Portugal 1976 MIT mission recalled by Jeffrey Frankel

Portugal’s 1976 MIT mission has been revisited by Jeffrey Frankel, the Harvard Kennedy School professor and former White House Council of Economic Advisers member, as a small episode in the country’s shift from dictatorship toward a democratic, market-based economy. Frankel wrote that five MIT economics graduate students worked in Lisbon for the Banco de Portugal at a moment when the budget deficit was widening and foreign exchange reserves were under severe strain.

The recollection places the assignment in the months after Portugal’s 1974 Carnation Revolution, which ended a 48-year military dictatorship, and after a failed left-wing coup attempt in November 1975. Frankel said the students arrived in June 1976, as the country prepared for its first democratic presidential election in living memory and before a new government was formed on July 23.

What was the Portugal 1976 MIT mission?

Frankel said Banco de Portugal governor José da Silva Lopes sought an economic plan that could be ready when the incoming government took office. MIT professors were asked for help, and the department sent five doctoral students, including Frankel, Paul Krugman, Miguel Beleza, Andrew Abel and Raymond Hill.

The team’s work focused on the external accounts and the fiscal position. Frankel wrote that the students eventually produced a report that recommended a devaluation of roughly 15 percent, a step designed to improve the trade balance by making exports cheaper in foreign-currency terms and imports more expensive in domestic-currency terms.

Portugal’s escudo was devalued in February 1977, a move Frankel said was among the team’s recommendations. He also described the political sensitivity around such advice: after copies of the report were distributed inside the central bank, Silva Lopes worried about a leak to markets, prompting the students to retrieve the documents and replace them with a version using more indirect language.

Portugal’s later integration with Europe

Frankel portrayed Portugal’s subsequent path as broadly successful from a Western policy perspective. He noted that Portugal joined the European Union in 1986 and became a founding member of the euro in 1999, milestones he linked to democratic consolidation and currency stability.

He also cited Portugal’s current rankings as the world’s fourth freest country and seventh safest country, and noted that it hosts several NATO facilities. Frankel acknowledged that Portugal’s income has not caught up with other Western European economies, calling that a continuing domestic political issue.

The essay also recounts Cold War tensions surrounding the Lisbon assignment. Frankel wrote that a Soviet trade mission occupied the floor above the MIT team’s offices, while the students’ pay came from a USAID grant that they did not publicize because of fears that local observers might suspect a CIA connection.

Frankel used one incident from the summer to explain seigniorage, the gain a government can obtain by issuing money and spending it. When USAID funds had not arrived after the first month, he wrote, Silva Lopes arranged for central bank staff to provide cash from the bank so the students could pay hotel bills.

Frankel closed by drawing a contrast between the Western alliance structure of the Cold War period and current US policy as he sees it. He criticized Donald Trump over tariffs on the EU, cuts to USAID, NATO tensions and his stance toward US intelligence agencies, presenting those actions as a break with the postwar order that earlier Western leaders had built.

This story draws on original reporting from Econbrowser.