Tourism accounts for 10 percent of Portugal's economy and has retained its dynamism despite a spiralling recession under the painful terms of a 78 billion euro (63 billion pounds) bailout from the International Monetary Fund and European Union.

Portugal's tourism trade balance, the net difference between tourists' expenditure in the country and Portuguese tourists' spending abroad, soared 11 percent in 2011 to 5.2 billion euros although the economy contracted by 1.6 percent.

"Tourism will be very important for the recovery of the Portuguese economy and the rebalancing of our accounts," Costa, who is also a European Central Bank Governing Council member, told a conference.

"Tourism should not be at rock bottom prices or downgraded by competition from mass tourism. This is the strategic challenge, to use investments more intensely and with greater value-added," he said.

Economists have long said that Portugal needs to move up the value-chain of tourism to reap greater benefits.

The economy of debt-laden Portugal is expected to contract by 3 percent of gross domestic product GDP.L this year. The country's international lenders set a budget deficit target of 4.5 percent of GDP for 2012 and 3 percent for next year. (Reporting by Sergio Goncalves; writing by Daniel Alvarenga; editing by Stephen Nisbet)

• A Permanent Economic Emergency