El Salvador - After months of insulting the IMF, Bukele turns to the international lender for help
Bukele regularly hammered the IMF. The president is now using the institution for a debt restructuring.
For several months, there has been wonder of how president Nayib Bukele plans to bail El Salvador out of a very tricky financial situation. He needs to raise funds to pay off national and foreign creditors. He also needs to fund a 2023 budget. Meanwhile, 2023 and 2025 bonds are coming due.
During all of this drama, Bukele has regularly hammered the International Monetary Fund (IMF) with insults a la Bitcoiner. The irony is, now he is reportedly turning to the IMF’s special drawing rights (SDR) program to re-purchase 2023 and 2025 bonds at market prices. His government will also access a $200 mn loan from the Central American Development Bank (CABEI). It’s estimated that he could buy back up to $1.6 bn in bonds if he can find the cash he needs.
There are a few takeaways here. First, the president’s IMF shit-talking is largely fake. The IMF engagement is a clear action that shows that there is a degree of pragmatism inside Bukele’s administration. Instead of turning to the Bitcoin community and attempting to raise $1 billion for an imaginary city, Bukele is using traditional financial plumbing to keep his country’s economy afloat. It would be worrying if he were ignoring international creditors and instead issuing Bitcoin City tokens on Bitfinex right now.
Similarly, if investors are really interested in mining Bitcoin with clean energy in partnership with CEL and LaGeo, then they have a presidency that is effectively using the most sensible tools at his disposal to reverse the debt crisis El Salvador is mired in. That should be somewhat comforting too. Economic crisis will not be good for a Bitcoin miner that needs a functional electricity grid and basic financial infrastructure for operating in country.
But there are still significant risks for companies who want to buy into the El Salvador Bitcoin economy. It is severely uncomfortable to see former ally of Bukele Bertha Maria Deleón describe what it was like on the inside of Bukele’s government. Deleón advised Bukele early during his government. After a public falling out, Deleón describes the impossibility of attempting to be an opposition figure in congress. She testifies that she was followed, persecuted and eventually forced into exile in August of last year. These are not the symptoms of a functional democracy and fair institutions an investor depends on.
Finally, the US State Department published a list of radioactive individuals in Central America’s Northern Triangle. The Northern Triangle is of critical interest to Washington because of migration and security. When Bukele’s chief legal advisor Francisco Javier Argueta Gomez showed up on the list, it was a reminder that Washington will sanction powerful individuals who threaten US interests. It’s also a reminder that business dealings with the Bukele government can be fraught with troubled dealers