Banks are offering the government to extend the period of repayment of the domestic debt

The economist explains that this proposal would respond more to the pressure exerted by the government due to the lack of funds necessary to cancel what it owes to banks.

by katelyn urquilla
August 24, 2023 – at 17:01

Salvadoran Banking Association Follow Favorite On Thursday, it reported that it had proposed to Najib Bukele’s government new terms for repayment of the short-term domestic debt it owed.

The current period the government must meet by law to pay local banks is a maximum of one year, but Apansa, which represents 10 banks operating in the country, offers more time. It did not specify whether it would change the interest rates it would charge the executive branch for these extensions.

“The banks proposed a structure for local issuance with conditions 2, 3, 5 and 7 years old “This will allow a reduction in short-term public debt levels and a better picture of the maturity of El Salvador’s financial liabilities in the medium term.” in the statement he issued.

Short-term debt refers to government-issued Treasury Bills (Letes) and Treasury Certificates (Cetes) which are mostly acquired by banks. The money that they lend comes from what the Salvadorans have deposited in the financial entities. These are financing instruments at the local level that act as a “credit card” for the executive to make payments faster.

i can see: The Treasury has accumulated debts in Letes and Cetes worth $1.085 million in nearly seven months.

As of mid-July this year, the Ministry of Finance has accumulated debts in Lets and Cites amounting to $1,085 million. Only in Lets has added $1,022.4 million, 60.1% of the amount approved by the association for the full year of 2023.

Apansa explains that they have formally submitted a proposal to the Treasury Department to “manage the short-term domestic debt of the government of El Salvador.”

The association added, “This proposal aims to support the country’s efforts to improve its debt position, reduce the country’s risks perceived by international markets, and achieve a framework for financial stability in the medium term.”

It also clarifies that the aforementioned structure “does not lead to an increase in public debt investments in the banks participating in the proposal.”

Economist: The government is under pressure

An economist consulted by the newspaper El Diario de Hue, but who preferred not to be named, read about Apansa’s proposal and explained that “the banks, because of the pressures they deal with, want to carry the party in the best way” and considers that for the sake of this would lead to this initiative.

“The stock of short-term debt is massive and it’s a huge outlay of money month after month, plus the pressure because it’s one year due and what they were doing is renewing it through extension (restructuring)” he commented.

For the expert, the landscape the government is going through is daunting. “It is a very critical situation that the government is facing as the collection has collapsed, the pension reform has not provided the space that I expected, and there is a lot of pressure on public spending due to inflation, in addition to the demands of the people, it is very important.” It is also the pre-election year when a lot is spent and they want to boost the president’s image.”

For this reason, the economist believes, it is against this background that banks come and agree with the government to make a proposal to extend the terms until they are paid.

“You must have a lot of pressure to pay the balance of the Letes in a year, although they always renew it by renewing it, but it will be necessary to see how they are going to divide the debt,” says the specialist.

Read a press release on Apansa