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The president of El Salvador, Nayib Bukele, announced this July 26 a plan to repurchase in advance the sovereign debt bonds that mature between 2023 and 2025, and will use resources assigned by the IMF for that purpose.
The president of El Salvador, Nayib Bukele, is confident that the bond repurchase measure will be beneficial for the country’s economy, and that there is enough liquidity not only to pay all its outstanding commitments, but also to buy all the debt external in advance until 2025.
“Reducing its international reserves”
But some specialists, such as Ricardo Castaneda Ancheta, coordinator for El Salvador of the Central American Institute for Fiscal Studies, do not share this optimism and describe the government’s announcement as a “financial media outlet.”
“It is important to point out that the resources from special drawing rights, which have been granted by the International Monetary Fund, are part of the country’s net international reserves. In other words, in practice, in order to repurchase those bonds, the government would be reducing its international reserves. With a dollarized economy and in a context where the international economic situation is not the most appropriate, this also entails many risks for the entire economy”, explains Castaneda.
“The benefits have not been seen”
Last year, El Salvador made world news by becoming the first country to adopt the virtual currency Bitcoin within its economy, a measure that according to Castaneda increased the country’s risk profile. However, its adoption is not the cause of the country’s financial problems.
“Bitcoin, far from becoming a solution, has already become part of that problem. First, because public resources have been used and they have taken around 225.3 million dollars from the budget. Additionally, due to the adoption of this measure, the agreement with the International Monetary Fund has practically not been reached, and the country’s risk profile had risen exponentially. So that is where, almost a year after this measure came into effect, the benefits for the vast majority of the population have not been seen. On the contrary, what has been verified in the flesh, are the costs of having a virtual asset as currency”, emphasizes Castaneda.
To face the global rise in fuel prices, Congress also authorized the government to sign a loan with the Central American Bank for Economic Integration (CABEI) for 200 million dollars. A measure that will surely have an impact on El Salvador’s finances.
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