San Salvador, July 26 (EFE) .- El Salvador’s Legislative Assembly, with a large pro-government majority, on Tuesday approved $475 million in resources for Nayib Bukele’s government to seek the “advance purchase of bonds” that expire in 2023 and 2025.
With 66 votes from the ruling Nuevas Ideas (NI) party and its allies, and without further parliamentary discussion, Congress approved two mechanisms to provide the Executive with these funds and thus avoid default, the risk of which international organizations and Salvadoran economists. warned by. .
According to official figures, El Salvador had to repay its debt in Eurobonds for 800 million dollars in January 2023 and another equal amount in January 2025.
What the Salvadoran government would be looking for is to buy its own bonds at “market price,” as President Bukele tweeted, and whose yield has fallen, according to experts.
Finance Minister Alejandro Zelaya indicates that by buying early at the market price “we could save ourselves a good amount of silver (money)”.
The first step was to authorize the Central Reserve Bank (BCR) to convert the “special drawing rights” granted in 2021 by the International Monetary Fund (IMF), worth $275 million, into US dollars and transfer them to the Ministry. of the Treasury.
According to the IMF portal, special drawing rights are “an international reserve asset” that serve to “supplement the official reserves of member countries”.
In the same legislative decree, the deputies authorized the Ministry of Finance to issue a bond of 275 million dollars to “guarantee the obligation of the State of El Salvador in favor of the Central Reserve Bank”.
The deputies also approved the signing of a loan with the Central American Bank for Economic Integration (BCABE) in the amount of 200 million dollars.
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Minister Zelaya explained, when presenting the funding initiatives, that this would be a “repayment” of resources, as they “were already executed” when the fuel subsidy was granted.
These resources would come from the “El Salvador Fuel Crisis Temporary Support Program” to reimburse the costs of the temporary elimination of fuel and propane taxes.
For the underwriting of the loan and the issuance of the bond to take place, the Legislative Assembly must ratify them in a new vote.
According to Salvadoran economist Tatiana Marroquín, with the advance purchase, El Salvador “could save money, but it would violate its commitment to pay as established.”
“This, contrary to what they express, is not a sign of the liquidity ability to pay, but an inability to honor the debt as set out,” the social media expert said.
He added that, “in a very strict sense, debt redemption is default (unpaid).”
Ratings agency Moody’s announced in early May that it had downgraded El Salvador’s long-term foreign currency rating to ‘Caa3’ from a previous ‘Caa1’, following the possibility of a debt the country must pay it in 2023 and 2025, and in the absence of a “credible plan”.
He indicated that this reduction was due to the increase in the likelihood of a “credit event” occurring, be it a “restructuring, debt swap or default”.
(c) EFE Agency