El Salvador appears to be caught in an economic mess of its own making, prompted by days of chaos in the crypto market.
Bitcoin, which was adopted by the Salvadoran government as an official currency, finds itself in free-fall following the collapse of crypto exchange FTX.
President Nayib Bukele confirmed that El Salvador never had business dealings with FTX, but the razing crisis in the crypto market is shaking his country’s economy to the core.
…bailouts and wealth reassignments.
Some understand it, some not yet.
We’re still early.
— Nayib Bukele (@nayibbukele) November 14, 2022
The news hit as the Central American country tries to persuade China to buy its foreign debt in exchange for a free trade agreement. The country owes US$21 billion to foreign creditors, and its next bond payment is due in January of 2023.
Fitch warned investors that El Salvador may default on its bond payments, with other rating agencies continuing to downgrade the country’s sovereign bonds.
Bukele is often described as a gambler. A year ago, when the IMF advised him not to venture into crypto market, he argued that bitcoin could soon reach a value of US$100,000 per unit. Over the past few days, bitcoin was traded for around US$16,000 apiece.