Background on Nayib Bukele and His Bitcoin Policy
Nayib Bukele, the current President of El Salvador, has been in office since June 2019. Known for his anti-gang campaign that significantly reduced homicides, Bukele gained immense popularity among Salvadorans. In 2021, he made headlines by making Bitcoin legal currency alongside the US dollar, aiming to boost the nation’s economy.
FMI Pressure and Bitcoin Policy Shift
However, the International Monetary Fund (IMF) expressed concerns over El Salvador’s heavy reliance on Bitcoin. The IMF urged Bukele to reduce this exposure, leading to a shift in policy. As of late January, the use of Bitcoin became optional for Salvadorans.
IMF’s New Program and Approval
On February 26, the IMF approved a new program under its Extended Credit Facility (ECF) worth approximately $1.4 billion over 40 months. This approval provides much-needed relief for Bukele’s government, which was previously pressured to minimize Bitcoin exposure.
The IMF stated, “Completion of this SAF [Services and Facilities Agreement] review enables the immediate disbursement” of $118 million to El Salvador.
Focus of the New IMF Program
According to the IMF, the new program aims to strengthen public finances, rebuild external and financial reserves, and enhance governance and transparency frameworks to foster stronger and more resilient growth.
The IMF also acknowledged that El Salvador’s economy continues to expand as macroeconomic imbalances are corrected.
Bitcoin Risk Mitigation Measures
Furthermore, the IMF noted that El Salvador is taking steps to mitigate risks associated with Bitcoin, which Bukele made legal tender in 2021 alongside the US dollar.
Despite Bukele’s initial enthusiasm for Bitcoin, public sentiment in El Salvador remains divided. Various surveys indicate that most Salvadorans are not captivated by Bitcoin, and Bukele now faces the challenge of stimulating economic growth.
Key Questions and Answers
- What is the IMF’s new program for El Salvador? The IMF approved a new program under its Extended Credit Facility (ECF) worth approximately $1.4 billion over 40 months, aiming to strengthen public finances, rebuild reserves, and enhance governance frameworks for more resilient growth.
- Why did El Salvador shift its Bitcoin policy? Due to pressure from the IMF, President Bukele made the use of Bitcoin optional for Salvadorans in late January to reduce exposure and address macroeconomic imbalances.
- What are the public sentiments towards Bitcoin in El Salvador? Despite Bukele’s efforts to promote Bitcoin, most Salvadorans remain unenthusiastic about it. Bukele now faces the challenge of stimulating economic growth.
