Portugal's PM attacks 'heavy' state ahead of lenders' visit

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February 18, 2013 11:42 PM EST

Portugal's state must be cut in size because it is holding back the country, Portuguese Prime Minister Passos Coelho said on Monday ahead of an inspection by lenders which will examine a new round of cuts.

Portugal has regained investor confidence over the last few months but it is struggling to evade a deepening recession which is now in its third year.

Opposition to austerity, especially tax hikes this year that will be the largest in living memory, has risen sharply in recent months with growing strikes and marches.

The country will start the seventh review of its European Union and International Monetary Fund bailout next week and a key item on the agenda will be a government plan to carry out 4 billion euros of new spending cuts in 2013-14.

"The state has been the biggest obstacle to wealth-creation in the last decade. We don't share the blind adulation of the state of some," Passos Coelho told journalists.

The prime minister called for reforms, saying it was a "tragic fact" that Portugal's welfare state was less efficient than those of other European countries.

"It is impossible to deny that many of our problems result from how we define the structures of the state. It weighs too much on economic activity at the same time that it demands more and more resources," he said.

Portugal's economy contracted much more sharply than expected in the final quarter of last year, putting it on a weak footing as it headed into 2013 when huge tax hikes are expected to further hurt domestic demand.

Unemployment is at all time highs of almost 17 percent.

(Reporting by Daniel Alvarenga; Editing by Toby Chopra)

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