On May 4, the same day the Fed raised interest rates by 50 points, Moody’s downgraded El Salvador’s long-term government debt ratings to Caa3, a clear message to investors to get out of El Salvador because the country faces “an increased probability of … [debt] restructuring, distressed exchange or default, with relatively high severity.” The country’s dollar bonds have plunged 24% so far this year. However, if the government “reformed” the national pension system (i.e., guts it), Moody’s helpfully advised, it might be able to avoid the worst.
Under this and similar pressure, President Nayib Bukele is doubling down on his earlier suicidal decision to promote bitcoin as the supposed “alternative” to the dollar. Back in September 2021, when El Salvador became the first country in the world to make bitcoin legal tender (along with the U.S. dollar), Bukele bought $103 million in bitcoin. Its value has dropped 28% since then, and Bukele announced yesterday that he planned to “buy into the dip” and purchase more bitcoin.
