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El Salvador’s Bitcoin Reserves Exceed IMF Loan

El Salvador's Bitcoin Reserves Exceed IMF Loan

Bitcoin in the hands of El Salvador almost doubles the repayment that the government must pay to the Monetary Fund in 2024.

  • El Salvador must pay this year a loan requested to face the coronavirus pandemic.
  • Analysts see little interest from Bukele’s government in reaching an agreement with the IMF.

Amid the rise that bitcoin (BTC) has experienced recently, El Salvador’s holdings have also risen substantially, currently registering unrealized gains estimated at 58%. According to the statistics from the tracker that monitors the purchases made by Nayib Bukele’s government, the Central American country’s bitcoin hoard has a value between $380 million and $400 million. The amount attracted the attention of many analysts because it exceeds the amount of a loan that El Salvador requested four years ago from the International Monetary Fund (IMF.)

As reported by the IMF, they approved an emergency assistance request for El Salvador in April 2020 for approximately $389 million. The loan is part of the framework Rapid Financing Instrument (RFI) to address the coronavirus pandemic. The help was the first loan to El Salvador in more than three decades. “Timely disbursement of funds, as well as transparency in their accountability and reporting, must be ensured,” said the IMF. 

Based on this, they made a payment agreement, and $122 million had been repaid by 2023. According to the Ministry of Finance budget, they set payments for 2024 at $206.3 million (including interest,) and for 2025, they would pay $115 million. These amounts are already lower than the country’s bitcoin holdings, which has led many to speculate that Bukele may resort to the digital currency to pay this debt.

El Salvador seeks alternatives to pay debt with the IMF

About El Salvador and Bitcoin, the renowned venture capitalist Tim Draper has been calling attention to the digital currency benefits for the nation. In a recent interview, he anticipated that El Salvador’s strategic investments in BTC could allow it to pay its debts with international institutions such as the IMF, thus achieving financial independence.  The possibility of the government resorting to Bitcoin as a financing alternative has the difficulties that have arisen for Bukele to reach an agreement with the IMF. The IMF has asked to remove Bitcoin from circulation as legal money. a policy that the government of El Salvador is unwilling to discuss.

In that sense, the financial company Barclays recalled, in a recent report, the outstanding debt with the IMF since 2020. It highlighted that, in the absence of an agreement on a program, El Salvador must reimburse more than $300 million in these two years and has to look for alternatives. Barclays assures that an El Salvador program with the IMF is increasingly uncertain due to “contradictory” messages from the Salvadoran government. 

Although logic dictates that they should pursue the IMF program, El Salvador is not doing so. An IMF program will remain a potential lifeline when financing eventually tapers off; for now, El Salvador has a minimum of financing alternatives that it seems to prefer. 

Barclays Report. 

Bitcoin as a revenue alternative for El Salvador

While the chances of an IMF deal are shrinking, Bukele is sticking to his bitcoin strategy. Last March, the president reacted to criticism about his investments in the digital currency. He asked for patience while the cryptocurrency was falling and generating concern. Now, though, when the price of BTC is on the rise and has set another all-time high, he welcomes his initiative. The president claims that having Bitcoin as a currency generates revenue through various avenues. He cites the program for foreigners to obtain citizenship in exchange for investing millions in bitcoins. He also references income from government-owned mining farms and using BTC to pay for government services. 

Bukele is sure that the country can earn a lot of money thanks to the currency created by Satoshi Nakamoto. That is why he has said he does not intend to sell it but will continue to hold (save). A mechanism that will allow him to obtain more profits as BTC continues to rise. They would not use the Bitcoin treasury to pay off debt. However, having a growing investment in an asset that appreciates over the long term looks like an advantage. In any case, for the moment, the millions earned with Bitcoin are just a fraction of the overall external debt of almost $5 billion that the nation has with the IMF, according to data from Moody’s Analytics.

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