San Salvador, El Salvador:
El Salvador has sought assistance from the World Bank as it implements its move to use bitcoin as a parallel legal tender alongside the U.S. dollar, Finance Minister Alejandro Zelaya said on Wednesday.
Zelaya said the Central American country has tapped the World Bank for technical assistance on rules and implementation of the cryptocurrency.
The minister also said ongoing negotiations with the International Monetary Fund have been successful, though the Fund said last week it saw “macroeconomic, financial and legal issues” with the country’s adoption of bitcoin.
Zelaya said on Wednesday the IMF is “not against” the bitcoin implementation.
The IMF and the World Bank did not immediately respond to requests for comment.
Investors have recently demanded higher premiums to hold Salvadoran debt, on growing concerns over the completion of the IMF deal, key to patching budget gaps through 2023.
On Wednesday, bonds sold off across the curve with the 2032 issue down more than 2 cents to 96.25 cents on the dollar. The spread of Salvadoran debt to U.S. Treasuries dipped to 705 basis points after hitting on Tuesday a four-month high of 725 bps.
“There is no fast track for a solution on an IMF program and even uncertainty on whether the bitcoin proposal is compatible with diplomatic U.S. (or) multilateral relations,” said Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities in New York.
El Salvador this month became the first country to adopt bitcoin as legal tender, with President Nayib Bukele touting the cryptocurrency’s potential as a remittance currency for Salvadorans overseas.
This month, Bukele also pulled out of an anticorruption accord with the Organization of American States, which dismayed the U.S. government, as Washington looks to stem corruption in Central America as part of its immigration policy.
“The recognition of a ‘Bukele’ risk premium has probably done some permanent damage to investor sentiment,” Morden said on her client note.
However, the market may be focusing too much on the news headlines and not enough on the possibility of a deal with the IMF, according to Shamaila Khan, head of EM debt strategies at AllianceBernstein in New York.
“It is important for El Salvador to get the IMF program done. If it was lost on them, they wouldn’t have the conversations,” she said.
“Our view is too much risk is priced in at these levels.”
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)