El Salvador’s $1.4B IMF Deal Hurts Its Bitcoin Adoption

After agreeing to scale back its ambitious Bitcoin initiatives, El Salvador has reached a $1.4 billion loan agreement with the International Monetary Fund (IMF).

The agreement, which needs the approval of the IMF’s Executive Board, aims to support El Salvador’s reform agenda, boost fiscal and external sustainability, and create conditions for stronger growth and inclusive

IMF loan agreement with El Salvador

According to the official press release, the program is expected to catalyze additional financial support from the World Bank and regional development banks, bringing the total financing package to over $3.5 billion over the program period.

As part of El Salvador’s $1.4 billion deal with the IMF, the government has agreed to scale back its ambitious Bitcoin policies to address financial stability issues. The legal reforms will make the use of Bitcoin optional for private companies, removing the mandate that has been in place since the cryptocurrency was adopted as legal tender in 2021.

Meanwhile, for the public sector, Bitcoin-related activities will be strictly limited, and the government will no longer accept BTC to pay taxes. In addition, the state-owned wallet Chivo, which facilitated Bitcoin transactions for citizens, will see its government participation phased out. These measures are aimed at mitigating the risks associated with Bitcoin volatility and safeguarding financial integrity, according to the IMF statement.

The program also includes improved transparency, regulation and oversight of digital assets to protect consumers and investors while maintaining financial stability. By stepping back from its cryptocurrency experiment, the Salvadoran government aims to restore confidence in its broader fiscal policies and align with IMF recommendations, a move expected to attract more international financial support and stabilize the economy.

“The IMF staff thanks the Salvadoran authorities for their excellent cooperation and frank dialogue over the past few months in developing their program of economic reforms with the goal of continuing to improve El Salvador’s prosperity and of all its population”.

Criticisms

President Nayib Bukele has strongly defended Bitcoin as a key part of his administration’s economic strategy, investing heavily in the cryptocurrency to promote financial autonomy. Despite Bitcoin’s recent rise above $100,000, which generated a 123.67% return on the government’s $269.7 million investment, IMF conditions have forced El Salvador to modify its strategy of BTC.

Critics argued that Bukele has now surrendered to the demands of global financial powers. As one financial analyst pointed out, Bukele’s decision to take a $3.5 billion loan from the IMF has led to accusations of selling out, calling it an ironic shift for someone who once criticize fiat currency.

SPECIAL OFFER (Sponsored) Binance Free $600 (Exclusive to CryptoPotato): Use this link to register a new account and receive an exclusive welcome offer of $600 to Binance (full details).

LIMITED OFFER for CryptoPotato readers on Bybit: use this link to sign up and open a FREE $500 position with any currency!