Portugal's Austerity Policy Faces first Electoral Test

Portuguese voters head to the polls on Sunday for municipal elections which offer them their first chance to express at the ballot box their view of the government's austerity program.

"Portugal is going through a very tricky time," said political analyst Jose Antonio Passos Palmeira.

"It's likely that the main parties will be punished at the ballot boxes" over the introduction of the austerity measures demanded by Portugal's international creditors, he told Agence France Presse.

In exchange for a 78-billion-euro ($105-billion) rescue package in May 2011, Portugal's government has imposed tax hikes and wage and pension cuts in a bid to balance the budget, aggravating a downturn that has sent unemployment to a record 17.7 percent at the beginning of this year.

Despite spreading discontent the Portuguese government has largely pushed forward with measures to repair the public finances as it seeks further disbursements of bailout funding.

The vote comes as auditors from the "troika" of the International Monetary Fund, the European Commission and the European Central Bank are in Lisbon to review Portugal's progress and decide whether to release a 5.5-billion-euro loan installment.

As the crisis which has wiped 5 percent off Portugal's economic output has caused social spending to surge, complicating the deficit reduction effort, Portugal's government has had its deficit cutting target relaxed twice.

The Portugese government is seeking another relaxation, an easing of the country's 2014 public deficit reduction target from 4.0 percent to 4.5 percent of GDP, and it is unclear whether they will obtain it.

Earlier this month Standard & Poor's put Portugal's BB long-term credit rating on watch for a possible downgrade over increased risks the eurozone nation will fail to meet the fiscal targets under its international bailout.

No matter what the election results, Passos Palmeira does not believe they will "disturb the austerity policies" implemented by the center-right government of Prime Minister Pedro Passos Coelho.

Passos Coelho himself has insisted that "the municipal election results will have no effect on national policy."

The opposition Socialists hope to capitalize on the discontent in Portuguese households. Socialist Party leader Antonio Jose Seguro has urged voters to "make the right choice on Sunday".

When the votes are counted, both the Socialists and Coelho's Social Democrats may claim victory, according to Nelson Garrido, director of the Publico daily newspaper.

The Socialists want to win the most votes while the Social Democrats want to control the most town halls, he explained.

At the last municipal elections, in October 2009, both parties achieved those aims.

"What really counts is the number of town halls which each party or coalition manages to win," said Passos Palmeira.

The party that does so will thus head the national association of municipalities, a key pressure group for the government, he added.

Local opinion polls don't predict major changes in the main Portuguese towns.

In the capital Lisbon, Socialist mayor Antonio Costa looks set to be re-elected to a third term.

However in Porto an independent candidate, Rui Moreira, could end a 33-year hold on Portugal's second city by the ruling conservative party.

He is one of a considerably higher number of independent candidates running this year and who could pull off a number of upsets.