Salazar’s Financial Measures

Salazar’s Financial Measures: Stability and Austerity

António de Oliveira Salazar’s Estado Novo regime (1933-1974) in Portugal prioritized financial stability above all else. His economic policies, implemented with a firm hand, significantly shaped the nation’s financial landscape for decades. The cornerstone of his approach was a commitment to balanced budgets, strict control over public spending, and a conservative monetary policy.

One of Salazar’s initial and most impactful measures was the Reorganização Financeira (Financial Reorganization) launched in 1928. This aimed to rectify Portugal’s chronic budget deficits, rampant inflation, and crippling national debt, all legacies of the First Republic. Salazar, as Minister of Finance (and later Prime Minister), achieved this through rigorous austerity measures. These included slashing government expenditure across various sectors, including public works and social programs. Government employees faced wage cuts, and tax collection was significantly improved.

A key element was the establishment of a fixed exchange rate for the Portuguese escudo, pegged to the British pound and later to the US dollar. This policy aimed to stabilize the currency and foster confidence in the Portuguese economy. While it provided predictability for international trade, it also limited the government’s ability to respond to economic shocks and hindered export competitiveness, as the escudo was often overvalued.

Salazar’s government also implemented policies to encourage domestic savings and investment. The Caixa Geral de Depósitos (General Deposit Fund), a state-owned savings bank, played a crucial role in channeling savings into government bonds and infrastructure projects. Private banks were also subject to strict regulations, limiting their lending activities and preventing excessive risk-taking. This conservative approach, while promoting stability, also stifled innovation and entrepreneurialism.

Another significant aspect of Salazar’s financial policy was the emphasis on economic self-sufficiency, particularly during the period of World War II and its aftermath. This involved promoting import substitution industrialization, encouraging domestic production of goods previously imported. While this strategy had some success in developing certain industries, it also led to inefficiencies and a lack of competitiveness in the long run.

Furthermore, Salazar’s financial policies were closely intertwined with the preservation of Portugal’s colonial empire. Maintaining control over Angola, Mozambique, and other territories required significant financial resources, diverting funds from domestic development. The colonial system also benefited certain Portuguese businesses, creating a system of patronage and hindering broader economic progress.

In conclusion, Salazar’s financial measures successfully stabilized the Portuguese economy and maintained relative price stability. However, this came at the cost of economic growth, social progress, and democratic freedoms. The emphasis on austerity, self-sufficiency, and colonial preservation ultimately left Portugal lagging behind other European nations in terms of economic development and living standards.