El Salvador Weekly: Morgan Stanley Says Buy El Salvador Bonds (at 28 Cents on the Dollar)

For months now, everybody’s been screaming that El Salvador’s bitcoin-as-currency experiment will bring the country’s economy down in ruins.

Now Morgan Stanley has called time out, arguing that even if the Central American nation does default, at 28 cents on the dollar, 2027 Salvadoran bonds are too good a bargain to pass up, Bloomberg reported.

After the International Monetary Fund (IMF) refused to continue discussing a loan the Central American nation needs to pay off an $8 billion Eurobond payment coming due at the beginning of 2023 until the law making bitcoin legal tender alongside the U.S. dollar is rescinded, worry started growing about a default.

Factoring in concerns about the opacity of President Nayib Bukele’s bitcoin-buying program — no one’s even sure if he was joking about buying them on his mobile, and there’s certainly no information about custody arrangements — both Moody’s and Fitch have pushed the country’s sovereign bonds far, far into junk territory.

Saying that El Salvador is being “overly punished,” Simon Waever, global head of emerging-market sovereign credit strategy at Morgan Stanley, advised clients to buy earlier this week. “Markets are clearly pricing in a high probability of the… scenario in which El Salvador defaults, but there is no restructuring.”

Nor is there an invasion (like Ukraine) or inflation approaching 60% (like Argentina), he said.

As a result, El Salvador’s bonds should be trading at a little under 44%, Waever added.

Bukele has been unwavering in his support of bitcoin, buying another 80 on June 30, when the price reached $19,000 — which puts him up about $300,000 on that purchase.

Unfortunately, as his average purchase price works out to around $44,500 for 2,381 bitcoin, the country is still down about $52 million on the $106 million it has spent.

Bitcoin became a legal tender in September 2021, a couple of months before the first cryptocurrency spiked to an all-time-high near $69,000. There were plans to issue a $1 billion bitcoin-backed bond that would be used to build a “Bitcoin City” on a volcano, beginning with geothermal-powered bitcoin mining. That has long since been shelved.

See also: El Salvador’s Bitcoin-As-Currency Experiment Is Costly and Failing

But the country has not lost money, Vice President Félix Ulloa said on July 17, according to Diario El Mundo.

“Not a penny has been lost, because the government has not sold anything,” Ulloa said. “You lose when you buy at a price and sell at a lower price.”

The government is committed to maintaining its bitcoin assets, he added.

Remittances Are Growing

Funds sent home by overseas Salvadoran workers grew 17% in the second quarter, versus the first three months of the year. That was $34.2 million, bringing the 10-month total to $120.5 million according to the Central Reserve Bank, Bloomberg Linea reported on July 20.

That said, it’s still a drop in the bucket of about 1.9% of the total of $6.4 billion in remittances received by Salvadoran families. And remittances tend to slow down in June, it added.

Tourism Isn’t

Bitcoin adoption was supposed to increase tourism, but has not, The Washington Post reported on July 17.

“The vast majority of guests still prefer to use a credit card or pay in cash,” said Daniel García, the owner of a hostel on the Salvadoran coast said.

That contradicts comments made in February by Tourism Minister Morena Valdez, who said bitcoin adoption had boosted tourism by 30%, El Diario de Hoy said.

But The Post’s report does confirm what merchants in San Salvador’s central business district and elsewhere have been saying — that there is so little call for crypto payments that they have stopped accepting them.

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