El Salvador’s finance minister says he’s not worried about forecasts by international market forecasters that the country will default on $800 million in bond payments early next year.
ElSalvador.com, the website of the newspaper El Diario de Hoy, quoted Minister Alejandro Zelaya as saying that the door to multilateral organizations that can provide El Salvador with financing options is open.
Zelaya said the World Bank has just approved a $100 million loan to the country, while the Central American Bank for Economic Integration has also signed a $220 million loan. However, he acknowledged that the loan deal with the Development Bank of Latin America (CAF) is still being finalized.
But, he added, the country can look for other means to avoid default. He explained:
I could go into the regional debt market or issue three-year local bonds in Central America. Truth be told, $800 million with a [national] budget of $7 billion is the limit. It’s a small one.
And Zelaya insisted that the Salvadoran government has no intention of defaulting, adding:
[The $800 million bill] is not payable. This is of no concern to us.
In spite of this, international observers say that El Salvador remains in hot water. La Prensa Grfica reported that country risk indicators soared this week to levels never seen before in the country’s history.
The bonds in question lost as much as 20 percent of their value in a single day in the middle of the week. Markets, the newspaper wrote, do not believe the country will be able to meet its future financial obligations.
Analysts at JPMorgan say El Salvador’s default probability level on its payment obligations is the second highest in the Latin American region, behind only Venezuela. The newspaper notes that Bloomberg economists also named El Salvador as one of the five world economies most vulnerable to default in the near future.
The same newspaper quoted economist Ricardo Castaneda of the Central American Institute for Financial Research (ICEFI), who explained that markets are most concerned about the lack of clarity about the measures the government is taking to repay its debt.
He added that this has been exacerbated by poor economic indicators, including low GDP growth, slowing remittances from abroad and high inflation.
Castaneda believed that the political clamor surrounding the possibility of re-election of the president was also a factor. President Naib Bukelesh’s term ends in 2024. But he seems intent on seeking re-election after the constitutional court last year changed the law allowing presidents to be elected for more than one term. Opponents have questioned the legality of this decision, saying that the Constitutional Court is filled with judges who support Bukélé.
Nevertheless, popular support for Buchele remains high, even though his presidency, as Castaneda suggested, generates uncertainty and a lack of confidence in the bond markets.
However, Bukele responded with a challenge, suggesting that his plans to introduce bitcoin (BTC) would help prop up the economy.
He recently turned to Twitter, his favorite medium of communication, to complain about a New York Times article titled “El Salvador’s Big Bet on Bitcoin Doesn’t Pay Off.”
Since when did the New York Times devote so much time and space to El Salvador’s economic initiatives? Clearly, they’re afraid [that] bitcoin is inevitable. By the way, they say they were headed for default. Will they publish an apology as soon as we pay everything on time?
And Buechele certainly has some prominent international supporters in his quest to turn El Salvador into a global BTC hub.
Meanwhile, as reported yesterday, cryptocurrency exchange Bitfinex announced that it will donate 36 BTC and Tether (USDT) worth $600,000 to help small businesses and communities in the country. The exchange said the funds should be distributed to areas affected by criminal gang activity.