El Salvador is grappling with pressing short-term debt issues, a challenge exacerbated by world economic issues and high inflation. A term restructure is a solution to manage the country’s debt obligations and ensure financial stability.
The Salvadoran Ministry of Finance announced that it had accepted the private banks’ proposal to extend the terms to pay the country’s short-term debt. The Ministry of Finance announced the acceptance through a statement released on Monday, September 4.
The Salvadoran Banking Association (ABANSA) presented the proposal to the Ministry of Finance on August 24. The bank’s proposal aims to reshape the short-term debt, transferring it to medium and long-term debt with maturities of 2, 3, 5, and 7 years.
“This agreement between banks and the Government highlights the importance of working in coordination for the benefit of all citizens and strengthening the perception of risk in international markets,” conveyed the ministry.
The Salvadoran Ministry of Finance also highlighted that “the initiative presented by the bank is a strong message of the strength of the financial system, support for the strategies to strengthen public finances, and debt management implemented by the Government of President Nayib Bukele.”
“It demonstrates confidence in the ability to pay and honor the country’s commitments of the current administration,” concluded the ministry’s statement.
The Salvadoran Short-term debt includes Treasury Bills (Letes) and Treasury Certificates (Cetes) issued by the government, most of them purchased by banks.
Neither the private banks (ABANSA) nor the government have detailed whether the restructuring includes a change in debt interest rates, an element crucial for economists to know, given that these financial commitments have been issued with high interest due to country risk.
The Salvadoran Treasury reported that as of last June, the country’s short-term debt commitments exceed $2.5 million.
