Bitcoin as legal tender is not working: El Salvador is heading towards ‘default’

Bukele, the youngest president in Central America , came to power with a promise to reform El Salvador, make it grow and bring economic benefits to its citizens. Not even a year has passed since the adoption of bitcoin as legal tender alongside the dollar and, as different international institutions have already warned, the experiment is proving to be a failure. And not only that, but now more than ever, El Salvador is heading towards ‘default’ .

The country, of around six and a half million inhabitants, faces the payment of a bond of 800 million dollars by the beginning of 2023; and the prices of their sovereign debt do not predict that they will be able to pay it. Last month, its yields plummeted to record lows.

According to World Bank estimates, El Salvador ‘s economy is expected to grow 2.9% this year, and 1.9% in 2023; however, persistent fiscal deficits and high debt service are generating high and growing financing needs; Therefore, the Fund’s delegation in El Salvador agrees on the need to implement fiscal consolidation this year, as well as structural reforms that promote more inclusive growth and greater investment in infrastructure and social spending.

Despite his carefree messages on Twitter, the bet of “El Salvador’s CEO” still doesn’t work. Last week, Moody’s rating agency downgraded its long-term foreign currency issuer rating to “Caa3” again, in the absence of a “credible financing plan” .

The Salvadoran government has still not reached an agreement with the International Monetary Fund, for some 1,300 million dollars. The institution had already warned the country on several occasions of the danger of the Bitcoin Law for “financial stability and integrity and consumer protection.”

In practice, Nayib still does not provide the address of the bitcoin purchases that, supposedly, would already reach 23,301 units with his latest acquisition. All this in a context in which the most traded cryptocurrency in the world has lost more than 30% of its value so far this year, and about 55% since its November highs, when it reached almost $68,000.

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