TNAG-1869-FCO40-2657-Relations-between-Hong-Kong-and-Macau-1989 — Page 102

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LUNCH WITH PORTUGUESE PRIME MINISTER

1. I attended the EC Ambassadors' lunch organised by the Spanish Ambassador for Prof Cavaco Silva on 14 June.

2. I have reported the points relevant to the Madrid European Council separately. What Prof Cavaco Silva said about EMS struck me as extremely similar to the line the British Government is taking. His remarks about the Delors Report were also very cautious, although he clearly admired the Report as a technical document. On the economy, he said that the National Institute of Statistics were about to announce the same afternoon the inflation figures for May which were 0.2%. This represented the best figure for the last 23 months and he hoped to get inflation down to 9% by the end of the year. The problem was to balance employment against inflation. But he did not think that there was any danger of a growth in unemployment, given the size of the current public works programme.

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On foreign investment, Prof Cavaco Silva admitted that there had been insufficient information provided by the Portuguese Government agencies abroad, in other words that IECP had not worked well. But political stability, including the lack of conflict between the President and Prime Minister (which he stressed) and the entry of Portugal into the EC had led to very high rates of foreign investment. These had reached as much as 14-15% last year: he hoped the figure this year would be down to 10% or about one billion dollars. The problem was to achieve sustainable growth.

4. On the constitutional revision, Prof Cavaco Silva said the negotiations had been very difficult, but the Socialist Party had maintained their promises. He praised in particular Dr Vitor Constâncio, who had signed with him the secret document containing the actual text agreed between the two parties. He went on to say later that he thought that Dr Constâncio could even be in the PSD, since his views were not very different from the Prime Minister's. (I thought this was the most interesting thing the Prime Minister said and I think I ought to get to see Dr Constâncio soon.) The Prime Minister (went on to say that the problem with the Socialist Party was the succession to Dr Mário Soares, which had not been easy.

5. On the substance of the constitutional revision, the Prime Minister claimed that it was extremely important because it altered several fundamental points in the previous constitution. It also would enable the Government to carry out complete privatisation and put an end to the agrarian reform. Private television could be introduced as well. As

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