El Salvador Nears IMF Bailout Restart Amid Bitcoin Dispute Resolution

El Salvador is nearing a restart of its IMF bailout program after about a year of deadlock. The country's sovereign bonds have seen improved investor sentiment due to key disputes over Bitcoin being partly resolved.

The IMF and El Salvador reached a staff-level agreement on the second and third reviews of the bailout program, which could lead to $140 million in disbursements under the broader $1.4 billion program. The deal addresses one of the main obstacles: how the country's Bitcoin holdings were financed. According to the data submitted by El Salvador, additions since the first review were funded through private donations, with no public funds used.

The transfer of a controlling stake in Chivo, the government-launched Bitcoin-dollar payment wallet, to a private operator has also been cited as progress. As a result, investor sentiment has improved, and returns on El Salvador's dollar-denominated bonds rose 2.3%, the highest among Latin American countries.

The next key issue is pension reform. The IMF pushed back the reform deadline to next year, which had originally been set for early this year. This leaves some risk in place, as El Salvador could face renewed fiscal pressure in 2027 when a suspension of interest payments to private pension funds comes to an end.