El Salvador has tapped a former International Monetary Fund official as an adviser as it seeks a deal with the multilateral lender, according to people familiar with the matter.
(Bloomberg) — El Salvador has tapped a former International Monetary Fund official as an adviser as it seeks a deal with the multilateral lender, according to people familiar with the matter.
Alejandro Werner, who retired as head of the Western Hemisphere Department at the IMF in 2021, has been working with the Central American nation’s government this year, according to the people, who asked not to be identified because the matter is private.
President Nayib Bukele’s government has struggled to secure an extended fund facility agreement with the IMF, which has warned repeatedly against the risks of using Bitcoin as legal tender.
After a consultation earlier this year, an IMF mission led by Raphael Espinoza reiterated the cryptocurrency risk, even as El Salvador’s economy overcame “adverse shocks” to grow last year.
El Salvador is effectively locked out of global bond markets, with its outstanding $6.4 billion in notes trading deep in distress. The nation has instead turned to regional lenders Central American Bank for Economic Integration and Corporacion Andina de Fomento.
While Bukele impressed investors by repaying an $800 million bond earlier this year, credit-default swaps still suggest a 79% chance of default within the next five years.
Werner was at a meeting for investors with El Salvador Finance Minister Alejandro Zelaya in Washington on Friday organized by Bank of America, said one of the people who attended the meeting. During his time at the IMF, Werner led negotiations with Latin American countries including the record $56 billion loan given to Argentina in 2018.
Werner didn’t respond to request for comment, nor did a representative for El Salvador’s finance ministry. A spokesperson for Bank of America declined to comment.
Still, some in Wall Street remain skeptical Bukele will enact reforms to get a deal from the multilateral before the presidential contest next year as he’s announced his intentions to run for a second term.
“We think the government can make it through 2025 without going to the IMF,” said Nathalie Marshik, a managing director for Latin America fixed income at BNP Paribas SA. “Barring another external shock, the country can muddle through, in which case the carry is quite attractive, especially on the longer end of the curve.”
The nation’s bonds due in 2025 gained more than 2 cents to about 82 cents on the dollar on Monday, according to indicative pricing data collected by Bloomberg. The extra yield investors demand to hold the nation’s sovereign bond over comparable US Treasuries fell by 74 basis points to 14.4 percentage points, according to JPMorgan Chase & Co. data — still well above the threshold for debt to be considered distress.
–With assistance from Maria Eloisa Capurro and Zijia Song.
(Updates with comments from analyst in 10th paragraph and bond move in 11th paragraph.)
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