El Salvador to repurchase billionaire debt amid default rumors

In late July, President Nayib Bukele of El Salvador sent to the government-controlled Congress two bills to secure funds to repurchase two sovereign debt bonds maturing in 2023 and 2025. Together, the bonds total some USD 1.6 billion — of which El Salvador can pay around USD 560 million in advance, according to the government.

Considered by experts a surprising maneuver, the debt buy-back plan appears to be a desperate attempt to defuse rumors of a default. It is supported by funds given by the International Monetary Fund (IMF) and by a USD 200 million loan from the Central American Bank for Economic Integration (CABEI). 

It is these two institutions that have been pressuring El Salvador of late to watch the gaps in its public finances — which have gone from bad to worse after Mr. Bukele used his congressional majority and Supreme Court ties to make El Salvador the first country to recognize Bitcoin as legal tender, last September.

CoinDesk said in July that El Salvador was nearly 55 percent down on its bitcoin bet this year, meaning more than USD 50 million in loss and massive financial skepticism. Even so, President Bukele doubled down on the gamble and bought more BTC amid the crypto-crash, ignoring the global financial authorities’ alerts of possible financial and liabilities problems in the future. 

When announcing the new debt buy-back plan on Twitter, the president said that “unlike the press declares, El Salvador has enough liquidity to honor its debts,” and that the rumors of a possible default were “without foundation.” Morgan Stanely said the repurchase plan “would clearly demonstrate” El Salvador’s willingness to pay its debts.

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