El Salvador and IMF Advance Talks on Bitcoin Risk Mitigation and Economic Reforms

The International Monetary Fund (IMF) has reported progress in negotiations with El Salvador on policies to strengthen public finances, boost bank reserves, improve governance, and address bitcoin risks. Although many BTC risks haven’t materialized for El Salvador, the IMF stated that both parties agree on the need for enhanced transparency and measures to ensure fiscal and financial stability.

IMF Engages With El Salvador on Bitcoin and Economic Policies

An International Monetary Fund (IMF) mission issued a statement on Tuesday after months of discussions with Salvadoran authorities regarding policies for an IMF program to address macroeconomic imbalances and enhance growth and resilience. The statement details:

Progress has been made in the negotiations toward a Fund-supported program, focused on policies to strengthen public finances, boost bank reserve buffers, improve governance and transparency, and mitigate the risks from bitcoin.

The IMF explained that agreements include improving the primary fiscal balance by 3.5% of GDP over three years through fiscal consolidation, primarily by rationalizing the public wage bill while maintaining social and infrastructure spending. Plans to strengthen financial system reserve buffers will support private sector credit and growth, reducing reliance on domestic financing with potential IMF and multilateral development bank support. Structural reforms involve a multi-year strategy to enhance governance, transparency, and the investment climate. Legislative proposals to address corruption, money laundering, and procurement weaknesses are being prepared with international support.

Noting that additional discussions regarding bitcoin and other key areas remain necessary, the IMF stated:

On bitcoin, while many of the risks have not yet materialized, there is joint recognition that further efforts are needed to enhance transparency and mitigate potential fiscal and financial stability risks from the bitcoin project.

El Salvador made bitcoin legal tender in September 2021, becoming the first country to do so. The nation has maintained a strategy of purchasing one BTC daily. President Nayib Bukele’s government has generated revenue from bitcoin through various initiatives, including passport and citizenship programs, converting fees, and mining operations. Additionally, El Salvador has eliminated income tax for international investments to attract foreign capital and further support its bitcoin-based economy.

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