A Euro Sovereign Issuer An efficient and mature debt market

1. Republic of Portugal Republic of Portugal A Euro Sovereign Issuer An efficient and mature debt market August 2006

2. TOPICS • A stable political and social environment • Budgetary consolidation … • … through structural reforms • A market-driven borrowing strategy • 2006 Borrowing Programme • An efficient and liquid OT market

3. Portuguese public finance reform programme • A stable political and social environment • The two main political parties have the backing of roughly 80% of the Portuguese voters and share the objective of budgetary consolidation • A government with absolute majority in the Parliament since February 2005 • A new President of the Republic was elected in January 2006 • No elections in the near term (until 2009 for Central and Local Government and 2011 for the Presidency) • A high degree of social consensus

4. TOPICS • A stable political and social environment • Budgetary consolidation … • … through structural reforms • A market-driven borrowing strategy • 2006 Borrowing Programme • An efficient and liquid OT market

5. Portugal’s public finance reform programme • The Portuguese government has astrong mandate to put public finances on a sustainable footing • The Stability and Growth Programme (SGP), 2005 - 2009 (December 2005) includesa comprehensive set of measures aimed at a major overhaul of public finances, includingthe following: • Central Government restructuring • Social Security reform • Improvement in the use of public resources • Fight against fraud and tax evasion • 2006 Budget Law presented to the Parliament reaffirms the Government’s commitmentsand objectives included in the SGP

6. The Stability and Growth Programme • Public finances in the medium-term: SGP 2005-2009 • Government committed to reduce budget deficit over the coming years • Deficit reduction based on structural measures rather than on one-off and temporary measures Budget deficit Gross debt Sources: SGP (December, 2005)

7. Portuguese economy on recovery path Real GDP growth Harmonized ICP Source: Bank of Portugal Source: SGP (December, 2005) Economic Sentiment Indicator Monthly Coincident Indicator Source: Bank of Portugal Source: Bank of Portugal

8. TOPICS • A stable political and social environment • Budgetary consolidation … • … through structural reforms • A market-driven borrowing strategy • 2006 Borrowing Programme • An efficient and liquid OT market

9. Reforming the Public Administration • Cost control of the human resources expenditures • New rules and guidelines to improve human resources management • Promotion of the sustainability of the social security system, through fundamental changes of applicable rules, in line with major demographic trends Structural reforms… • Measures to reduce public expenditure

10. Structural reforms… • Measures to reduce public expenditure • Improving the use of public resources • Streamlining of the fundamental public services (education, healthcare, justice and local Government), including the harmonization of public health protection systems in line with the private sector regime • Rationalization of real-estate properties • Budgetary control • Review of legislation regarding the framework of Local Authorities financing system, including the strengthening of financial reporting obligations • Creation of the position of (strong) Financial Controller in each ministry • Wage moderation (growth rates in line or below the inflation rate)

11. … underpinning fiscal consolidation • Measures to increase tax revenue • Tax rate increases • Increase in VAT, as well as in personal income tax rate, with some of the revenue assigned to the social security system • Tax increase on tobacco and fuel • New additional personal income tax bracket for the highest incomes • Fight against fraud and tax evasion • Lifting banking secrecy for tax purposes • Publication of tax debtors list • New debt recovery instruments and mechanisms, significant worsening of sanctions for non-compliance with tax obligations) • Reduction of tax benefits and exemptions

12. Supported by an important privatisation programme • At least 80% of the revenues will be used to reduce the outstanding government debt, thus reducing the borrowing needs • Expected privatisation revenues • Privatisation Programme

13. Portuguese fiscal foundations • Portugal has a lower debt burden than euro area average and better than “core” Europe and other rating peers General government gross debt - 2005 Source: European Commission, May 2006

14. TOPICS • A stable political and social environment • Budgetary consolidation … • … through structural reforms • A market-driven borrowing strategy • 2006 Borrowing Programme • An efficient and liquid OT market

15. A Euro sovereign issuer with low borrowing needs… • … channelling them to the Euro government market … Debt structure per instrument OT (gross) and BT (net) issuance

16. The most important driving factor: The main pillars: • Predictability • Transparency • Accountability Liquidity A market driven borrowing strategy • Aiming at building up a Portuguese benchmark yield curve • Size • Tradability – Efficient and standard market conditions A market oriented borrowing strategy • Priority to the development of a government benchmark yield curve Active debt management - derivatives and buy-backs • Interest rate and refinancing risk management

