El Salvador is close to reaching a major financial agreement with the International Monetary Fund (IMF), with plans to finalize a $1.3 billion loan program in the next two to three weeks. The country will change its use of bitcoin (btc) as legal tender and take measures to reduce its public deficit.
According to a Financial Times reportPeople familiar with the negotiations said an IMF mission has already arrived in San Salvador to finalize details with President Nayib Bukele's administration.
El Salvador will modify bitcoin policy
The proposed pact is expected to generate an additional $1 billion in financing from the World Bank and another $1 billion from the Inter-American Development Bank in subsequent years.
This has its origin in the country's decision in June 2021 to become the first government in the world to accept bitcoin as legal money, a move that the IMF has long opposed due to concerns about supposed “financial stability and integrity.”
Under the current conditions of the talks, El Salvador would eliminate the legal obligation for companies to accept bitcoin, making such transactions voluntary.
In addition, the government would commit to reducing its budget deficit by 3.5 percentage points of the gross domestic product (GDP) over the next three years, using a combination of spending cuts and tax increases.
Other obligations may include enacting anti-corruption legislation and increasing the country's reserves from $11 billion to $15 billion.
Bukele's leadership under scrutiny
President Bukele's administration has been under international scrutiny and criticism, particularly from the Biden administration, which had sanctioned several officials for alleged corruption. However, things appear to be improving, and the United States is focused on strengthening ties with El Salvador.
According to the Financial Times, although Bukele has positioned El Salvador as a cryptocurrency and tourist power, many Salvadorans still prefer the US dollar over bitcoin for daily transactions.
Despite these problems, Bukele has continued to accumulate bitcoin as part of the country's reserves, purchasing the cryptocurrency when prices fell. Your recent <a target="_blank" href="https://x.com/nayibbukele/status/1864506095131144278″ target=”_blank” rel=”noopener nofollow”>social media posts show El Salvador bitcoin holdings They have grown substantially and are currently worth more than $600 million, an increase of 127%.
In his second term, Bukele aims to revitalize El Salvador's economy and attract foreign investment. The report states that positive changes are evident, as the country's risk rating fell from 3,500 basis points on US Treasuries in July 2022 to just 398 basis points last week.
Bukele recently <a target="_blank" href="https://x.com/nayibbukele/status/1864765287305822604″ target=”_blank” rel=”noopener nofollow”>commented about the simultaneous rise in Salvadoran bond prices and bitcoin, adding: “This is the first time in history that bitcoin has boosted sovereign bonds in traditional markets.”
As negotiations with the IMF continue, the decision could have a major impact on El Salvador's economic outlook, as well as its current connection to bitcoin and the broader cryptocurrency market.
At the time of writing, btc is trading just below $100,000, valued at $97,850. The market-leading cryptocurrency experiences a 2.2% price drop in 24 hours and a 1.3% increase in a week.
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