El Salvador president's bitcoin push casts shadow over IMF efforts (updated)

Key Tronic

07/06/2021 21:37

* El Salvador's Bukele in push to make bitcoin legal tender
    * Investors concerned this could complicate talks with IMF
    * Spreads on El Salvador bonds widen sharply 

 (New throughout, adds details and further comments)
    By Karin Strohecker and Tom Arnold
    LONDON, June 7 (Reuters) - A push by El Salvador's President
Nayib Bukele to make his country the first in the world to
formally adopt bitcoin as legal tender has sparked concerns
about the outlook for its programme with the International
Monetary Fund (IMF). 
    Bukele said on Saturday he will send a bitcoin bill to
Congress in days to come, touting its potential to help
Salvadorans living abroad send remittances home.  urn:newsml:reuters.com:*:nL2N2NN0HX   
    However, this could make the Central American country's 
quest to seek a more than $1 billion-program with the IMF even
more difficult after Bukele's party strained relations with
Washington when it ousted five Supreme Court judges and the top
prosecutor in May.  urn:newsml:reuters.com:*:nL2N2N72YS
    "Recent tweets from President Bukele to fully embrace
bitcoin as legal tender will likely further complicate and delay
IMF technical discussions," said Siobhan Morden, head of Latin
America fixed income strategy at Amherst Pierpoint Securities.
    "This may just reflect a long-term initiative or maybe even
just a flashy PR tactic; however it shows lack of coordination
with impulsive announcements that contradict a cohesive economic
plan," she said, adding Salvadorian bonds faced a Bukele risk
premium of as much as 75 basis points over comparable Costa Rica
bonds. 
    JPMorgan EMBI global diversified index showed the premium
investors demanded to hold El Salvador hard-currency bonds over
U.S. Treasuries widening sharply by 11 basis points to 593 bps
 .JPMEGDELSR .  
    El Salvador's dollarized economy relies heavily on money
sent back from expatriate workers. World Bank data showed
remittances to the country made up nearly $6 billion or around a
fifth of GDP in 2019 - one of the highest ratios in the world.  
 
    Carlos de Sousa, a portfolio managers at Vontobel Asset
Management, said the bitcoin push looked ill-considered with
Bukele potentially shooting himself in the foot by making the
raising of tax revenue more difficult. 
    "Cryptocurrencies are overall a very easy way to avoid
taxation and a very easy way to simply avoid the authorities
because it's a completely decentralised system, you can do money
laundering, you can do tax avoidance and so on," he said, adding
it remained to be seen what the IMF thought of Bukele's foray. 
    "Typically, he gets a lot of positive reactions on Twitter
and the reactions to this were kind of like 'Mr. President,
okay, where we can read about this? What does it mean?' - so
people don't really understand."
    Bukele changed his Twitter profile picture over the weekend
to give himself red laser eyes used by supporters of
cryptocurrencies on social media.
    "Satellite infrastructure to be built, helping rural El
Salvadorans connect to the internet, and thereby Bitcoin
network, in places where land-based connectivity is poor.
@Blockstream plans to contribute their expertise and tech to
make the nation a model for the world," Bukele said on Twitter
on Monday, in a retweet of a Documenting Bitcoin @DocumentingBTC
post. 
    Justin Sun, founder and chief executive officer of TRON, a
blockchain-based company focused on building a decentralized
internet, said his firm would become the "first crypto
organization" to establish an office in El Salvador.
    The IMF did not immediately respond to a request for
comment.

 (Reporting by Karin Strohecker and Tom Arnold in London,
additional reporting by Rodrigo Campos in New York and Nelson
Renteria in San Salvador; Editing by David Gregorio)
 ((karin.strohecker@thomsonreuters.com; +442075427262; Reuters
Messaging: karin.strohecker.reuters.com@reuters.net))