UPDATE 1-Salvadoran bonds tumble after ouster of top judges, prosecutor

  • 5/3/2021
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(Adds analyst comment, IMF context) NEW YORK, May 3 (Reuters) - El Salvador’s sovereign debt tumbled on Monday after a push by President Nayib Bukele’s coalition to oust all judges in the highest court and its top prosecutor fanned fears over the government’s expected deal with the International Monetary Fund. The country’s foreign bonds fell between 7 and 11 cents, with the 2029 and 2032 issues both down nearly 10 cents each and yielding above 8% for the first time in over two months. The issue maturing in 2052 lost nearly 11 cents to trade at 102.5, yielding 9.251%. El Salvador has $7.7 billion in marketable debt outstanding, according to Refinitiv data. The vote shortly after midnight into Sunday to dismiss Attorney General Raul Melara followed a new legislative majority’s vote on Saturday night to oust all of the judges who sit in the constitutional chamber of the nation’s Supreme Court. El Salvador is in the middle of negotiations with the International Monetary Fund for a program of over $1 billion that the government said could be used to patch budget gaps through 2023, on top of $389 million approved last month to help the government deal with the COVID-19 pandemic. “This puts into question the IMF program currently in negotiation leaving us wondering whether Bukele wanted a program in the first place knowing he had secured financing elsewhere,” said Nathalie Marshik, head of EM sovereign research at Stifel. “China would first come to mind but we doubt the country would be ready to extend the financing El Salvador needs.” She added she expects the IMF program to now be on hold and sees no “catalyst for a positive outcome barring a re-instatement of the Court” and a tempering of Bukele’s rhetoric. The IMF did not respond to a request for comment. U.S. Vice President Kamala Harris said on Twitter late on Sunday that the move by the National Assembly was concerning and that an independent judiciary was “critical to a healthy democracy - and to a strong economy.” On Monday, the Biden administration said it plans to engage with Bukele to encourage “more constructive behavior.” The United States is the member with the highest voting power at the IMF. The Chinese Embassy in El Salvador tweeted on Monday afternoon that it took note of the situation. Earlier in April, Fitch said it expected El Salvador’s debt-to-GDP to rise to 91.8% this year, up from nearly 89.2% in 2020 and 70% in 2019, flagging that its negative outlook reflected a deterioration in debt sustainability. (Reporting by Rodrigo Campos in New York and Karin Strohecker in London Editing by Peter Cooney and Matthew Lewis) Our Standards: The Thomson Reuters Trust Principles.

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