El Salvador’s bond prices continue to fall due to concerns over government financing as a deal with the IMF has not been reached and over the consequences of their upcoming use of bitcoin as a parallel legal tender. El Salvador has been in talks to negotiate a potential IMF support program of over $1bn. According to JPMorgan, El Salvador could still meet its financing needs for 2021 without an IMF agreement through higher economic growth, tax revenues and lower spending. President Nayib Bukele’s removal of top judges and El Salvador’s attorney general led government bond prices to fall, an action that the United States declared as unconstitutional, three months ago.
Also, the government proposed more than 200 changes to the constitution, including an extension of presidential terms, the draft of which would be presented to the public next week. Bloomberg reports that the proposal only adds to existing policy uncertainty ever since the ruling party took control of the top court and replaced the attorney general. “The biggest risk right now is that they enact legislation or policies which would be a red line for the IMF…The problem with El Salvador is the arc of policy making: It just seems to be more and more driven by the whims of Bukele than anything else,” said Rick Scott, an emerging-market sovereign analyst at BMO Global Asset Management in London.
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