Revision Factors Of Radical Institutional Change €“ Portugal And The Imf In The 1970s And 1980s

The article examines institutional change and its subsequent cancellation or alteration, using the example of Portugal and the country’s political and economic development between 1974 and 1986. The author contributes to Bulgarian scholarship by focusing on Portugal, applying the institutional economics framework to it, and defining how an international financial organization could initiate an institutional alteration of the recently adopted legal framework. The Carnation Revolution of 1974 provoked radical institutional changes in the Portuguese state, society, and economy. The results of this memorial event included a new Constitution, a new political and party system, the nationalization of large and medium-sized companies in many economic sectors, and a complete overhaul of social and labour relations. Two years of ineffective management of nationalized companies increased labour costs, while deteriorating terms of export ruined the state’s foreign exchange reserve. The political elites of the two major parties – Socialist and Social-Democratic – commenced a revision of the institutional changes. The governments slowly started to privatise or default on part of the nationalized companies. Mário Soares, the Socialist prime minister, managed to circumvent the constitutional prohibitions with the help of the IMF in 1977 – 1978. He convinced the political actors that the Portuguese economy could not withstand its internal macroeconomic shortcomings and would default without the IMF’s support. In return, the IMF requested several legal and macroeconomic reforms. It later became evident that the government proposed those reforms to the IMF, which did not have any such demands on the early loans. Given the successful revision under Soares and his successors, the IMF stepped in one more time to implement similar reforms in 1983 – 1985. In both periods, Portugal did not fully accumulate the entirety of the agreed-upon loans, as it failed to fulfil all the reform promises. The IMF Stand-By agreements, however, allowed the Portuguese government to revisit a substantial part of the radical institutional changes. These agreements also guaranteed to the rest of the international creditors that Portugal would implement policies supported by a leading international financial organisation. The article concludes that the Portuguese political elite accumulated valuable experience dealing with the IMF, which proved crucial for the successful conduction of any future collaboration.