El Salvador to Finalize $1.3B Loan Deal with IMF

El Salvador is poised to sign a $1.3 billion deal with the IMF in the next few weeks. But, the deal comes with a few conditions including amending the country’s Bitcoin law.

Currently, the country requires businesses to accept Bitcoin as payment, but under the new deal, this would become optional. 

According to the Financial Times report, the IMF has raised concerns about the risks Bitcoin poses to the country’s financial stability, and this initiative is meant to address those concerns.

If all goes according to plan, this agreement could offset $2 billion more from the World Bank and Inter American Development Bank in the next few years. For this to happen, the final approval would be given by the board of the IMF. In short, this deal would mean El Salvador’s return to the international economic map after many hard years since making bitcoin a legal currency in 2021.

Apart from the agreement, the government will also undertake to reduce its budget deficit at 3.5% of GDP which would span the period of 3 years. This is to be attained through cuts in expenditure and increase in taxation. In addition, the country would increase its reserves from $11 billion to $15 billion.

Since making bitcoin a legal currency in 2021, the IMF has consistently opposed the move, stressing the effect on stability, and the consumer’s interests. The agency cleared their position when they advised the Salvadoran government to reduce the legal requirement for businesses to accept the cryptocurrency. 

Even though Bitcoin hit a new ATH last month, thanks to the concluded election that resulted in President Trump’s victory, most Salvadorans still prefer to use the US dollar.

However, the Government has continued to buy Bitcoin and hold it as a reserve. Bukele recently stated its holdings were worth over $600 million, and have grown by 127%.