El Salvador’s Bitcoin Ambitions Constrained by IMF Agreement
El Salvador’s aspirations for a more integrated bitcoin economy are now set to exist within a “confined” framework, following the approval of an Extended Fund Facility (EFF) arrangement by the International Monetary Fund (IMF) on February 26. This 40-month program, which amounts to $1.4 billion, is designed to tackle macroeconomic imbalances while enhancing growth prospects. As part of this agreement, an immediate disbursement of US$113 million has been allocated, but the initiative also imposes restrictions on the nation’s bitcoin endeavors.
As of February 24, El Salvador reportedly held over 6,081 BTC, which was valued at approximately $600 million and is managed by the country’s Bitcoin Management Agency. However, the IMF has mandated a prohibition on the voluntary accumulation of bitcoin by the public sector during the duration of this program.
In a recent development, El Salvador’s President Nayib Bukele hinted at a potential bitcoin acquisition, adding 19 BTC to the nation’s reserves as the cryptocurrency dipped below $90,000. This announcement was made via his Twitter account, highlighting his ongoing commitment to the asset despite the new limitations imposed by the IMF. View the tweet here.
The IMF has noted that bitcoin’s utilization within El Salvador remains minimal, with its adoption as a payment method experiencing significant barriers due to high price volatility and a lack of public confidence. The financial sector has no exposure to bitcoin, and tax payments made in bitcoin—which are soon to be banned—have been negligible at best.
A critical prerequisite for the EFF’s approval was the amendment of the Bitcoin Law, which has made the acceptance of bitcoin voluntary for private entities, effectively stripping it of its legal tender status. This shift reflects a broader strategy aimed at stabilizing the economy.
The EFF program aims for a 3.5% improvement in the GDP primary balance over the next three years, beginning with reductions in the wage bill while safeguarding social spending. Economic growth is projected to be between 2.5% and 3% in the medium term, bolstered by anticipated security enhancements and structural reforms. Furthermore, the country’s debt is expected to decline to 81% of GDP by 2029, along with a reduction in gross financing needs.
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