Unlocking necessary funding to grow its economy might cost El Salvador and President Nayib Bukele the abandonment of Bitcoin (CRYPTO: BTC).
According to Bank of America economist Alex Muller, El Salvador is in pursuit of a deal with the International Monetary Fund (IMF), which can provide the little Central American country the ability to secure much-needed external financing from global investors.
Muller’s recent visit to El Salvador revealed a government increasingly inclined to engage in fruitful negotiations with international partners, particularly the IMF, seen as a linchpin for the country’s debt sustainability.
“The government is more focused on getting an IMF program, which is the key to ensure public debt sustainability,” Muller stated.
In recent years, El Salvador has achieved excellent results in terms of economic growth and domestic security. The GDP has risen to $35 billion, almost $10 billion higher since President Nayib Bukele took office in 2019, and unemployment has dropped to 5%.
Additionally, the nation has significantly curtailed its crime rates, transitioning from one of Latin America’s most dangerous countries to boasting one of the lowest crime rates in the region.
“El Salvador has gone from having a war-like crime rate before Bukele (106.8 per 100,000 people in 2015) to one of the lowest in the Latin America region (2.4 in 2023),” Muller said.
Despite these advancements, El Salvador grapples with a debt-to-GDP ratio exceeding 70%—a figure the IMF deems too high for an emerging economy.
El Salvador’s international dollar bonds in recent months have substantially rallied in recent months, yet yields remain above 10%. This enormous interest burden does not allow El Salvador to obtain significant resources for its medium and long-term development plans.
Chart: El Salvador’s Dollar Bonds Rallied Over 60% From A Year Ago
Battles of Necessity And Battles Of Choice
Bukele has successfully clinched a second term, winning the elections with more than 70% of the vote. His party, New Ideas, is poised to secure 58 of the 60 available seats in the 84-member Legislative Assembly.
But a program with the IMF could provide El Salvador the necessary confidence boost to bring foreign investors closer.
“The difference between now and the last three years –…
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