Polemic: Marcela Villatoro claims more debt with procedural dispensation. Ernesto Castro tells him it’s not new debt.
The Legislative Assembly authorized the Ministry of Finance to subscribe to theAndean Development Corporation (CAF)a guarantee contract with a contingent loan of up to $200 million, in order to support the performance of the El Salvador government in the payment of securities issued.
The destination of the resources of the guarantee shall be “to ensure compliance with the obligations of the Republic of El Salvador in its capacity as guaranteed in relation to the holder of the securities.”
Congresswoman Marcela Villatoro, faction leader of the Nationalist Republican Alliance (Arena), claimed for the debt with procedural dispensations.
Again, how many plenary are we going to continue to apply for loans with a procedural waiver? Two hundred million, are we going to follow all the plenary?, a plenary yes, a plenary no? A call to conscience, that all these dispensation do not continue to be done and to study in the committee, let us not continue to borrow in a plenary that will cost him years and generations to pay for it, the legislator claimed.
“This is not a new loan, this is only a guarantee of a loan that was approved in the previous legislature, just to be clear,” replied Congressman Ernesto Castro, president of the Legislative Assembly.
Castro put to the vote the modification of the agenda, with a waiver of formalities, which was approved with 57 votes. Arena voted against it.
What for?
On September 23, the Minister of Finance, Jerson Posada Molina, asked the Legislative Assembly to authorize him to sign “a contract for guarantee and contingent liquidity loan” for up to $200 million with the Andean Development Corporation (CAF).
The minister explained that the main objective of the operation “has as its main objective to guarantee the obligations acquired by the Republic of El Salvador in the framework of the issuance of securities authorized by legislative decree number 20.”
By this decree, approved on 22 May 2024 and published in the Official Journal of 23 May 2024, the Legislative authorized the Executive Body to manage up to $1.5 billion through securities to “provide support for the public debt management strategy.”
The guarantee was approved with 56 votes. There were 3 against, of the deputies of Vamos and Arena.
What does the decree say?
Considering
In the recitals, it is mentioned that the Legislative Assembly authorized the issuance of $1.5 billion of debt for liability management. It is mentioned that “financial mechanisms have been identified” and it is appropriate to “enable the Minister of Finance” to appear at the signing of a guarantee contract, to support the public debt management strategy.
Article 1:
The Executive Body should be authorized in the Finance Branch to register on behalf of the State and Government of the State and Government of the Republic of El Salvador a contract for the guarantee and reserve of liquidity with the Andean Development Corporation (CAF), which will be subject to the following conditions and stipulations of the guarantee:
Amount and currency of the guarantee:up to $200 million from the US
Time limit for the guarantee:the guarantee shall have a period of 22 years and 60 days from the entry into force of the letters of credit.
Amortization and interests:When a disbursement of the guarantee is made, the amounts disbursed by CAF shall immediately be converted into sovereign debt of the Republic as guaranteed in favour of CAF. Such disbursement shall be automatically considered as a disbursement under the contingent liquidity loan and its repayment and interest payment shall be in accordance with the terms and conditions set out in that loan.
Guarantee Commission:the guarantee shall pay CAF a guarantee fee of 0.70 % per year which shall be payable every six months in advance, except for the first semi-annual payment of the guarantee fee to be paid within 10 days of the date of issue of the impact notes as long as the contingent letters of credit are in force. The security commission shall be calculated annually on the valid secured balance or at the beginning of the guarantee on the balances in valid secured balances during the validity of the security.
structuring committee:the guarantee shall pay CAF a structuring fee of 0.85 % calculated on the maximum amount of the guarantee. The structuring fee shall be paid no later than the date of issue of the impact notes in accordance with the provisions of the current CAF regulations.
Evaluation expenditure:Evaluation costs of the amount of $75,000 will be paid to CAF within a maximum of 180 days from the approval of the warranty.
Destination:the resources of the guarantee shall be allocated to ensure compliance with the obligations of the Republic of El Salvador as a guarantee in relation to the holder of the securities.
Of the contingent loan of liquidity type 1:
Monto:Up to $200 million.
Deadline:15 years including grace period up to 48 months counted from the disbursement.
Amortization:First fee will be paid on the date of payment of interest corresponding to 48 months counted from the disbursement of the loan, quotas will be semi-annual and consecutive until the cancellation of the loan, interest earned will be added.
Interests:reference rate plus margin of 2 % with fixed-rate conversion option or any other option. They’ll be paid every six months.
Destination:to ensure compliance with the holder’s obligations to the holder in relation to the impact notes.
Of the contingent loan of liquidity type 2:
Monto:Up to $200 million.
Deadline:7 years including grace period up to 18 months counted from the disbursement.
Amortization period:the first of the contributions shall be paid on the date of payment of interest corresponding to 18 months from the disbursement of the loan, quotas shall be semi-annual and consecutive, as far as possible, until the cancellation of the loan, interest earned shall be added at the maturity of each of the periods.
Interests:reference rate plus margin of 1.75 % with fixed interest rate conversion option or any other option. They will be paid every six months from the disbursement.
Commission:for once 0.85 % of the total amount of disbursement not later than 60 days of disbursement.
Destination:to ensure compliance with the holder’s obligations to the holder in relation to the impact notes.
Article 2.
The contract of guarantee and contingent loan of liquidity signed by the government of the Republic of El Salvador with the CAF must be submitted to the approval of this Legislative Assembly for validity.
Article 3.
This decree shall enter into force from the day of its publication in the Official Journal.
This article has been translated after first appearing in Diario El Mundo