit Court raised the alarm five months ago when it said Madeira’s accounts did not add up. The central bank and statistics agency began examining Madeira’s books in August.
LEADER
Madeira has been governed by the same man, Alberto Joao Jardim, since 1978, making him one of Europe’s longest-serving elected leaders.
A populist, he has maintained his support by investing heavily in public works and thumbing his nose at politicians in Lisbon. He is standing for re-election next month.
Speaking at the opening of a kindergarten, Jardim said “there is no hidden debt” in Madeira and added that his administration had not concealed anything.
A recently introduced law governing regional finance had halted investments, put a stop to ongoing bank arrangements and interrupted accounting and auditing processes, he said.
Jardim is one of the founders of Portugal’s center-right Social Democratic Party, which is the senior partner in the coalition government, and Madeira’s financial problems have caused embarrassment for Social Democrat Prime Minister Pedro Passos Coelho.
The leader of the main opposition Socialist Party, Antonio Jose Seguro, challenged Passos Coelho to disown Jardim.
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