In 2021, El Salvador refused to continue negotiating with the IMF for new loans, and at the same time accepted the use of cryptocurrencies to seek capital to pay foreign debts.

"I don't want to miss this wave," El Salvador President Nayib Bukele eloquently declared in early 2022.

After trying to bottom out multiple times in Bitcoin, President Bukele is said to be holding 2,301 Bitcoins totaling $103 million, now they're worth around $51 million.

El Salvador President
Please be reminded that El Salvador has a debt of $800 million in bonds that are due in early 2023 and do not know where to find the capital to repay the debt. In the year 2022 alone, the amount of interest paid by El Salvador's bondholders has reached $382 million.

The average price of Bitcoin that President Bukele bought is about $43,865. However, on June 13, the Bitcoin price fell below $24,000, the lowest level since December 2020. Thus, Bitcoin has lost about 50% since it was accepted by El Salvador as a legal means of payment.

The Central Bank of El Salvador said it had $3.4 billion in reserves as of April 2022.

Normally, El Salvador, like many other developing economies, had to negotiate with the International Monetary Fund (IMF) to borrow funds to pay off maturing debts, thereby avoiding default cases like in Sri Lanka.

However, instead of waiting and negotiating the strict terms of the IMF, El Salvador accepted payments in cryptocurrencies as well as poured money into Bitcoin, thereby expecting to issue bonds in digital currency to borrow capital.

As a result, the IMF halted negotiations to grant a new loan to El Salvador due to concerns about the negative impact of the recognition of Bitcoin as a legal currency, which would affect the economy as well as the transparency of the system. financial system. In other words, the IMF refuses to lend to "gamblers".

In fact, after a period of excitement over the legalization of cryptocurrencies, El Salvador is facing the risk of near default because investors as well as large financial institutions refuse to take the risk of accepting the idea.

In April 2022, the price of outstanding bonds of El Salvador fell by 15.1%, which is only inferior to Ukrainian bonds in recent times in terms of record devaluation. El Salvador's 2032 maturity bond is currently being offered for sale with a yield of up to 24%, but no one dares to buy it.

According to Bloomberg news, investors are refusing to buy this national bond because they are preparing for the prospect of El Salvador defaulting as they recklessly accept cryptocurrencies.

"If President Bukele cannot raise capital through the traditional international credit channel, how can they repay the old debt?", Jared Lou, director of William Blair Investment, criticized.

In February 2022, Fitch agency downgraded El Salvador's credit rating to "CCC" on the grounds that the economy was too dependent on short-term loans, had limited financial resources and burdened Public debt is expected to reach 87% of GDP this year.

Worse, the fact that the US Federal Reserve (FED) raised interest rates made it even more difficult for El Salvadorans due to the high cost of importing necessities, food, and energy.

El Salvador Denies Damage:

Despite the sharp drop in the price of Bitcoin, El Salvador Finance Minister Alejandro Zelaya recently confirmed that the country is not losing money.

Speaking at a press conference, the head of El Salvador's Ministry of Finance admitted that there has been "a lot of noise" about El Salvador's cryptocurrency strategy recently. However, he asserted that his country "did not suffer any loss" because El Salvador had not sold the Bitcoins.


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