IMF Communications Director Julie Kozack emphasized today that “tackling risks associated with Bitcoin is a central aspect of these discussions” concerning the negotiations between El Salvador and the IMF over a loan program.
El Salvador remains significantly in debt, and Bitcoin is not contributing to the nation’s efforts to renegotiate its debt obligations with the International Monetary Fund (IMF). The IMF advises its member nations against recognizing crypto assets as official currency or legal tender.
El Salvador did not heed those recommendations.
Read more: El Salvador Bitcoin agency reportedly made $235 this year, falling $7M short of its target
As of June 30, the nation owed a relatively manageable $188 million (143.6 million SDRs valued at $1.31534 each) to the IMF in outstanding debt.
While this amount is relatively small for a sovereign country, maintaining credibility with the IMF is essential for El Salvador’s refinancing of current debts.
IMF’s Importance Even Extends Beyond Its Loans
Indeed, El Salvador consistently seeks to refinance billions in various debt forms from creditors who reference IMF’s assessments as indicators, analogous to S&P’s sovereign credit ratings.
Earlier this year, for instance, its congress approved a new $1.5 billion in debt issuance. Like all nations pegged to the US dollar, El Salvador cannot print USD to settle its debts, necessitating the raising of authentic loans and undergoing credit evaluations. In the landscape of sovereign debt, the IMF is a key partner for even those lenders who do not receive direct assistance from it to secure better financing conditions.
Unfortunately, the IMF expresses clear skepticism regarding Bitcoin’s role in national financial activities. Bitcoin prices often exhibit significant fluctuations, with moves of high single-digit percentages within a day, sudden crashes, and drop-offs exceeding 70% every few years.
For instance, Bitcoin’s price plummeted 99% in one day in June 2011. In December 2017, it fell by 80%. More recently, it experienced a 40% loss in value within a single day on March 12, 2020.
The IMF noted progress from El Salvador as of August in addressing “potential fiscal and financial stability risks stemming from the Bitcoin initiative.” However, recent statements indicate that Salvadoran President Nayib Bukele has not yet fulfilled the IMF’s conditions during the negotiations.
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