Trump’s Return Could Unlock Billions for Bitcoin-Backer El Salvador

YEREVAN (CoinChapter.com) — El Salvador’s bond market is buzzing. With Donald Trump possibly returning to the White House, investors are eyeing a lucrative trade. El Salvador’s President Nayib Bukele, who calls himself the “world’s coolest dictator,” might find a key ally in Trump. Experts believe Trump could help El Salvador secure billions from the International Monetary Fund (IMF). Until now, the IMF has been hesitant due to El Salvador’s embrace of Bitcoin as an official currency.

“El Salvador is a clear trade,”

says Chris Preece, a portfolio manager at Pictet Asset Management. He explains that Trump’s election could ease the IMF’s concerns about Bitcoin.

El Salvador Bonds Outperform Amid Political Shifts

Since June 27, El Salvador’s dollar bonds have outperformed. Investors reacted to President Joe Biden’s weak debate performance, seeing a higher chance of a Trump win. The bonds have delivered returns of 2.8%, with notes maturing in 2035 up 0.2 cents on the dollar.

Emerging-market investors expect a Trump presidency to strengthen the dollar while Asian currencies and the Mexican peso might suffer. This shift could benefit El Salvador, making its debt more attractive to investors.

Bukele’s social media posts have often defended Trump. After an assassination attempt on Trump, Bukele posted, “Democracy?” and joined other governments in condemning the attack.

He has also tied himself to Trump’s re-election campaign by inviting high-profile conservative figures to his inauguration, including Trump’s son.

Bukele’s IMF Hopes Tied to Trump’s Return and Bitcoin Hurdles

Investors believe Bukele is stalling for Trump’s return. Trump’s fiscal plans might scare some, but a friendlier face in the White House could help El Salvador secure an IMF deal after three years of talks. The U.S. is the IMF’s largest shareholder and must approve loans before disbursement.

Arif Joshi, a fund manager at Lazard Asset Management, supports this view. He notes,

“The real hurdle in getting that program across the finish line is really the Bitcoin problem.”

Fund officials have repeatedly warned about the risks of Bitcoin as legal tender and asked El Salvador to abandon it to receive IMF dollars. Bukele has refused to give up on his cryptocurrency project.

El Salvador’s Debt Challenges and IMF Negotiations

El Salvador’s debt is around 70% of GDP, including what it owes to pension funds. Its public finances are fragile due to long-term structural issues, says S&P Global Ratings. An IMF deal could unlock further funding tied to economic reforms, boosting investor confidence in the country’s debt management.

The fiscal deficit is expected to decline to 3.9% of GDP this year from 4.7% in 2023, amid increased spending on wages and capital investments, according to Fitch Ratings. Moody’s Ratings highlighted in May the country’s lack of strategy to address high funding costs and identify financing for medium-term debt obligations.

Anthony Kettle, senior portfolio manager at RBC Bluebay, comments,

“They have shown a very high willingness to pay, but where they have underwhelmed has been on their willingness to go and get an IMF deal.”

This is the next step investors want to see.

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