El Salvador Secures $1.4 Billion IMF Loan Amid Bitcoin Policy Adjustments

By: Eva Baxter

In a significant financial development, El Salvador has reached an agreement with the International Monetary Fund (IMF) to obtain a $1.4 billion loan. One of the critical components of this arrangement is a series of adjustments to the country's Bitcoin policies, reflecting an effort to foster economic stability and a healthier balance between its cryptocurrency ambitions and fiscal responsibilities. The decision follows nearly four years of negotiations to finalize the loan deal.

Under the 40-month Extended Fund Facility (EFF) agreed with the IMF, El Salvador is committing to a series of economic reforms, which include improving its primary balance by 3.5% of GDP over three years to mitigate public debt. A significant condition of this agreement requires El Salvador to scale back its Bitcoin-related activities, marking a pivotal moment in the country's digital asset strategy.

The reform mandates making Bitcoin acceptance by private businesses a voluntary choice, as opposed to prior mandates enforcing it. In addition, the public sector will see reduced engagement in economic activities and transactions involving Bitcoin. Public sector-related practices, such as tax payments, will transition exclusively to US dollars, reflecting the IMF's concerns over economic risks associated with high-volatility assets like Bitcoin.

Despite these adjustments, El Salvador remains steadfast in its strategic acquisition of Bitcoin through the National Bitcoin Office (ONBTC), maintaining its commitment to purchase one Bitcoin daily. This approach was launched by President Nayib Bukele in November 2022 to capitalize on market trends, resulting in a substantial unrealized profit of $362 million from the country's holdings of more than 6,000 BTC. The administration has signaled that it will continue daily purchases until fiat currencies can no longer support such investments.

These policy changes are also expected to include a gradual disentanglement from the Chivo e-wallet, an app introduced in 2021 that has seen a decline in user adoption despite initial incentives. While Bitcoin-related engagements are set to reduce, El Salvador's position as an innovator in financial technology experimentation through digital currency nevertheless continues to generate remarkable profits for the nation.