El Salvador’s bitcoin aspirations are entering a new phase, now framed within a “confined” structure following the approval of an Extended Fund Facility (EFF) arrangement by the International Monetary Fund (IMF) on February 26. This 40-month, $1.4 billion initiative aims to tackle macroeconomic imbalances while strategically enhancing the country’s growth potential.
The EFF arrangement includes an immediate disbursement of $113 million but brings with it significant restrictions on the country’s bitcoin initiatives. As of February 24, El Salvador held over 6,081 BTC, with a market value nearing $600 million, managed by the nation’s Bitcoin Management Agency. However, the IMF has now mandated a halt to the public sector’s voluntary accumulation of bitcoin during the duration of the program.
In a somewhat defiant move, President Nayib Bukele hinted at future bitcoin purchases, recently adding 19 BTC to the national reserve as the cryptocurrency’s value dipped below $90,000.
Despite its early enthusiasm, the IMF has indicated that bitcoin usage remains limited within El Salvador. The cryptocurrency has seen little adoption as a payment method, primarily due to its high price volatility and a lack of public confidence. Before the EFF approval, amendments had been made to the Bitcoin Law to ensure that its acceptance would be voluntary for private entities, effectively rescinding its status as legal tender.
The overarching goals of the EFF include aiming for a 3.5% improvement in GDP primary balance over the next three years. This will commence with cuts to the wage bill while maintaining essential social spending. Economic growth is forecasted to stabilize between 2.5% and 3%, bolstered by security improvements and various reforms. The IMF projects a reduction in debt levels to 81% of GDP by 2029, alongside a decrease in gross financing needs.
Ultimately, the implications of this arrangement suggest a pivotal shift for El Salvador as it works within the directives of the IMF while managing its cryptocurrency ambitions.
https://x.com/nayibbukele/status/1896745753521148308
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