17. TOPICS • A stable political and social environment • Budgetary consolidation … • … through structural reforms • A market-driven borrowing strategy • 2006 Borrowing Programme • An efficient and liquid OT market

18. 2006 Borrowing programme • Borrowing needsare expected to be around€ 16.5 billion, of which: • € 9.1 billion of net borrowing needs • € 7.1 billion of medium and long term debt redemptions • Borrowing needsto be met through: • € 15 billionby the issuance ofGovernment Bonds(OT) • Treasury Bills (BT)net issuance expected to be marginal • € 1.5 billionto be met through the issuance of non tradable instruments • Debt Buyback Programmemainly to reduce the refinancing risk in 2006, therefore with limited impact on gross borrowing needs

19. OT issuance in 2006 (as of July 31, 2006) • Already implemented • New OT April 2037 EUR 3 billion through syndication in March plus EUR 1.1 billion through an auction • New OT October 2016 EUR 3 billion through syndication in July • OT April 2011 EUR 3 billion through auctions • OT July 2009 EUR 1 billion through an auction A complete OT/PGB yield curve issued in 2006 issued before 2006

20. The new OT Oct 2016 with an internationalised placement Final investor breakdown • OT 4.20% 15 October 2016 • Syndicate amount: EUR 3 billion • Launched via syndicate limited to PD • Syndicate structure: • -> 80% placed by 5 joint leads through a “pot” • -> 20% placed by 10 co-leads through a co-lead pot (EUR 300 mln) and retention (EUR 300 mln) with name give-up to IGCP • Priced on July 12, 2006 with a reoffer yield of 4.242%: • -> 16.5 b.p. over DBR 4% July 2016 • -> 7.4 b.p. below Mid-market swap rate • Traded on MTS Portugal, EuroMTS, TradeWeb and BondVision immediately after • To be reopened through auctions targeting no less than EUR 5 billion

21. OT April 2037 placement Final investor breakdown • OT 4.10% 15 April 2037 • Syndicate amount: EUR 3 billion • Launched via syndicate limited to PD • Syndicate structure: • -> 85% placed by 5 joint leads through a “pot” • -> 15% placed by 10 co-leads through a co-lead pot (EUR 300 mln) and retention (EUR 150 mln) with name give-up to IGCP • Priced on March 15, 2006 with a reoffer yield of 4.123%: • -> 22.5 b.p. over DBR 4% January 2037 • -> 1.5 b.p. over Mid-market swap rate • Traded on MTS Portugal, EuroMTS, TradeWeb and BondVision immediately after • To be reopened through auctions targeting no less than EUR 5 billion

22. TOPICS • A stable political and social environment • Budgetary consolidation … • … through structural reforms • A market-driven borrowing strategy • 2006 Borrowing Programme • An efficient and liquid OT market

23. 1 1 bln bln 1 1 bln bln 1 1 bln bln EUR billion EUR billion 3 3 bln bln Syndicate Syndicate + 1st + 1st + 2nd + 2nd + 3rd + 3rd auction auction auction auction auction auction Joint -Leads Retention + Co-lead pot Co- Leads OT issuance process ü OT issuance schedule • OT launched through syndication… • Building up an international and diversified investor base • Benchmark size: € 3 billion • Allowing the benchmark OT to be traded in MTS Portugal with quoting obligations from start … and increased through auctions Full pot • OT syndication process • PD are the only underwriters • PD committed to place bonds in high quality investors • IGCP is the active manager • E-book building

24. An efficient and liquid secondary market Participants in MEDIP/MTS Portugal OT secondary market driven by MTS Portugal ABN Amro Bank Banco Espírito Santo Barclays Bank PLC BCP de Investimento BNP Paribas Caixa Geral de Depósitos Citigroup Global Markets CALYON Deutsche Bank Goldman Sachs International HSBC France Lehman Brothers International Morgan Stanley Société Générale Unicredit Banca Mobiliare Fortis Bank • All OT listed in Lisbon on MEDIP/MTS Portugal • In parallel quotation with EuroMTS • MEDIP/MTS Portugal a regulated “local” market • Driven by market-making obligations from Primary Dealers • Market-making obligations in line with other MTS platforms • Prices spreading over other market segments • Trading spreads within a narrow range and similar to market peers • Settlement through Euroclear/Clearstream • Prices disclosed in real-time to non participants: Reuters PT/MTS1and Bloomberg • Daily turnover, reference prices and a daily fixing in www.mtsportugal.com 15 OEVT/ Primary Dealers 16 Market Makers Banco Santander C. Hispano CCCAM CDC IXIS CECA Commerzbank Credit Suisse First Boston Dresdner Bank JP Morgan Securities Landesbank B-W Nomura International WestLB 11 Market Dealers

