According to Moody’s, Bitcoin adoption has reduced the likelihood of a loan extension by the IMF to pay for the bond. Many Salvadorans have doubts about the economic decisions by Bukele, but his popularity is still above 75%.
Nayib Bukele, the non-conformist Salvadoran president, has made one of the boldest economic decisions by adopting Bitcoin as a legal tender. Although many people consider that choice progressive, the balance sheet of the Central American country has not yet shown its advantages.
Bitcoin Losses Have Increased Due to the Market Collapse
Bukele announced the creation of Bitcoin City, a Bitcoin-based tax-free haven, but it became only a statement of intent. Although the idea still exists, the Salvadoran government has not done much about building the city.
A USD 1 billion Bitcoin bond to fund the energy and mining infrastructure has been subject to delays. When the government announced it in November, they said they expected to use that money to buy more BTC.
According to the nayibtracker.com website, the Salvadoran president is 57% below his bet on Bitcoin. Since September 2021, the Central American country has purchased 2,381 BTC at an average price of USD 45,000.
Although that represents USD 107.2 million, the portfolio is worth only USD 46.27 million. The decision by Nayib Bukele to acquire Bitcoin, going against the warnings of the International Monetary Fund (IMF), still seems unjustifiable.
El Salvador Does Not Abandon the Idea of Adopting Bitcoin
The warnings did not stop Bukele, who has insisted that he is leading his nation well. For example, he has done an excellent job regarding other areas like tourism, whose receipts are among the best in the post-pandemic era.
According to the World Bank, the arrival of international tourists has increased from 707,000 in 2020 to over 1.2 million. However, rating agencies believe that the risk profile of El Salvador will worsen further with the cryptocurrency path.
Fitch Ratings recently downgraded El Salvador to CC from CCC, saying it might default on foreign bonds. The most recent rating is nine times lower than BBB, the minimum needed to qualify for investment.
There might be a bank default due to tight fiscal external liquidity positions and limited market access. High financing needs and a considerable external bond maturity of USD 800 million in January 2023 might also contribute to it.
Moody’s, another rating firm, considers that Bitcoin adoption is responsible for the potential default. In January, it said that government-related policy differences had reduced the likelihood of the IMF extending a USD 1.3 billion loan.
The Salvadoran president said he hoped to use that money to pay for the upcoming maturity of the bond. Since March 2021, the Central American country has negotiated an agreement with the IMF.
Nayib Bukele Seeks to Run for a Second Term as President
Although many doubt his leadership style and economic decisions, Bukele is still very popular in his country. After taking office on June 1st, 2019, his popularity has remained above 75%.
According to research firm Cid Gallup, the ratings are increasing and stand at 86%, making him the most popular Latin American president.
Bukele intends to run for a second term as president after his current term expires in 2024. He hopes public sentiment will remain on his side and the Bitcoin market will stop its downward spiral and recover.
By Alexander Salazar
