On January 24, President Nayib Bukele announced El Salvador had made an $800 million repayment of Eurobond loans, skirting a default predicted by press articles that wrongly equated the looming deadline with the implosion of cryptocurrency markets. True to his style, Bukele launched a media offensive to boast about meeting his economic obligations.
Not defaulting on the debt was officially portrayed as a huge success.
But the IMF’s appraisal of the country’s economy, at least, will remain a secret for now.
The IMF announced yesterday that the Salvadoran government did “not consent to” the release of its latest ‘Article IV consultation,’ an annual report on the Salvadoran economy and public finances, completed and approved by the IMF board on March 20. The Bukele administration also blocked “the related press release,” according to the statement.
Back in February, the government agreed to the publication of a preliminary statement after the IMF staff finished their mission. They recommended a full audit of the crypto wallet Chivo, stressed that “short-term government debt is expected to grow, due to lack of market access,” and highlighted that although “public debt fell to 77 percent in 2022, it remains high and is on an unsustainable path.”
Last year’s report was made public, too, showing how the government touted a “cut in transfers to local governments” in 2021 as a budget adjustment. El Salvador has sought a $1.3 billion USD refinancing agreement with the IMF since March 2021; spending cuts and increased revenue were part of the talks.
By May 2021, El Salvador was close to an agreement when Bukele’s party removed the Constitutional Court magistrates and attorney general illegally and overnight, drawing broad international condemnations and causing the IMF to recoil. The negotiations have stayed off the rails since then, amid IMF criticism of bitcoin and democratic backsliding.
The Bukele government’s main goal now appears to be “avoiding a costly credit event before the 2024 presidential elections,” per an EMFI report on January 17.
To achieve it, El Salvador made an intricate series of moves including a pension reform approved in December, credits with regional development banks —most notably, the CABEI— and continued bond sales in the national market.
“One of the few countries”
On Tuesday, Bukele seemed to react to the IMF statement by tweeting a link to a Bloomberg story on how the 2025 bond price reached their lowest in June 2022 and has since recovered to September 2021 levels. “I will not say I told you so,” he wrote.
“Investors are more confident about the outlook for El Salvador,” said Katrina Butt, a senior economist at AllianceBernstein LP, in the article.
Four days earlier, another Bloomberg publication revealed that this year El Salvador hired Alejandro Werner, former head of the IMF Western Hemisphere Department, as an advisor to give them an edge in the negotiations with the Fund.
The government and its extensive network of amplifiers talk tirelessly about how strong the economy is, how tourism has grown by 34 percent compared to 2019 in the last Easter, and how they expect remittances to grow by 2.5 percent this year. The treasury minister claimed that tax contributions increased by 13 percent in 2022 and that El Salvador is the Latin American leader in collection relative to GDP.
None of that explains why El Salvador would want to block the publication of a report that is, in any case, drawn from government employees’ meetings with the IMF.
Sources from financial institutions in Washington told El Faro that El Salvador is “one of the few countries” to block publication of the report, usually made public by mutual agreement with the IMF. This places El Salvador alongside Antigua and Barbuda, Tajikistan, Laos, Turkmenistan, Azerbaijan, or Eritrea in blocking IMF reports in the last three years. One source called it “a bad sign about the transparency of the Salvadoran government.”
Economist Carlos Argueta told El Faro English that the ban “may be related to the report showing data that is not convenient for the Executive Branch speech at this moment,” in terms of debt, inflation, and growth. El Salvador’s GDP grew 2.6 percent last year, above the 2 percent average in the last five years but down from official forecasts of 4. Minister Alejandro Zelaya ventured in May a whopping 6.
Argueta added that, after rebounding from the pandemic, the Salvadoran economy is returning to “the stagnation that has characterized it for 20 years,” referring to unemployment, informality, and inequality. Foreign direct investment ended up negative in 2022, for the first time in a decade.
“FDI fluctuates greatly depending not only on the economy but also political outcomes and lack of legal certainty,” Argueta said.
Opacity is a norm of the Bukele administration. Three weeks ago, El Salvador was expelled from the Open Government Partnership, an alliance of over 75 governments promoting citizen participation and accountability. OGP board member Anabel Cruz called the ousting a “symptom of deterioration in the country’s democratic conditions, from the eroding of checks and balances to limitations of basic civil freedom.”
On March 28, news outlet Revista Elementos revealed that the government lied about the number of homicides in April 2022. Covid-19 cases and deaths are also kept from the public, as are the vaccination plan and information about pandemic-related expenses.
Hidden local crisis
Not all analysts are confident about El Salvador’s recovery. In January, Moody’s rating agency said the way that El Salvador avoided default “illustrates liquidity stress,” meaning that the government had little cash on hand to weather its imminent obligations.
In July 2022, Bukele announced that the country would buy back some of the bonds set to be fully repaid in January. This, he said, allowed the country to “save $275 million” by purchasing its own debt at a discount rate from creditors who were unsure if they would be fully repaid.
“If you owe 1.6 billion but you’re buying it back bit by bit at a discount price, you’re showing desperate actions to pay back the debt,” economist Tatiana Marroquín told El Faro English.
Marroquín pointed to another crisis: the dire situation of municipalities who struggle to pay their employees, as a type of default, even if the international obligations were met.
“It’s clear that a specific default was avoided, part of the external debt. But we can’t just clap for the handling of public finances because you paid a Eurobond,” Marroquín said.
This article first appeared in the April 19 edition of the El Faro English newsletter. Subscribe here to tune into Central America.