25. An efficient and liquid secondary market • 5-year bid-offer spreads • 10-year bid-offer spreads • 15-year bid-offer spreads • 30-year bid-offer spreads

26. An efficient and liquid secondary market • OT Daily average turnover in MTS Portugal and EuroMTS • Very liquid wholesale cash and repo segments • MTSP OT daily average turnover in • 2005 : € 517.5 million • Jan-July 2006 : € 492 million • A last resort repo window provided by IGCP to all market makers in MTSP • OT Repo Market Daily Average Turnover

27. Other non-EMU Belgium & Central 6% Luxembourg Banks Other Finland Brokers Other EMU 9% 4% 1% 0.5% 8% Pension 2% Netherlands Portugal Funds & 1% 15% Insurance Italy 9% 6% Spain 4% Other UK Investment Banks France 34% Funds 61% 13% Germany 17% 10% Highly internationalised and diversified OT market • Around 85% of the turnover* in the OT secondary market is generated by non-domestic investors *Turnover with final investors reported by PD (excluding intra-PD trading) - 2005

28. Good spread performance … 10 Years - Asset Swap Spread 15 Years - Asset Swap Spread

29. The Portuguese Treasury bill market • BT issuance since July 2003 • BT programme in steady-state since 2004 • BT outstanding at the end of 2005 at around €13 billion • BT net issuance in 2006 expected to be relatively marginal

30. The Portuguese Treasury bill market • 2006 BT auction programme • A new 12-month BT to be issued every two months • Lines to be reopened with 6 and 3-month remaining maturity • Size per line according to international liquidity standards

31. The Portuguese Treasury bill market • A market driven by market making obligations • MTSP daily average turnover in • 2005 : €53 million • Jan-July 2006 : €59.1 million • A last resort repo window provided by IGCP to all market makers B/o spreads in basis points and quantities in EUR million Daily average turnover on MTS Portugal and outstanding of BT 12-month BT best bid-offer spreads

32. The Portuguese Treasury bill market • An internationalised and diversified base of investors Secondary market turnover breakdown by Investor Type *** Portuguese Treasury bills (BT) placed with domestic and foreign investors (estimate*) Secondary market turnover breakdown by Geography*** * The amounts bought by foreign banks in auctions were used as proxy to the amounts bought by foreign investors. In 2006 up to July 31. ** Since July 2003 ***Turnover with final investors reported by PD (excluding intra-PD trading) - 2005

33. A European sovereign issuer • A founder of the Euro • A market-driven borrowing strategy • A liquid yield curve: • A comprehensive benchmark bond curve, and • A complete Treasury bill segment • Efficient and liquid government secondary market • Strong support from leading financial intermediaries • A very large and well-diversified investor base • Offering good relative value and a good spread performance

34. Tel: +351 21 7923300 Fax: +351 21 7993795 E-mail:info@igcp.pt Web site: igcp.pt Reuters pages: IGCP01 Bloomberg pages: IGCP IGCP: Further information on the Portuguese economy can be obtained from: Further information on the Portuguese secondary market can be obtained from: Economic Research and Forecasting Department at the Ministry of Finance Budget Department National Statistics Office Banco de Portugal (Central bank) www.mtsportugal.com Reuters pages: PT/MTS1 MTS Portugal: www.dgep.pt www.dgo.pt www.ine.pt www.bportugal.pt DISCLAIMER The information and opinions contained in this document have been compiled or arrived at from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. All opinions and estimates contained in this document are published for the assistance of recipients, but is not to be relied upon as authoritative or taken in substitution for the exercise or judgment by a recipient and, therefore, does not form the basis of any contract or commitment whatsoever. IGCP does not accept any liability whatsoever for any direct or consequential loss arising from any use of this document or its contents.