The fall of bitcoin pressures El Salvador's debt and complicates relations with the IMF
Nayib Bukele has continued to buy one bitcoin a day even as the latest defeat wiped out hundreds of millions of dollars from the government's holdings.
The collapse of bitcoin (XBTUSD) has hit few places as hard as El Salvador, exposing the risks of President Nayib Bukele's risky bet on cryptocurrencies and battering the country's debt markets.
Bukele, a fervent supporter who made the token legal tender alongside the dollar, has continued to buy one Bitcoin a day even as the latest defeat wiped out hundreds of millions of dollars from the government's holdings and complicated talks with the International Monetary Fund about a loan of US$1.400 billion.
Attention is now catching up to him in the financial markets, where investors have pushed credit default swaps to the highest level in five months, signaling growing unease about the country's crypto-heavy strategy. Dollar bonds were the hardest hit in emerging markets last week, before trimming those losses amid a broad rebound in developing country debt.
The issue, investors say, is that Bukele is putting El Salvador on a collision course with the IMF, both due to the purchase of Bitcoin and by continuing to delay a pension system reform. A break from the IMF program would undermine one of the main pillars supporting the country's debt, which had become one of the most notable turnaround stories in emerging markets, with a return of over 130% in the last three years.