Mr Cavaco Silva, ending months of political suspense, said he would stand down as Prime Minister at the next elections, due in October. "I have argued for the need for renewal in the PSD," he said on Monday, "and I want to be the first to give a good example." He attributed his decision to "personal and family reasons" but assured his compatriots he would stay until his term ends.
It is thought that Mr Cavaco Silva has his eyes on Portugal's presidential contest next year and has decided to withdraw from the front line to avoid being harmed should his party suffer electoral defeat before then. Opinion polls suggest the Social Democrats are unlikely to win a third term and the opposition Socialists will win the largest proportion of votes. In the latest poll, 44.8 per cent said they would vote Socialist and 39.8 per cent Social Democrat. The Socialists' leader, Antonio Guterres, has been calling for elections to be brought forward to June.
Portugal enjoyed nearly 10 years of stability under Mr Cavaco Silva, but his leadership was weakened recently by government scandals. The most serious is the revelation last week that a Defence Ministry company repaired a pair of helicopter engines for the armed forces of Indonesia, a country with which Portugal severed diplomatic relations in 1975 after its invasion of the former Portuguese colony of East Timor.
For 20 years, Portugal spearheaded an international campaign against the Jakarta regime and in support of self-determination for East Timor. The revelation that Indonesian engines were repaired in Portuguese air force workshops in 1993 - months after Indonesian troops massacred peaceful demonstrators in the Timorese capital, Dili - prompted Portugal's three main opposition parties this week to demand the resignation of the Defence Minister, Fernando Nogueira.
Another row simmers over Portuguese military assistance to Angola, contravening the terms of neutrality under which Lisbon participates in the UN contact group on the country.
Under Mr Cavaco Silva's rule, Portuguese inflation dropped from an annual rate of 30 per cent to below 5 per cent, and unemployment, at 5.5 per cent, is one of the lowest in Europe. His iron grip on public spending and his Thatcherite pursuit of the freemarket won him support among those who feared the helter-skelter politics ushered in by the "carnation revolution" of 1974.
The Prime Minister is one of Europe's longest serving heads of government, outstripped only by Helmut Kohl and Felipe Gonzalez. He made no great effort to make friends, however, and was particularly cool with journalists.
Mr Cavaco Silva's decision has thrown the ruling party into a leadership crisis, since there are no clear successors. Mr Nogueira, his deputy, was the obvious choice but his chances now appear to have been dashed. The young Foreign Minister, Jose Manuel Durao Barroso, could be a contender, but intense in-fighting is likely to precede the party's national congress in mid-February.