El Salvador to buy back $1.6B bonds following Bukele`s bad investments

El Salvador has been caught in the icy grip of cryptocurrency winter. In September, El Salvador officially recognized bitcoin as a legal currency. The initiative, launched by President Nayib Bukele, enables government agencies and companies to accept it as a lawful payment option.

However, things have not gone as planned. The IMF and other global regulatory bodies have attacked the El Salvadoran investment, suggesting that perhaps the criticism is correct. The president of El Salvador has announced his plan to buy back $1.6 billion in government debt as the nation’s finances continue to deteriorate after a series of bad Bitcoin bets.

El Salvador to repurchase bonds following BTC losses

The president of El Salvador, Nayib Bukele, is once again attempting to purchase the dip. However, this time around, he’s looking at his own country’s bonds instead of bitcoin. The controversial president tweeted Tuesday that he had submitted two bills to El Salvador’s congress asking permission to borrow and purchase sovereign debt obligations at market prices. The value has dropped by up to 75% in the past year.

The president, who made Bitcoin legal tender in El Salvador in September, emphasized that the country’s finances were strong. Bukele stated that the bonds’ transparent, public, and voluntary purchase offer would begin at market rates in six weeks.

Salvadoran President Nayib Bukele has announced plans to reduce the government’s debt. Some experts believe that El Salvador is on the verge of default, so Bukele’s move comes in handy. Last year, Bukele drew attention with his ill-timed bitcoin purchases while criticizing El Salvador’s sovereign wealth. The country’s poor bitcoin investments have jeopardized the country’s financial future.

Contrary to what the media has been saying all this time, El Salvador has the liquidity not only to pay all of its commitments when they are due, but also purchase all of its own debt (till 2025) in advance.

Nayib Bukele

According to nayibtracker.com, Bukele acquired 2,381 BTC for $107.15 million and is down around 50% on his purchases. This is compared to when he took office. Moody’s lowered the country’s debt rating in May after noting “bitcoin-related initiatives.” Bukele and his cabinet dispute that the proposed debt buybacks are due to financial mismanagement.

According to his tweets, Bukele owns 2,381 Bitcoins—worth $52 million at today’s prices. The price of Bitcoin has plummeted 68% since its all-time high last November when it was roughly $69,000. Investors and market analysts have called his actions reckless and dangerous, putting the country’s economy at risk.

The crypto environment in the country

Following Bukele’s statement, Salvadoran junk-grade bonds rose in price, with bonds set to mature in 2023 rising over 10%, and those set to mature in 2025 increased by more than 40%, according to Bloomberg.

The bills would provide a $200 million loan from the Central American Bank for Economic Integration and use IMF reserves to pay off El Salvador’s debt. The International Monetary Fund has been outspoken in its opposition to El Salvador’s bitcoin mania. The IMF recommended that El Salvador remove bitcoin’s legal tender status in January because the country’s debt was “unsustainable.”

Bukele, however, today appeared to want to alter this narrative and assure investors that he intends to stay a part of the traditional finance system and be able to pay off obligations. According to Trading Economics, El Salvador’s government has not specified its buyback goal. However, debt interest payments have increased in percentage terms since 2016.

El Salvador’s finance minister, Alejandro Zelaya, said the offer was a sign of the country’s strong finances. El Salvador is one of the poorest countries in the Americas, but it still has $800 million in debt that needs to be paid by January.

What’s more, the IMF has long recognized that sovereign debt buybacks are a useful tool for boosting liquidity in markets and lowering borrowing costs. According to IMF researchers, three fundamental goals underpinning sovereign debt buybacks are to reduce debt obligations, diminish public risk, and create liquidity in domestic marketplaces.

Despite this, previous debt buybacks have had little effect on debt payments. According to VoxEu, Bolivia redeemed $34 million in commercial debt in 1988 but only saw its debt payments reduced by $400,000.

Bukele promised investors a volcano-powered Bitcoin City and a Bitcoin-backed bond, but he now claims to be able to put the nation’s finances in order. The first two didn’t come true. Will this venture succeed?

The declining value of bitcoin has exacerbated the government’s inability to repay its massive debt. However, because many avoid bitcoin altogether, it hasn’t significantly impacted individuals’ day-to-day finances.

Despite President Nayib’s efforts to get people in El Salvador to use bitcoin, the country’s citizens have avoided investing in it altogether.

Some people do not have internet access. Some people do not have constant power. Some individuals just prefer to stay away or have had a terrible first encounter. As a result, the typical Salvadoran has been a BTC adoption failure in that sense.