El Salvador Scales Back Bitcoin Policies to Secure $1.4B IMF Loan

Highlights:

• After four years of negotiations, El Salvador secured a $1.4 billion IMF agreement.
• The IMF agreement limits BTC use, makes adoption voluntary, and reduces public sector involvement.
• Max Keiser defends Bitcoin adoption in El Salvador, dismissing IMF’s stance as meaningless.

On Wednesday, El Salvador reached a $1.4 billion agreement with the International Monetary Fund (IMF). This comes after four years of negotiations, despite tensions over Bitcoin’s adoption. The country will receive the funds over the next 40 months.

The agreement requires IMF Executive Board approval. It includes fiscal measures to improve the primary balance by 3.5% over three years. El Salvador’s public debt reached 85% of GDP in this year. The program is expected to reduce the debt-to-GDP ratio.

Under the new agreement, El Salvador will make Bitcoin acceptance optional for the private sector. The public sector’s involvement in crypto activities will be limited. Taxes will only be accepted in US dollars, limiting Bitcoin’s official use even further. The government will gradually reduce its role in the Chivo digital wallet program.

 The IMF said: 

“The potential risks of the Bitcoin project will be diminished significantly in line with Fund policies. Legal reforms will make the acceptance of Bitcoin by the private sector voluntary. For the public sector, engagement in Bitcoin-related economic activities and transactions in and purchases of Bitcoin will be confined.”

The country launched the Chivo wallet program with a $30 Bitcoin incentive. This attracted over 3 million sign-ups. However, the program has seen limited long-term adoption. In August, President Bukele admitted that the program did not spread as widely as expected and that Bitcoin adoption in the country was less widespread than his regime had hoped.

The IMF and the EL Salvador government have reached a staff-level agreement on a 40-month EFF arrangement to support the government's economic reforms. The agreement with 🇸🇻 is subject to approval by the IMF Executive Board. https://t.co/1GLjFsEhVl pic.twitter.com/M1U77Flz4f

— IMF (@IMFNews) December 18, 2024

El Salvador’s Economic Resilience Amid Bitcoin Fluctuations and IMF Criticism

The announcement came when Bitcoin’s price dropped to just above $100,000. This followed its recent all-time high of $108,000. The whole crypto market reacted to the Federal Reserve’s hawkish stance on interest rates. The country’s economy shows resilience amid these changes. It benefits from strong remittances, growing tourism, and improved security conditions. The agreement will enable further loans from global financial institutions, including the World Bank, totaling over $3.5 billion.

Max Keiser, a Bitcoin adviser to President Bukele, dismissed the IMF’s announcement on X. He called it “bureaucratic, meaningless nonsense.” Keiser emphasized that Bitcoin use in El Salvador has always been voluntary. He also noted that Bitcoin adoption continues to grow.

Bitcoin use in El Salvador was always voluntary and its usage has never been higher and continues to grow. The IMF’s point is DOA.

Chivo is one of dozens of wallets used in ES. Its presence or non-presence is meaningless. Again, DOA

Pay taxes in USD?

Yea, whatever dude.…

— Max Keiser (@maxkeiser) December 18, 2024

El Salvador’s Bitcoin Journey

In 2021, President Nayib Bukele of El Salvador announced that Bitcoin would become legal tender. The reaction to this decision was mixed. Bitcoin supporters were highly optimistic about the move. However, financial institutions like the World Bank and IMF criticized the decision. The World Bank rejected El Salvador’s request for help with its Bitcoin Law, citing environmental concerns.

In early 2022, the IMF advised El Salvador to discontinue using Bitcoin as legal tender. In October, the IMF reiterated its stance. According to the Bitcoin Office’s tracker, the country currently holds 5,968.8 Bitcoins, valued at approximately $602 million.

A recent survey conducted in October found that 92% of Salvadorans do not use BTC for transactions. This is up from 88% from last year’s survey, where the majority also reported not using Bitcoin for transactions.

OVER 90% OF SALVADORANS DON’T TRANSACT WITH BITCOIN

A recent survey reveals that 92% of Salvadorans do not use Bitcoin for transactions, despite President Nayib Bukele’s popularity and approval.

Only 7.5% of respondents in the San Salvador University Francisco Gavidia survey… pic.twitter.com/PryVOZQhOp

— Crypto Town Hall (@Crypto_TownHall) October 16, 2024