IMF technical team in El Salvador says they have made progress in negotiations with Salvadoran authorities.
The technical team of the International Monetary Fund (IMF) declared on Tuesday that it managed to achievepreliminary agreements with the government of El Salvador to strengthen state finances and bank reservesas well as preliminary returns” on governance, transparency and investment climate.
The IMF’s technical mission, led by Raphael Espinoza, issued a statement after holding face-to-face and virtual conversations over the past few months with the Salvadoran authorities, focusing on policies possibly supported by an IMF program.
For the director of Macroeconomics of the National Development Foundation (Funde), Rommel Rodriguez, this statement from the Fund shows “a more or less clear road map on the fiscal issue,” which he described as positive.
It seems that the subject of honor for both sides remains bitcoin. I do not outline a clear position on the issue of pensions.” Rommel Rodriguez, economist at the Fund.
In his public statement, IMF notes the following developments with El Salvador:
1. Preliminary agreements to improve the primary balance
On the fiscal side, the IMF reports that they reached “preliminary agreements” to improve the primary balance – income less expenditure, excluding interest payments – by approximately 3.5 per cent of gross domestic product (GDP) for three years, in order to achieve a public debt on a sustainable path. With this, the Fund implements a set of measures that include rationalising expenditure on public wages, with room for “social spending and critical infrastructure.”
Economist Rommel Rodriguez said that on this issue a very delicate point is “at what cost because that wage rationalization is not fortuitous.”
2. Progress to strengthen bank reserves
Progress in a plan to strengthen bank reserves, consistent with credit and private sector growth, reducing government dependence on domestic financing and “possence support from the government, the Fund and other multilateral development banks.”
3. Preliminary understandings on governance, transparency and investment climate
Preliminary understandings on governance, transparency and investment climate: on this issue, the Fund says that “the authorities” of El Salvador “are very advanced in the preparation of legislative proposals to address corruption, money laundering vulnerabilities and weaknesses in the sector, legal frameworks of acquisitions.”
4. Recognition of the need for Bitcoin risk efforts
The Fund notes that Bitcoin’s risks have not materialized and that “there is a joint recognition that greater efforts are needed to improve transparency and mitigate potential risks.”
The IMF and the government of El Salvador began negotiations for an aid agreement in 2021 but the agreement stumbled upon the dismissal of the judges of the Constitutional Chamber of the Supreme Court of Justice (CSJ) and the Attorney General of the Republic, on 1 May 2021, first, and the adoption of bitcoin as a legal tender currency in September 2021. In the negotiations, El Salvador sought funding of $1.3 billion of the Expanded Service Facility (SAF), which provided for a fiscal adjustment of 4 % of Gross Domestic Product (GDP).
This article has been translated after first appearing in Diario El Mundo