El Salvador has recently secured a long-awaited $1.4 billion loan from the International Monetary Fund (IMF), leading to significant shifts in the country's financial policies.
Bitcoin Legal Status Reversal
Among the key conditions of the agreement was the government's acceptance to repeal Bitcoin's legal tender status. This decision, passed by the Legislative Assembly on February 6, 2025, marks a reversal from President Nayib Bukele's 2021 initiative to make Bitcoin an official currency. The IMF has been a longstanding critic of El Salvador's Bitcoin experiment, claiming it posed a financial risk. As part of the new agreement, the government pledged to limit its involvement in Bitcoin-related transactions and phase out its role in the state-controlled crypto wallet.
New Anti-Corruption Measures
In addition to revising Bitcoin policy, El Salvador has also initiated new anti-corruption measures to meet IMF conditions. The Legislative Assembly has passed an Anti-Corruption Law, which establishes a National Anti-Corruption Center and a system for authorities to file annual wealth and tax statements. The IMF praised these efforts, stating that they are expected to improve transparency and governance. However, concerns remain regarding the execution of these policies, as Bukele's administration has been accused of restricting public access to governmental financial information since 2019.
Political Challenges for IMF
Despite economic reforms, the IMF agreement does not address issues with El Salvador's political landscape. President Bukele has faced criticism for dismantling democratic institutions, ousting an independent attorney general, and replacing officials with loyalists. Despite these worries, the IMF traditionally engages with governments regardless of political frameworks. For El Salvador, this means financial support will continue despite ongoing reports of human rights violations. The country faces significant financial obligations in 2025, with debt payments amounting to $1.26 billion, exceeding the healthcare budget.
El Salvador is grappling with major financial challenges amid new anti-corruption measures and the reversal of Bitcoin's status as legal tender. Fulfillment of IMF conditions might influence the country's political and economic stability in the long run.
