By PATRICIA KOWSMANN, 07/10/2011
Portugal is trying to prove to creditors that it can cut its budget to the bone, but the governor of this tiny island has plans to keep spending.
Despite Lisbon's calls for austerity, Alberto João Jardim, Madeira's governor since it gained autonomy in 1976, vowed more building when he spoke late last month at the opening of a €1.1 million ($1.5 million) road linking a small neighborhood to a new church in the rural district of Calheta.
Madeira Gov. Alberto João Jardim has defended the autonomous region's public spending. "We can't stop economic activity, and we need to continue to address the needs of the population. Construction continues," the 68-year-old Mr. Jardim said, drawing applause from an audience of locals.
Such public-works projects—a hallmark of the populist Mr. Jardim—have come under scrutiny since Madeira acknowledged on Sept. 22, just two days before his speech, that it had failed to report debts of €1.1 billion.
The revelation, bringing the island's total debt to an estimated €5.8 billion, comes as Portugal's new prime minister, Pedro Passos Coelho, has been trying to show his euro-zone peers that he is firmly in control of the country's efforts to cut spending after getting a €78 billion bailout package this year.
The news prompted Moody's to downgrade the island's bond ratings and is forcing Portugal to revise its overall budget-deficit figures for 2008 to 2010, underlining the difficulties countries in the euro zone's struggling periphery face as they try to meet budget requirements set by the European Union and the International Monetary Fund.
"It is a problem," Mr. Passos Coelho said of Madeira's debt, noting that it raises a "credibility" issue. He added that Portugal doesn't have any other debt surprises like that of Madeira.
Late last month, Portuguese Finance Minister Vitor Gaspar said the government is drawing up an austerity plan for the island; Mr. Jardim has said he will consider it if, as expected, he wins a new term in Madeira's elections Sunday.
Mr. Jardim is a controversial figure, known for his tight control over the island as owner of Madeira's main newspaper and for his defiant attitude toward Portugal's leaders. His regional government employs more than 10% of the island's 250,000 residents. He has publicly disagreed with the austerity measures set out by the IMF and EU, saying they will choke off economic growth.
Through a spokesman, Mr. Jardim declined requests for an interview. His spokesman didn't respond to questions for this article.
Asked in an interview on local television in Madeira last month about the added €1.1 billion in debt, Mr. Jardim blamed the previous government—of a rival party to his own— for cutting Madeira's funding. To make up for those cuts, he said, he created third-party companies to borrow money directly from banks and enter into deals with construction companies to continue financing the projects.
"What I did was decide to increase our debt so I could continue with construction. That is why I made arrangements with construction companies and banks," Mr. Jardim said. He said he didn't "hide anything—once projects were done, the accounts were sent to the national statistical institute."
Critics point to wasted projects like a shut marina in Ponta do Sol.
.The National Statistics Institute referred questions about Mr. Jardim's statement to a Sept. 16 announcement, in which the institute said Madeira had failed to register the debt in the list of expenditures it provided to the agency. The statistics institute and Portugal's central bank uncovered the additional debt after a report published in April by the country's Court of Auditors said the island's government had incurred charges in 2009 that it hadn't paid to creditors including banks and construction companies.
Madeira and Portugal's other autonomous region, the Azores, run independent budgets and have lower tax rates than continental Portugal. They get funding transfers from the Portuguese government and EU subsidies for economic development. The Azores hasn't had any problems related to unreported spending, the central government said.
The EU subsidy funds, which often require national governments to put up part of the costs, have played a part in driving overspending on Madeira's public-works projects and in expanding the region's debt, Prime Minister Passos Coelho said. "The whole country has too much of this construction, it's not just Madeira," he added. In Portugal, major public-works projects have been put on hold for re-evaluation, and the next Madeira government will be required to do the same, he said.
On Madeira, known for its namesake wine and its tourist resorts, an extensive highway system with more than 120 tunnels crisscrosses the island. Mr. Jardim has defended such development as necessary to draw tourism, which brings in about half of the island's €5.3 billion annual gross domestic product; the island's GDP as a whole accounts for about 3% of Portugal's economy.
Critics, however, say much of Madeira's publicly funded building is a waste. Among the projects that have drawn fire are a marina in Ponta do Sol in the southwest that opened in 2005 and was later rebuilt after wave damage—at a total cost to the government that opposition parties have put at around €100 million. Now the marina is shut, its 290 boat slots empty.
In an industrial park in the northern region of São Vicente, built by the government-owned Madeira Industrial Parks SA and opened in 2004, only 1,700 square meters (18,299 square feet) of its 47,505 square meters are occupied—by the offices of electric company Empresa de Electricidade da Madeira and storage space for Leonardo Gomes & Brazao Ltd., a seller of construction materials.
"There are examples of insane spending all over the island that have done little to improve people's lives," said Socialist Party candidate Maximiano Martins, Mr. Jardim's main rival in next month's elections.
A spokesman for Mr. Jardim didn't respond to questions about the projects.
As Madeira's debt woes have fanned tensions between the mainland and the island, Medina Carreira, a former finance minister and respected economist, in a television interview last month warned the Portuguese people to keep the situation in perspective.
"We are looking at Madeira like the Germans look at Portugal," he said
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