The International Monetary Fund (IMF) dropped yet another strong hint that it won’t bail El Salvador out of coming debt payments that could lead to a default while bitcoin remains a legal tender in the Central American country.
The administration of President Nayib Bukele’s legal adoption of the cryptocurrency, which has seen its value fall by more than half since November, remains a key sticking point for the IMF. It is widely thought to have stalled negotiations for a $1.3 billion loan that would allow the country to pay off an $800 million bond due at the beginning of 2023.
A spokesman for the international lender of last resort said, “We have made our views clear on that particular issue,” during a May 19 press conference, according to local news outlet El Salvador.
In January, the IMF “urged the authorities to limit the scope of the Bitcoin law by removing its status as legal tender,” the outlet reported.
Noting that it is still involved in talks with the country, IMF spokesman Gerry Rice added that bitcoin is one issue in discussions that also include “the fight against money laundering, fiscal transparency, accountability in the use of public funds, strengthening the anti-corruption framework in accordance with international standards, and a variety of other issues,” he said.
Of course, all of those issues are intimately tied into bitcoin, which is considered a good way to launder funds. And the administration has been criticized for a lack of transparency about El Salvador’s $103 million purchase of the cryptocurrency — leading debt rating agency Moody’s to complain recently that it had to rely on President Bukele’s tweets for any information about the investment.
Earlier this month, Moody’s explained that it cut El Salvador’s sovereign debt — already far below junk status — again, in part because “the truth is that we are a bit at the mercy of the president’s tweets, especially on the subject of bitcoin.”
Of course, the plummeting value of Salvadoran bonds, which are down by half since August 2021, has a great deal to do with Moody’s action. But the two are certainly related.
“The weakness and volatility of bitcoin seriously challenges the growth and financing model for El Salvador,” said Siobhan Morden, head of fixed income strategy at Amherst Pierpont Securities, adding that its bond prices are making a default far more likely, El Salvadorian news outlet La Prensa Grafica said on Monday (May 23).
As far as an IMF deal goes, Finance Minister Alejandro Zelaya told reporters earlier in May that the government is not asking the IMF “for money” but rather, is talking to it in order to maintain a “cordial relationship,” La Prensa Grafica reported on Saturday (May 21).
Paraguay Denies Interest
Bukele has made much of a recent meeting of the Alliance for Financial Inclusion’s (AFI) Small and Medium Enterprises Finance Working Group (FWG) in El Salvador, tweeting that “32 central banks and 12 financial authorities (44 countries) will meet in El Salvador to discuss financial inclusion, digital economy, banking the unbanked, the #Bitcoin rollout and its benefits in our country.”
Tomorrow, 32 central banks and 12 financial authorities (44 countries) will meet in El Salvador to discuss financial inclusion, digital economy, banking the unbanked, the #Bitcoin rollout and its benefits in our country.
— Nayib Bukele (@nayibbukele) May 16, 2022
Among those listed was the Central Bank of Paraguay, which issued a statement saying the “focus of the meeting is not related to cryptocurrencies or the like. Similarly, the BCP doesn’t plan to discuss cryptocurrencies in said environment or meeting.”
Not Much Use
El Salvador’s Central Reserve Bank said that the Chivo bitcoin wallets distributed by El Salvador have received $39.4 million in remittances through the end of April, according to local outlet E&N.
That’s about 1.6% of the total, suggesting that despite far lower fees, Salvadorans are not embracing bitcoin when sending money home.
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