Credit risk modelling: default probabilities for Portuguese municipalities

This paper investigates whether the economic adjustment program and post-program surveillance contributed positively to the structural recover of the Portuguese economy. This examination was conducted observing evidences related to several objectives included in the programs and on a sample of data collected from local defaulted and non-defaulted municipalities. Our results confirm that the financial aid provided by EC, ECB, and IMF had a small impact on the internal economic adjustment. There is a residual positive impact from the implemented reforms to promote growth, jobs, public debt, deficit, and stability of the country’s financial sector. The evidence is revealed by the measurement of the key program achievements and by the indicators related to the current high default probabilities of a large number of local municipalities.