December 19, 2024
El Salvador has reached a staff-level agreement with the International Monetary Fund (IMF) to arrange a $1.4 billion Extended Fund Facility (EFF).
The 40-month agreement also aims to address the country's financial challenges while supporting economic reforms and long-term growth.
El Salvador's IMF Deal Includes Bitcoin, Tax and Financial Reforms
As part of the deal, El Salvador will amend its Bitcoin law to make accepting Bitcoin optional rather than mandatory for merchants. Taxes will be payable exclusively in US dollars, and the government plans to reduce its involvement with the government wallet, Chivo.
One user commented: “The IMF has gone from ‘remove Bitcoin law or else’ to ‘make the use of your already optional currency officially optional and scale back your implementation that no one likes anyway.’ El Salvador made the IMF surrender to its Bitcoin law.”
These amendments also reflect efforts to address the IMF's concerns about Bitcoin's volatility and risks.
The country has also committed to major fiscal reforms. It plans to reduce the fiscal deficit by 3.5% of GDP over three years through spending cuts and tax increases. In addition, El Salvador aims to increase foreign reserves from $11 billion to $15 billion, ensuring greater financial stability.
The IMF recognized the country's stable economic growth, driven by strong remittances and increased tourism. The agreement seeks to strengthen public finances, promote sustainable development, and maintain financial stability.
Max Keiser added: “Bitcoin use in El Salvador has always been voluntary and has never been higher and continues to grow. The IMF point is dead on arrival. Chivo is one of dozens of wallets used in El Salvador. Its presence or absence is meaningless. Again, paying taxes in US dollars? Yeah, whatever man. Bitcoin savings rates and the use of Bitcoin as collateral to buy real estate are skyrocketing in El Salvador. El Salvador’s success is due to Bitcoin, not the failed policies of the IMF.”
By securing this arrangement, El Salvador's law opens the door to additional loans from other international financial institutions, which could bring total financing to more than $3.5 billion.
The agreement concludes four years of negotiations with the IMF, where Bitcoin’s role 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. The development represents a critical step for El Salvador as it balances economic modernization with financial stability.