By Jorgelina do Rosario
LONDON (Reuters) – El Salvador lacks credibility in managing its finances and would benefit from a program with the International Monetary Fund, an official at ratings agency Moody’s said on Thursday.
Ariane Ortiz-Bollin, vice president and senior credit officer at Moody’s, told Reuters the Salvadoran economy is doing relatively well and revenues have climbed, but “it’s more about the certainty on the policy predictability that comes with an IMF agreement, which is something that the country is significantly lacking right now.”
Salvadoran foreign debt yield spreads to U.S. Treasuries hit a record high above 2,600 basis points on Thursday, as the Central American nation of 6.5 million continues to be shut out of international financing markets.
Moody’s earlier this month cut its key rating on El Salvador by two notches to Caa3, its third-lowest rating, citing “an increased probability of a credit event.”
Graphic: El Salvador sovereign bond spreads to U.S. Treasuries – https://graphics.reuters.com/ELSALVADOR-DEBT/SPREADS/lgvdwgrbrpo/chart.png
The IMF said on Thursday it has been in talks with the Salvadoran government on issues including the pace and composition of fiscal consolidation, anti-money laundering issues, fiscal transparency and accountability on the use of public funds.
They have also discussed the use of bitcoin, which was given legal tender status in El Salvador in September in a move criticized by the IMF, but the Fund did not mention any resumption of talks leading to a new program.
“It is a surprise to us that they’re not willing to go this path,” said Ortiz-Bollin, adding a new IMF program “would unlock other multilateral financing and potentially market financing that is badly needed.”
El Salvador’s bet on bitcoin has failed so far, with the cryptocurrency down more than 40% of its value since Salvadoran adoption. The increased risk has closed down other avenues of financing.
(Reporting by Jorgelina do Rosario in London; writing and additional reporting by Rodrigo Campos in New York; Editing by Chizu Nomiyama)