Will a rising bitcoin worth treatment El Salvador’s indebtedness to the Worldwide Financial Fund (IMF)? Earlier this week, Tim Draper claimed a rally to $100,000 per bitcoin would permit the nation to repay its IMF loans “and never have to talk to them again.”
The declare sparked a dialogue about how a lot debt El Salvador owns — and the way a lot bitcoin can contribute to easing its burden.
With some beneficiant math, Draper’s declare that $100,000 bitcoin would permit IMF compensation has superficial benefit. Particularly, El Salvador owes 107.7 million SDRs to the IMF value 1.35049 USD apiece.
In different phrases, the nation owes roughly $80 million to the IMF.
Switching to the asset facet of the nation’s financials, El Salvador claims to personal 5,913.76 BTC, every of which presently trades at $67,973.
So if BTC have been to rally $32,026 and hit Draper’s $100,000 threshold, El Salvador would achieve $189 million from its holdings, which is a bigger quantity than its $80 million of IMF debt.
Draper’s declare passes an elementary math examine. Sure, the literal income from El Salvador’s bitcoin holdings if bitcoin have been to rally to $100,000 would whole greater than its IMF debt.
Nonetheless, Draper makes two huge assumptions that undermine his declare.
Why $100K bitcoin is just not a cure-all for El Salvador loans
First, this calculation assumes that the nation’s bitcoin are unencumbered — i.e. not already dedicated to different functions or collateralizing different mortgage or contractual obligations.
Second, this calculation disregards non-IMF liabilities, which quantity within the billions of {dollars}. Draper simplistically assumes that the nation will be capable of remit income from its revalued bitcoin holdings on to the IMF with out first paying off extra senior collectors.
A fast fact-check reveals that each assumptions are troublesome to reconcile with Draper’s declare that $100,000 bitcoin will in some way clear up El Salvador’s indebtedness to the IMF, the world’s preeminent lender with $1 trillion in belongings, or empower President Nayib Bukele to “never have to talk to them again.”
On the primary level, El Salvador’s bitcoin should not unencumbered. Bukele has dedicated bitcoin to quite a lot of obligations, together with geothermal crops, a brand new metropolis, group and infrastructure tasks, and even a non-public funding financial institution. El Salvador can’t merely give all income from a worth rally on to the IMF.
On the second level, IMF loans are solely a small portion of El Salvador’s sovereign indebtedness. Yearly, the nation refinances low single-digit billions value of short-term debt and likewise owes a double-digit billions of {dollars} value of long-term debt.
Evaluating these huge figures to its IMF loans of simply $80 million reveals the nation’s vital indebtedness to non-IMF collectors. Though a worth rally would clearly assist enhance the nation’s belongings a bit, it will in all probability take way more than $100K bitcoin to repay the IMF, not to mention all of El Salvador’s different lenders.
