US agency will finance one billion dollars to buy back El Salvador’s sovereign debt

The United States development bank closed a $1 billion financial agreement with the Salvadoran government on Wednesday to finance the repurchase of the country’s foreign debt bonds that mature between 2027 and 2052, the US diplomatic headquarters in San Salvador reported.

The embassy explained that, to effect the “largest debt conversion in history,” the United States International Development Finance Corporation (DFC) will provide $1 billion in political risk insurance, while The Development Bank of Latin America and the Caribbean (CAF) will provide a pending letter of credit for 200 million dollars.

President Nayib Bukele announced on October 4 that El Salvador would purchase all sovereign debt bonds, which include eight issues maturing in 2027, 2029, 2030, 2034, 2035, 2041, 2050 and 2052, and that payments would be made at market price at the time of the transaction.

The repurchase of sovereign debt bonds basically consists of El Salvador purchasing its own debt before maturity in the hands of investors, who prefer to sell the securities at market price. This means savings for the country, since the Salvadoran government does not have to pay more interest.

Through this transaction, the government of El Salvador will realize more than $352 million in savings over the maturity of the debt, through a combination of immediate nominal savings and substantial reductions in debt service costs.

Of these savings, $350 million will be applied to the Lempa River Conservation and Restoration Program over the next 20 years.

Specifically, $200 million—an average of $9.75 million annually over 20 years—will directly fund the program, while $150 million, or approximately $7 million annually, will fund a trust fund that will serve as a funding source for the program from 2044.

“This debt conversion represents the most ambitious environmental action with the greatest impact in the history of El Salvador. “Not only does it reaffirm this government’s commitment to economic growth, but it also allows us to achieve this growth while preserving one of our most precious natural resources: the Lempa River basin,” said Bukele.

“Our next goal is for the world to see El Salvador more for its economic miracle than for its security miracle. It will take a few years, but we are on the right track. Thank God,” Bukele added on his X social network account.

“Let’s take a billion dollars of El Salvador debt and turn it into clean water for Salvadorans. The United States, through the International Development Finance Corporation, and El Salvador will work together on a debt conversion program that will benefit the Lempa River basin. We come together to build growth,” said the US ambassador, William Duncan, in X.

The United States embassy detailed in a statement that the Environmental Investment Fund of El Salvador, Catholic Relief Services and ArtCap Strategies, in addition to the DFC, the government of El Salvador and the CAF, also participated in the debt conversion. JPMorgan Chase Bank acted as arranger for the loan.

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