On April 6, President Nayib Bukele announced a significant economic initiative aimed at revitalizing the country’s economy. As part of the loan funds from the International Monetary Fund (IMF), which was formalized in February, El Salvador will inject $1 billion into the economy. The president took to his X account to outline the strategy, explaining that the funds would be allocated for advanced payments to micro, small, and medium enterprises (MSMEs), early payments to suppliers, and the amortization of internal debts.
In his post, President Bukele clarified that the goal of this measure is to stimulate economic activity in the short term by increasing the flow of domestic capital. “Since these are foreign exchange funds already existing in international markets and not newly issued local currency, we avoid inflationary impact. This strategy aims to stimulate consumption and sales in the commercial sector, strengthening the productive fabric without compromising the macroeconomic stability of our country,” he wrote.
The financial services firm Exor Latinoamérica, consulted by Diario El Salvador, weighed in on the government’s approach. The firm believes that the Salvadoran government’s strategy aims to boost production through an expansive policy, focusing public spending to activate local businesses. “By initially using these funds for early payments to micro, small, and medium enterprises, the government ensures a steady workflow for these companies and allows them to invest in their working capital. This presents an opportunity for innovation and process optimization, which, in the medium term, can increase their productive capacity,” Exor added.
The firm also suggested that the expected result would be a strengthened Gross Domestic Product (GDP) for 2025, but this depends on the evolution of domestic trade, including improvements in production capacity and the behavior of internal demand.
Another significant use of these funds is the repayment of internal debts. According to Exor, this action will stabilize the country’s internal debt and improve its risk profile. “This, along with other policies, could allow El Salvador to access international financing at better rates,” the firm noted.
When it comes to the risk of inflation, Exor concurs with President Bukele’s assessment. Given the way the funds will be channeled, the risk of price increases remains low. The firm explains that this is more about increasing expenditure funded with external resources rather than injecting local currency into the economy. However, it also acknowledged that the risk of inflation “does not disappear entirely, although it remains low, as it depends on how the labor market in affected industries responds.”
In summary, the $1 billion economic boost from the IMF loan is designed to jumpstart economic activity, support local businesses, and stabilize internal debt without triggering inflationary pressures. The outcome, however, will depend on various factors, including domestic consumption, business productivity, and the broader economic environment.