IMF worried about El Salvador if use of Bitcoin grows

The IMF states that bitcoin risks have not materialised so far, but warns the El Salvadoran government against the risks of seeking more exposure to it.

IMF visits El Salvador

The International Monetary Fund (IMF) has recently completed what it calls an article IV visit to El Salvador. In the past these visits have been remarked upon by the IMF using rather critical language.

This time the IMF stated in its report following the visit that in its view the bitcoin risks “have not materialised” but that greater transparency over the government’s bitcoin transactions should be implemented.

Also, the IMF was concerned that Bukele’s government may issue tokenized bonds with which to buy more bitcoin. Its statement read:

“Given the legal risks, fiscal fragility and largely speculative nature of crypto markets, the authorities should reconsider their plans to expand government exposures to Bitcoin, including by issuing tokenized bonds.”

Economy improving

On the other hand, the IMF acknowledged that the El Salvadoran economy had done well, and had now recovered to the same levels that it had experienced before the Covid crash. GDP was predicted to grow by 2.4% in 2023, which was better than previous years. 

It might well be that the IMF laments that it cannot offer what it sees as important financing to El Salvador, given that the Central American country still insists on using bitcoin as joint legal tender with the U.S. dollar.

Does El Salvador need the IMF?

However, El Salvador for its part might not want what the IMF brings. It is an organisation that is controlled by the U.S. primarily, and other Western countries such as France, UK, Germany, and Japan.

Traditionally, the loans that the IMF gives out are mostly for financing the infrastructure needed in order to get commodities out of the poorer countries and into the West.

Also, the IMF and its sister organisation the World Bank have a history of lending to unsavoury regimes. As long as the loan and interest are repaid, it seems it doesn’t matter that this rests on the shoulders of the citizens rather than the dictators it was lent to.

It has to be seen that El Salvador has taken a gamble on bitcoin, but considering the alternatives this is a gamble that, should it pay off, the tiny Central American country can confidently face the future from a position of strength and not need to have to make deals with the IMF.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.