First of all: "annual government budget of about $5.6B" this is misleading, the government is 100% reliant on NEW debt to operate, there is NO "disposable income" not even a penny...

Heck, the goverment just approved a new $650M debt package to execute a "last resort" strategy and try to pay old debt by buying bonds expiring on early 2023 at below face-value price, because lenders have pretty much lost faith on the goverment having the capacity to pay, so they are "cutting loses".

1% may look like nothing at face value, but when you are even a little bit informed about Salvadorean reality you know that $104M is A LOT of money for a country where the ICUs of the most important hospital of the public network get FLOODED every time there is a couple of hours of rain [1] and rebuilding the whole hospital would cost $170M...

[1] https://www.elsalvador.com/noticias/nacional/tormenta-bonnie...

Appreciate all the other info!

The Bitcoin decision is single handedly marching San Salvador into a currency crisis [1]. Food and fuel are among their top imports, so that likely leads to political crisis.

[1] https://news.ycombinator.com/item?id=32487630

This is an extreme oversimplification. The issue is that decision to make Bitcoin legal tender has put El Salvador at odds with the IMF. Arguably they would have been at odds anyway, and the IMF is simply using this issue as leverage (as well as to foment internal political divisions). The issue is primarily political (not economic!), especially considering the small amount of money invested in relation to the country's overall finances.

It also prompted downgrades from ratings agencies, credit spreads to widen in the international bond markets, took bilateral bailouts from e.g. the World Bank or the U.S. (its primary remittance and export provider) off the table, et cetera.

> small amount of money invested in relation to the country's overall finances

$100mm in a $29bn economy is a lot. Scaled to America's $24.9tn [1] GDP, it's $85bn. It's also something like 4% of their FX reserves and close to 10% of the money they're asking the IMF for.

[1] https://www.bea.gov/sites/default/files/2022-07/gdp2q22_adv....

It’s political in the sense that the IMF doesn’t want to throw fiat at an irresponsible government that is gambling away sovereign dollars. Good money after bad and all that.

Have you ever stayed a coup? It is very very difficult. And historically, the consequences of coups have been mixed.

It's like people saying the Russians should just overthrow Putin...

How can they be having a currency crisis when they don't have a currency? It's more accurate to say they're headed for insolvency or something.

You're right. It's technically a balance of payments crisis.

At the brink, and from outside, they model similarly. Deposits in El Salvador banks start behaving like a currency as international depositors haircut against the risk of seizure and capital controls. From inside, they're different as the long inflationary phase of a currency crisis is truncated to a default and reset.

What El Salvador is experiencing is basically the North American equivalent of the Greek economic crisis.

Their credit rating has been downgraded to CCC (ie DEEP JUNK)[0]

They're looking at financing needs off 15% of GDP:

>Both JPMorgan and the International Monetary Fund warn the country is on an unsustainable path, with gross financing needs set to surpass 15% of GDP from 2022 forward — and public debt on track to hit 96% of GDP by 2026 under current policies. [1]

[0]https://www.fitchratings.com/research/sovereigns/fitch-downg...

[1]https://www.cnbc.com/2022/06/25/el-salvador-bitcoin-experime...

I know, better rating, world reserve currency, etc. Just adding some context to "fiscal responsibility".

They haven’t lost anything unless they sell.