Odaily Planet Daily reports that El Salvador has reached an agreement with the International Monetary Fund (IMF) after four years of tense negotiations due to the country's acceptance of Bitcoin as legal tender. According to a statement from the IMF, both parties have agreed on a $1.4 billion loan program, which will be disbursed over 40 months. In exchange, El Salvador has agreed to take measures to improve its fundamental balance of payments and help reduce its debt-to-GDP ratio. The IMF praised the government for its efforts to improve fiscal conditions, develop the economy, reduce inflation, and manage short-term debt. In 2021, President Nayib Bukele's acceptance of Bitcoin led to a rift with the IMF, resulting in credit rating downgrades, investor panic, and a sharp drop in bond prices. Although the agreement still requires approval from the IMF's executive board, it will address long-standing issues troubling investors in El Salvador's bond market. The agreement also notes that the Bukele government has made concessions on digital assets, which had been a major sticking point previously. Legal reforms will allow the private sector to voluntarily accept cryptocurrencies. The IMF stated that the risks of El Salvador's Bitcoin project will be 'significantly reduced according to IMF policies.' Furthermore, government involvement in the local crypto wallet Chivo (which has faced numerous technical challenges) will be 'gradually phased out.' The government launched Chivo in September 2021, promising to provide registered users with $30 worth of Bitcoin for free. At the time, this amount was equivalent to a day's wage, attracting over 3 million registered users. However, long-term usage and adoption have been challenging: the country's central bank stated in 2022 that since its launch, less than 2% of remittances had been sent using digital wallets. Bukele has recently managed to turn the situation around by repurchasing dollar bonds at discounted prices, repaying other bonds early, restructuring pension debt, and refinancing some domestic securities. The price of bonds maturing in 2052 rose from 30 cents mid-2022 to around 106 cents, providing bond investors with one of the best returns among developing countries. (Bloomberg) Previously, reports from the Financial Times citing anonymous sources indicated that El Salvador plans to relax the mandatory requirement for local businesses to accept Bitcoin, a move aimed at securing over $3 billion in loans. Sources said that by shifting to a policy allowing businesses to voluntarily accept Bitcoin, El Salvador could reach a $1.3 billion loan agreement with the IMF. Reports also indicated that this deal would unlock two loans, one for $1 billion from the World Bank and another for $1 billion from the Inter-American Development Bank. The Financial Times stated that to secure the IMF loan, the country also agreed to reduce the budget deficit, pass anti-corruption laws, and increase reserves.

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