EM LATAM CREDIT: El Salvador: IMF Deal Icing on the Cake
Republic of El Salvador (ELSALV; B3/B-/CCC+)
2052 bonds already tightened more than 300 bps in the past four months from US enabled liability management and near term hopes for an IMF deal. Finalization of that IMF deal supportive for spreads.
• The IMF announced a staff level agreement with El Salvador for a USD1.4bn loan. The El Salvador government agreed to reduce its plans for Bitcoin to play a larger role in the economy. The fresh financing is intended to help the country reduce its debt/GDP from 85% as of 2023.
• El Salvador significantly reduced near term default risk by buying back most of its outstanding 2025 and 2027 debt maturities a few months ago funded by new debt that was insured by the US Int’l Development Finance Corporation (DFC) to “support conservation, water security, and ecosystem restoration in the Lempa River (Rio Lempa) watershed” (debt for nature swap) which was the trigger for a massive rally.
• The new IMF deal had been anticipated since October with the big stumbling block being the reduced commitment to bitcoin. Already the government has made progress on reducing crime which has attracted increased tourism. Growth in remittances from the US has also boosted the economy but growth is still regarded as sluggish, reported as 2.1% in 2Q down from 2.6% in 3Q.