El Salvador has reached a staff-level agreement with the International Monetary Fund (IMF) for a $1.4 billion extended financial assistance package.
This 40-month agreement aims to address the country's fiscal challenges while supporting economic reforms and long-term growth.
Under the agreement, El Salvador will amend the Bitcoin Law to make the acceptance of Bitcoin voluntary rather than mandatory for merchants. Taxes will be paid entirely in US dollars, and the government plans to reduce its intervention in the state wallet, Chivo.
"The IMF has essentially shifted from, 'eliminate the Bitcoin Law or else,' to 'make your optional currency usage officially optional and gradually reduce the application that no one likes.' El Salvador has made the IMF concede on its Bitcoin Law," a user commented.
These adjustments reflect efforts to address the IMF's concerns about the volatility and risks of Bitcoin.
The country is also committed to implementing significant fiscal reforms. They plan to reduce the fiscal deficit to 3.5% of GDP over three years through spending cuts and tax increases. At the same time, El Salvador aims to increase its foreign reserves from $11 billion to $15 billion, ensuring greater financial stability.
The IMF has noted the country's stable economic growth, driven by strong remittances and an increase in tourism. The agreement aims to improve public finances, promote sustainable development, and maintain financial stability.
"The use of Bitcoin in El Salvador has always been voluntary and the level of usage has never been higher, continuing to grow. The IMF's point is meaningless. Chivo is just one of dozens of e-wallets used in El Salvador. Its presence or absence is irrelevant. Again, paying taxes in USD? Done, no problem. The rate of saving in Bitcoin and using Bitcoin as collateral to purchase real estate is booming in ES. El Salvador's success is thanks to Bitcoin, not the IMF's failed policies," Max Keiser added.
By securing this agreement, El Salvador's laws open the door for additional loans from other international financial institutions, potentially raising the total funding above $3.5 billion.
This agreement ends four years of negotiations with the IMF, where the role of Bitcoin in the economy has been a major concern. The IMF's executive board is expected to review and approve the agreement in the coming weeks. This development represents an important step for El Salvador as they balance economic modernization with financial stability.