State guarantee for bank loan to UGT creates controversy

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At the beginning of May 1997, the State Prosecutor's consultative committee issued a report questioning the legality of the provision of a state guarantee for a bank loan made to the General Workers' Union (União Geral dos Trabalhadores, UGT). A final decision on whether to take legal action to ascertain the legality of the action is now expected from the State Prosecutor.

Through a dispatch issued by the Minister of Finance, published in the Official Portuguese Gazette at the beginning of March 1997, the state guaranteed a PTE 600 million bank loan made to the UGT, intended to "consolidate bank debts and repay debts to trainers and suppliers, resulting from vocational training activities" carried out by institutions linked to the union.

The UGT used the loan to fend off bankruptcy, which resulted mainly from the halting of European Community funding for vocational training provided in 1988 and 1989. This led to growing debts for the union, amounting to PTE 909 million, which placed its continued existence in jeopardy.

Provision of the state guarantee received harsh criticism from opposition parties, which questioned its legality. In their view, it had not fulfilled the requirements generally imposed on this type of transaction, and it could endanger the union's independence from the Government. Following those criticisms, the Portuguese Parliament passed a vote of protest against the provision of the guarantee. All opposition parties voted in favour of the motion, and a parliamentary inquiry was launched.

The General Confederation of Portuguese Workers (Confederação Geral dos Trabalhadores Portugueses, CGTP) also criticised the Government's stance, although it refrained from commenting on the deal itself. Instead, it raised a wider discussion about granting state financial support, which is set to take place in Parliament.

The Forum of Independent Unions, which groups various union associations not affiliated to either of the two principal union confederations, took a more radical stance, coming out squarely against the granting of this type of support for workers' organisations, and calling into question the independence of associations that benefit from it.

The Government reacted against the criticism. It defended the legality of the guarantee, claiming that in its view the conditions were satisfied and the legal requirements for this type of transaction were met. It also argued that the guarantee was aimed at preventing the collapse of an organisation of acknowledged social value and at safeguarding democratic trade unionism. The Minister of Finance also pointed to the fact that the state had always carried out such operations, including the helping of business organisations and institutions linked to other social partners, in particular employers' confederations. According to the Ministry of Finance, between 1992 and 1997 alone, the state guaranteed bank loans to organisations linked to the social partners totalling PTE 27.5 billion.

Meanwhile, following the controversy raised by the case, a number of media articles appeared, highlighting other examples of state support for labour organisations, including funds for vocational training carried out by organisations linked to the social partners, and the granting of a PTE 90 million loan by the Institute of Employment and Vocational Training to the CGTP.

Irrespective of the outcome of this particular case, the debate surrounding this type of situation in general appears to indicate the need for clarification of the entire system of financing for employees' and employers' organisations and their associated entities.