El Salvador is moving closer to restarting its International Monetary Fund support program after nearly a year of deadlock, with one of the main sticking points around Bitcoin appearing to ease.

The IMF said it had reached a staff-level agreement with El Salvador on the second and third reviews of the country’s $1.4 billion program. If the IMF’s executive board signs off, the agreement would unlock about $140 million in funding and mark a significant step toward resuming disbursements.

Bitcoin issues no longer blocking talks for now

A major obstacle in the negotiations had been El Salvador’s Bitcoin policy. According to the IMF, the government provided data showing that additions to the country’s Bitcoin holdings since the first review were financed through private donations rather than public money.

The fund also pointed to movement on Chivo, the state-backed Bitcoin and U.S. dollar payments wallet introduced in 2021. It said progress had been made through the transfer of a controlling stake in Chivo to a private operator.

Those developments appear to have reduced, though not necessarily eliminated, a central source of friction between the Bukele administration and the IMF.

Bonds rally as confidence improves

Financial markets responded positively to signs that the program may resume. Bloomberg reported that El Salvador’s dollar bonds extended their gains, with returns rising 2.3%, the strongest performance in Latin America, as investors reacted to improving prospects for IMF backing.

Sentiment had already begun to improve after IMF Deputy Managing Director Dan Katz met President Nayib Bukele in late July and said there had been substantial progress in the discussions. Separately, the spread on Salvadoran debt over U.S. Treasuries, tracked by JPMorgan Chase & Co., narrowed to its lowest level since 2010.

JPMorgan economists said the agreement would remove uncertainty that had been preventing further disbursements and could help El Salvador rebuild credibility in international markets.

Approval could lower borrowing costs

The staff-level accord still requires approval from the IMF executive board. Bloomberg reported that if the board clears the agreement by early October, the coupon on El Salvador’s interest-only bonds would drop to 0.25% from 4%.

That potential reduction underscores why the restart of the IMF program matters beyond the immediate $140 million payment. For El Salvador, board approval would also signal that relations with the fund have improved enough to move the broader program forward after months of delay.

Pension reform remains the next major test

Even with progress on Bitcoin-related issues, negotiations are not finished. The next major policy challenge is pension reform, an area where the IMF has already agreed to extend the timetable.

The deadline, originally set for early this year, has been pushed back to next year. Bloomberg reported that El Salvador could face renewed fiscal pressure in 2027, when a suspension of interest payments to private pension funds is due to end.

Katrina Butt, a portfolio manager at AllianceBernstein, said the delay means some risks remain, although she described the postponement as understandable given the election calendar. The next confirmed step is a decision by the IMF executive board on whether to approve the latest review agreement.

Source: en.bloomingbit.io