El Salvador has reached a deal with the International Monetary Fund (IMF) after four years of negotiations, securing a $1.4 billion loan program over 40 months. The agreement comes as a conclusion to an issue that has long vexed investors in El Salvador’s bond markets.
The IMF cited improvements made by the government in its fiscal situation, economic growth, inflation management, and debt obligations as reasons for the deal. President Nayib Bukele’s adoption of Bitcoin as a legal tender in 2021 sparked tensions with the IMF, leading to credit downgrades and investor concerns.
However, under the new agreement, El Salvador will adopt measures to improve its primary balance and reduce its debt-to-GDP ratio. The government has also agreed to make acceptance of cryptocurrency voluntary for private sector entities and gradually unwind its participation in the local crypto wallet project, Chivo.
This deal marks a significant shift in El Salvador’s approach to Bitcoin, as it aims to minimize risks associated with the digital asset. The government has taken steps to revamp its economic strategy, including buying back dollar notes at a discount, paying off bonds early, and restructuring pension debt. As a result, bond prices have improved, offering investors one of the best returns in the developing world.
The agreement is subject to approval by the IMF’s executive board, but it represents a positive step towards restoring investor confidence in El Salvador’s economy.
Source: https://finance.yahoo.com/news/imf-reaches-agreement-el-salvador-202644549.html