Municipal Indebtedness in the Centro Region of Portugal in the Period 2005-2009

Abstract

In Portugal, municipalities are locally based legal bod- ies entities which are endowed with representative bodies that pursue the specific interests of their respective com- munities. In order to fulfil their functions and exercise their competencies, municipalities have autonomy, partic- ularly administrative, financial and legislative autonomy. The activities of municipalities imply expenses. Since their financial resources are scarce, municipalities have to be managed with rigor and efficiency, and their financial sys- tem has to comply with specific regulations. The lack of financial resources has resulted in municipalities becom- ing indebted to various economic agents and this situation has had a significant impact on municipal management. The objective of this article is to characterize municipal in- debtedness in the Centro Region of Portugal in the period between 2005 and 2009. This characterisation focuses on the main budget items related to indebtedness, i. e., loans, debts to current account suppliers, and debts to fixed as- sets suppliers. The article also gives an overview and ex- planation of the relevant pieces of legislation which have contributed to the current situation and which can help understand the data presented. Within the strategy of budgetary consolidation, local governance has favoured policies that seek to con- trol municipal indebtedness by establishing specific limits for short-, medium-, and long-term loans as well as rules for calculating each municipality’s indebtedness capacity. Thus, municipal indebtedness between 2005 and 2009 has to be examined in the context of the implementation of two local finance laws: Law no. 42/98, of 6 August (appli- cable to 2005 and 2006), and Law no. 2/2007, of 15 Janu- ary, in force since 2007. A characterisation of municipal indebtedness will be provided for each separate period in which these laws were applicable.