IMF says recent El Salvador mission was ‘very productive’

By Jorgelina do Rosario and Rodrigo Campos

MARRAKECH, Morocco (Reuters) – The International Monetary Fund’s engagement with El Salvador has been “very productive” following a recent visit from a negotiating team, but an agreement is “not there yet” for a new financing program, an IMF official said on Friday.

“The engagement with El Salvador has been very productive,” Rodrigo Valdes, director of the IMF’s Western Hemisphere Department, told Reuters. “We just had a mission there, a negotiating mission, but we knew that it would be a first step,” he said. “We’re not there yet.”

Salvadoran eurobonds are among the best performing so far this year, and investors have looked at a possible deal with the IMF as a catalyst for the next leg of the rally.

Valdes said there is not a time-frame set for reaching an agreement or even setting the next meeting and “important” structural measures are needed, “so it’s better to do it well than to rush it.”

The size of an eventual program would be set near the very end of negotiations, said Valdes, with the amount linked to the gap on the balance of payments.

“There are ongoing discussions on the measures (to be taken) and that will allow us to properly assess financing gaps,” he said.

The IMF said in late September that it was working with El Salvador on “technical issues” and on minimizing the risks from the country’s adoption of bitcoin as legal tender.

Asked whether a change in bitcoin’s status was part of the discussions, Valdes said: “I would prefer not to identify the exact measures that have to be taken, but it is a well known fact that we don’t see … we’re not supportive, in general, of having bitcoin as a legal tender.”

The Salvadoran government did not respond to a request for comment on whether removing the cryptocurrency’s status was being discussed.

Valdes said the program in discussion has a key fiscal anchor as well as relevant structural reforms.

“To some extent, they have a big opportunity that few countries have in the region: they have the governance and support to do what is needed to be done,” said Valdes, without specifically pointing to the broad popularity of Salvadoran President Nayib Bukele or his supermajority in Congress.

“In other countries fragmentation, low popularity, are constraints for policy actions and here they have a very valuable opportunity,” the IMF official said.

El Salvador’s Supreme Court, which is filled with judges backed by Bukele, ruled in 2021 that he could run for another term in office despite a specific constitutional ban on the president’s reelection.

Polls show Bukele is heavily favored to win the February vote.

(Reporting by Jorgelina do Rosario in Marrakech, Morocco and Rodrigo Campos in New York; additional reporting by Nelson Renteria in San Salvador; editing by Paul Simao)