LISBON, June 18 (Reuters) - Portugal's government approved on Thursday plans to create a state-owned development bank to channel funds into certain companies and sectors to bolster the economy.
The plan comes as the country hopes to receive 26.5 billion euros ($29.73 billion) from the European Union's 750 billion euro coronavirus recovery fund, due to be debated by the European Commission on Friday, to help it through the coronavirus pandemic.
The government requires approval from the Bank of Portugal and the European Commission to proceed with the development bank, which would be created by merging three existing investment and mutual guarantee funds.
The bank will perform the typical functions of a national promotional bank, "addressing market failures or situations in need of investment optimisation", Secretary of State of the council of ministers Andre Caldas said at a press conference.
Its functions will include providing bank guarantees and long-term financing to companies in high-risk sectors, supporting exports and taking equity and shares in companies requiring investment.
Portugal is due to receive 15.5 billion euros in non-repayable grants and 10.9 billion in loans from the European Commission, if the recovery fund is approved, and that would be channelled through the bank, the council of ministers, or cabinet, said in a statement.
Economy minister Pedro Siza Vieira has long called for the creation of such a bank and talks about its creation have been stepped up as the coronavirus damaged the economy. At the beginning of June Siza Vieira said a development bank was "indispensable to support not just this stabilisation phase but the restarting of the economy".
Prime minister Antonio Costa said on June 4 that talks with the European Commission were "very advanced" and the bank should be created within months. ($1 = 0.8914 euros) (By Sergio Goncalves; Editing by Victoria Waldersee and Susan Fenton)