El Salvador: Investors Flee From State Bonds

It is becoming more and more expensive for the Ministry of Finance to issue treasury bills in the local market, as the growing fiscal deterioration requires investors to demand higher rates in order to offset the risk.

Wednesday, February 10, 2016

The delicate fiscal situation of the Salvadoran economy is causing more and more concern among investors in the local market, particularly financial institutions, which are ceasing to purchase government securities and increasingly demanding higher rates in order to compensate for the risks involved in financing the State.

"... The president of the Central Reserve Bank (BCR), Mauricio Choussy, said the government has already started to have trouble getting investors to buy Letes, an instrument that banks in the financial system usually acquire. "

The lack of buyers is forcing the Treasury to offer higher interest rates, raising the cost of financing and debt, compounding the problem suffered by the state.

This situation, "... 'is leading to a negotiation style which is akin to begging banks to buy them and obviously offering a higher rate, which is what has been happening since mid-2008," said the macro economic aide to the National Foundation for Development (Funde), Carlos Perez. "They (investors) are afraid to keep buying them because they fear that there might be a 'default' (non-payment on the part of the government) '."

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