LatinNews Daily - 25 November 2021

In brief: El Salvador’s bitcoin bond casts more doubts over relations with IMF

* The recent announcement by El Salvador’s President Nayib Bukele’s of a cryptocurrency bitcoin-related US dollar bond issuance “informally confirms a break from the International Monetary Fund (IMF) with an alternative, uncertain funding/growth model” according to a note circulated in the media to clients by Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont, a US-based independent global fixed income specialised broker-dealer. The research note follows other concerns regarding the future of El Salvador’s relations with the IMF, stemming from the country’s adoption of the cryptocurrency in September. On 22 November the IMF released a concluding statement following an Article IV mission which is clear that El Salvador should not use bitcoin as legal tender. It states “Given Bitcoin’s high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability. Its use also gives rise to fiscal contingent liabilities. Because of those risks, Bitcoin should not be used as a legal tender.” The Bukele government has sought discussions with the IMF over an economic reform programme that could be supported by an IMF financial arrangement to address the impact of the coronavirus (Covid-19) pandemic. The IMF expects El Salvador’s GDP to rise 10% in 2021 and public debt to reach about 85% of GDP by end-2021, having increased during the pandemic by 14 percentage points of GDP.

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