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Exclusive: El Salvador seeks IMF funding, sees ‘golden opportunity’ for economy, says finance minister

Outbreak of the coronavirus disease (COVID-19) in El Salvador

(Reuters) – El Salvador is talking to the International Monetary Fund (IMF) about securing some $1.3 billion in financing and sees a “golden opportunity” to revitalize its economy after the ruling party’s big win in legislative elections, a top government official said.

Finance Minister Alejandro Zelaya told Reuters in an interview that El Salvador wants to get a 36-month extended fund facility approved by the IMF, similar to the program announced this week for fellow Central American country Costa Rica.

“It will help us leverage the budgetary gaps for 2021, 2022 and 2023” and help lower the highs costs associated with El Salvador’s debt, Zelaya said.

El Salvador sovereign dollar bonds jumped on Tuesday after President Nayib Bukele, declared a landslide win in Sunday’s voting, saying his party and its allies had secured the biggest majority in the country’s history.

“What (the ruling) New Ideas party and President Bukele achieved on Sunday is truly a golden opportunity for El Salvador’s economy to take off,” said Zelaya.

Fitch Ratings said the legislative election result ends political gridlock that had hindered policy implementation and dented El Salvador’s ability to tap external funding.

That gridlock led to an over-reliance on domestic market borrowing to meet high government funding needs, pushing borrowing costs higher, the ratings agency said.

Zelaya said financing from international multilateral lenders should make El Salvador’s debt and public spending sustainable. For 2021 “we need financing of around $2 billion, including the short-term debt management plan,” he added.

Integral reform of El Salvador’s pension system was needed so pensions do not put pressure on government finances, Zelaya said.

While no deal has been struck, the IMF could potentially disburse up to $450 million this year, on top of prior commitments of $250 million from the Inter-American Development Bank, $200 million from the World Bank and $600 million from the Central American Bank for Economic Integration, he said.

Asked when the deal with the IMF might be finalized, Zelaya said it was still too early to say.

“We’re working to reach an agreement. It takes two.”

(Reporting by Anthony Esposito in Mexico City and Nelson Renteria in San Salvador; editing by Grant McCool)

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