El Salvador to narrow Bitcoin laws to secure $1.3B loan from IMF—report

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El Salvador is nearing an agreement with the International Monetary Fund on a $1.3 billion loan program, which requires modifications to its Bitcoin legal tender law and deficit reductions, according to a Monday report from FT, citing two people close to the discussions.

The deal could be finalized within two to three weeks and would potentially unlock an additional $2 billion in lending from the World Bank and Inter-American Development Bank over the coming years.

Under the proposed terms, El Salvador’s government would change the legal requirement that mandates businesses to accept Bitcoin as payment, making it optional instead.

The government would also commit to reducing its budget deficit by 3.5% of GDP over three years through spending cuts and tax increases, while boosting reserves from $11 billion to $15 billion.

President Nayib Bukele, who was recently re-elected with 85% of the vote, introduced Bitcoin as legal tender in June 2021, making El Salvador the first country to do so. The IMF has opposed this move, citing financial stability and integrity risks.

The government has built Bitcoin reserves, with Bukele announcing last month that the country’s holdings were worth more than $600 million, representing a 127% gain.

El Salvador’s financial outlook has improved, with its risk rating dropping from 3,500 basis points above US Treasuries in July 2022 to 398 basis points last week. Sovereign bonds are now trading near face value, prompting Bukele to note: “This is the first time in history that Bitcoin has driven sovereign bonds up in traditional markets.”

Despite the push for Bitcoin, most Salvadorans have avoided using Bitcoin for daily transactions. The US dollar is still the country’s preferred legal tender.

This is a developing story.

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