El Salvador Buying Back Debt Following Bitcoin Losses

Nayib Bukele , President of El Salvador, wants to purchase the dip again – but this time he is looking at his own bonds.

Twitter user controversial leader said Tuesday that he had sent two bills to El Salvador’s Congress asking permission to borrow money and to buy back sovereign bonds at market prices. The last year’s drop was 75%.

Bukele’s move is to reduce government debt as some speculate El Salvador may be near default.

El Salvador recognizes Bitcoin as legal tender. Bukele has made waves in the past year by tweeting about his mistimed bitcoin purchases with El Salvador’s sovereign wealth.

Bukele purchased 2,381 BTC total for $107.15million and is now down more than 50% according to Nayibtracker.com.

Moody’s downgraded the country’s credit rating in May due to ‘bitcoin related initiatives’. Bukele and his cabinet insist that the proposed debt buybacks were not caused by financial mismanagement.

“El Salvador has the liquidity to not only pay its obligations when due but also buy all its debt (till 2025 in advance”),” Bukele wrote. He added that debt buybacks would be made once he understood the market price would likely rise after we begin buying all the bonds.

Bukele’s tweet caused El Salvador’s junk-grade bond prices to jump. Bonds due to mature in 2023 rose over 10%, and bonds due to mature in 2025 rose over 40% according to Bloomberg.

These bills would finance El Salvador’s debt buyback with a loan of $200 million from the Central American Bank for Economic Integration, and reserves assets from the International Monetary Fund.

The IMF has voiced its disapproval of El Salvador’s Bitcoin Fixation. In January , the IMF asked the country to withdraw bitcoin’s legal tender status. This was in response to concerns that the country’s debt was unsustainable’.

El Salvador does not know the purpose of the buyback. However, the percentage of country’s revenues spent on interest payments has steadily increased since 2016, according economics data platform Trading Economics.

IMF researchers have previously identified three “core objectives” behind sovereign debt buybacks. They are reducing debt payments and minimizing sovereign risk.

However, debt buybacks in the past have not been able to significantly reduce debt payments. Bolivia purchased $34 million of commercial debt back in 1988 but its debt payments decreased by $400,000 , according to VoxEU.