El Salvador confounds critics with bond repayment

El Salvador repaid an $800 million Eurobond this week, ending speculation over whether the country’s soured bitcoin bet would force 2023’s first default. Ratings firm Moody’s had already warned that the country’s enthusiasm for bitcoin raised its credit risk, as the government had seen liquidity issues, and Fitch downgraded El Salvador’s sovereign debt, saying a default was probable.

Critics of the country’s president Nayib Bukele predicted El Salvador would need to strike a deal with the IMF, which demanded an end to bitcoin as legal tender, to fulfill its debt obligations. Even without IMF support, the government received a $450 million loan from the Central American Bank for Economic Integration which allowed it to defy Fitch’s assessment.

The country still faces about $6.4 billion in outstanding foreign bonds and has announced it plans to issue additional debt. Investors remained concerned about the government’s ability to avoid a debt restructuring in the future and have questioned whether it can tap international capital markets without turning to riskier options such as Chinese funding or syndicated debt.

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