Portuguese Finance Minister Vitor Gaspar, the architect of the country's reforms under its EU-IMF bailout, resigned as the economy reels and social discontent mounts under the impact of austerity measures.

Treasury Secretary Maria Luis Albuquerque, who has managed the country's privatisation efforts, is to replace Gaspar.

Gaspar's resignation came as a surprise despite the country having struggled to keep to the terms of its 78-billion-euro ($102-billion) EU-IMF bailout package and political and social opposition to austerity rising in recent months.

"Repeated slippages have undermined my credibility as finance minister," Gaspar said in his resignation letter.

The European Union called on Portugal late Monday to stick with its reforms. Economic Affairs Commissioner Olli Rehn said in a statement that much had been done, but "major challenges remain, and the need to reduce the very high jobless rate is not the least."

Last week the national statistics agency reported that the country's public debt rose to 10.6 percent of economic output in the first quarter of this year as expenses rose while tax receipts fell. Portugal is supposed to squeeze the deficit down to 5.5 percent of GDP this year.

A former central bank advisor, Gaspar, 52, was the principal architect of Portugal's efforts to balance its finances which has included tax hikes, plus cuts in spending and state jobs.

The economy, already in recession for two years, is expected to contract by another 2.3 percent this year, under the impact of the austerity measures.

Meanwhile, unemployment is expected to rise to a record 18.2 percent, while over 42 percent of youths are already out of work.

Political opponents have criticised Gaspar for blindly implementing the recommendations of the EU, IMF and European Central Bank under the May 2011 bailout deal, despite indications the austerity measures were causing Portugal's economy to contract further.

Last week strikes against the austerity measures brought public transportation and flights to a standstill.

Gaspar acknowledged the unemployment rate, particularly among youths, was very serious and said it needs an "effective and urgent response on the European and national levels."

Last week, European leaders agreed to deploy 8.0 billion euros to help create jobs for young people.

Gaspar also acknowledged his policies caused divisions within the government, and expressed hope his resignation would strengthen the government.

"This resignation is a surprise for Portuguese society, as it is for most of the political world," said political scientist Antonio Costa Pinto.

"It is the departure of the most important finance minister Portugal has had for decades," he added.

Despite the slippage in meeting fiscal targets, Gaspar and his efforts were praised by the EU, IMF and ECB.

Moreover, Portugal has been able to return to the long-term debt markets.

The opposition Socialists said Gaspar's resignation "illustrates the weakness of what remains of a government which has lost all credibility."

Source: AFP