El Salvador, a pro-crypto nation, might need to soft-pedal its policies regarding Bitcoin (BTC).
According to reports, the country is considering obtaining a loan facility from the International Monetary Fund (IMF). One of the conditions for approval by the IMF includes shifting grounds on its Bitcoin policy.
IMF Loan Conditions and Their Implications
Notably, El Salvador has a policy mandates local businesses to accept Bitcoin as legal tender.
However, the IMF says to access its loan of $1.3 billion, the policy needs to change. El Salvador needs to make acceptance of Bitcoin optional or voluntary.
Local business owners should have the freedom to decide whether to accept or reject Bitcoin as a mode of payment.
Complying with the IMF’s condition would unlock $3.3 billion for El Salvador. Once it complies and receives the $1.3 billion from the funding body, two other loan facilities might also become accessible.
According to the Financial Times, these include $1 billion from the World Bank and $1 billion from the International American Development Bank.
This suggests that the latter two loans are conditional on securing the first from the IMF. These IMF loans come with the requirement, as mentioned earlier.
Experts see the implication of these stipulations on El Salvador as far-reaching. Notably, the country’s growing adoption of Bitcoin would decrease. Also, local businesses may decline to accept BTC payments.
Such a move could ripple effect on overall adoption in the country, seen as a shining example of Bitcoin’s utility.
Balancing Bitcoin and Economic Priorities
El Salvador’s quest to sustain its Bitcoin agenda has been met with several hurdles. The IMF has always insisted that the country adjust its pro-Bitcoin laws as conditions for sustained association.
On one occasion, Julie Kozack, IMF’s Communication Director, stated that the (Bitcoin) “risks” remain a critical issue with El Salvador. Based on these fears, the IMF has been holding back from approving the loan for over two years.
Another global financial lender, the World Bank, in April 2023 approved a $100 million facility for the Central American country.
The loan is to assist in improving water supply quality and reliability and ramp up preparedness for natural disasters. The loan has a gestation period of 25 years.
The latest is a request by El Salvador for $1 billion from the global lender. The country also seeks another $1 billion from the International American Development Bank.
The specifics of how El Salvador plans to deploy these funds have yet to become public knowledge.
Mixed Outcomes of Bitcoin Adoption
El Salvador was the first nation to adopt Bitcoin as legal tender. This followed legislation in 2021, which the IMF strongly opposed.
In August of this year, President Nayib Bukele, who advocated for the bill, agreed that the three-year-old experiment had mixed outcomes. Notably, adopting BTC as a legal tender needs to be improved.
As part of concessions to securing the IMF loan, El Salvador will also reduce its budget deficit, increase reserves, and enact an anti-corruption law. What impacts these would have on the country’s plans, such as the Bitcoin City, remains unknown.
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