San Salvador, May 11 (EFE).- El Salvador’s president has strengthened his administration’s commitment to bitcoin with the purchase of 500 additional coins, taking that step despite warnings from credit rating agencies that the country may default on a scheduled $800 million debt payment in 2023 and as negotiations with the International Monetary Fund on a new loan package have stalled.
“El Salvador just bought the dip!” Nayib Bukele said Monday on Twitter, adding that the purchase of more than $15.3 million worth of the world’s largest cryptocurrency was made at an average per-coin price of $30,744.
That purchase comes at a moment when the price of bitcoin has fallen by more than 50 percent from its record high last November, a drop attributed to Russia’s invasion of Ukraine, elevated inflation levels and higher interest rates.
In September 2021, El Salvador became the first country in the world to approve bitcoin as an additional form of legal tender.
With its latest purchase, El Salvador’s total reserve of that cryptocurrency amounts to 2,301 bitcoin.
Ricardo Castaneda, an economist with the Central American Institute for Fiscal Studies, said this most recent dip buy was an “act of faith.”
Because these purchases are made with public funds, “there’s a very high opportunity cost,” he said. “They represent resources that won’t go, for example, to improve the schools, that won’t go to purchasing more medicines.”
“Sooner or later, the population ends up paying the cost of these types of decisions.”
Also Monday, Bukele used social media to unveil a model of what would be the world’s first “Bitcoin City.”
That project, first announced in 2021 and planned for a site near the Conchagua volcano, is to be initially financed with bitcoin-backed bonds.
The bond sale was to have taken place in March but was delayed, according to Bukele, to prioritize a reform of El Salvador’s pension system.
The country’s decision to adopt bitcoin as legal tender raised alarm bells among credit ratings agencies and creditors.
“There’s not one serious entity or any serious analyst that doesn’t agree that the risk of El Salvador defaulting on its debt is rising and that its financial situation is complicated,” Castaneda said.
He added that the message Bukele is sending to the outside world with his latest bitcoin purchase is one of “improvisation.”
The International Monetary Fund in January urged El Salvador to ditch bitcoin as a legal means of payment, while Fitch Ratings in February downgraded the country’s long-term foreign currency issuer default rating from B- to CCC.
Early this month, Moody’s Investors Service downgraded the Salvadoran government’s credit ratings from Caa1 to Caa3, citing the “lack of a credible financing plan” and “a challenging debt amortization schedule with bond maturities in 2023 and 2025 in a context of continued funding stress and persistently high financing needs.”
Salvadoran Finance Minister Alejandro Zelaya told Efe in March 2021 that the country was in negotiations with the IMF for a loan of between $1.3 billion and $1.4 billion.
But Fitch said in its February rating action commentary that “the adoption of bitcoin as legal tender has added uncertainty about the potential for an IMF program that would unlock financing for 2022-2023.” EFE