El Salvador is negotiating a $1.3 billion loan with the International Monetary Fund (IMF), which could be finalized in the next two to three weeks. The agreement aims to provide the Central American country with crucial financial support, helping stabilize its economy. However, the deal comes with significant conditions, including changes to the country’s controversial Bitcoin policy.

El Salvador Revises Bitcoin Policy for IMF Loan

The IMF delegation recently arrived in San Salvador to finalize the loan deal with the government of President Nayib Bukele. It is part of a wider financial package which includes a $1 Billion contribution from the World Bank, and a further $1 Billion from the Inter-American Development Bank (IDB).

Funding will help El Salvador attract international financial support, after the nation faced economic ostracism by accepting Bitcoin (BTC) as legal tender in 2021.

In return, the IMF has required major revision of El Salvador’s Bitcoin policy as a condition for these loans. The government must cease to recognize Bitcoin as legal tender and limit the scope of the Bitcoin Law.

Moreover, the government will have to limit public sector exposure to Bitcoin to make it as voluntary payment as possible and remove the mandatory requirement for businesses to accept it.

The experiment of El Salvador with Bitcoin that began in September of last year has been highly controversial. Although, the country has been dollar-cost averaging Bitcoin and accumulating massive coin reserves over time.

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The IMF has repeatedly taken issue with the stability of the currency. Any potential that it might pose to the financial stability of the country. Now these concerns have been taken into loan negotiations, and the country has revised its approach.

IMF Demands Bitcoin Revocation for Loan Approval

One of the IMF’s key conditions for lending is that El Salvador must evoke Bitcoin’s status as legal tender.While El Salvador recognizes that Bitcoin will form its national economic strategy, the country will also work to minimize its usage in public sector transactions. Moreover, for businesses, bitcoin acceptance will be voluntary.

El Salvador’s move has seen it shift from its ambitious cryptocurrency experiment to a more traditional financial policy. Earlier, Bitcoin was perceived to foster financial inclusion, attract investment, and reduce dependence on the U.S. dollar.

However, despite these goals, the overly extreme volatility of Bitcoin has been a subject of doubt among investors and financial institutions regarding its viability in the long view.

But the IMF also demands that El Salvador cut its budget deficit, either by trimming public spending or raising revenues. These fiscal measures are intended maintain economic stability and prevent a debt spiral.

If these conditions are met, it could secure the loan and open up other financial resources from international lenders.

Bitcoin Adoption Stalls Despite Legal Tender Status

El Salvador has had triumphs and difficulties under President Nayib Bukele. Aggressive crackdowns on violent gangs have driven crime rates so low and his administration has been praised for such measures. Bukele is among El Salvador’s most popular politicians in the country’s history.

However, not all of Bukele’s initiatives have been successful. Despite his ambitious Bitcoin City project, which was to be powered by geothermal energy, it hasn’t come to fruition.

Most Salvadorans still use the U.S. dollar for daily transactions, even though Bitcoin is legal tender. Unsurprisingly, the lack of widespread adoption of the Bitcoin is still a highly debated decsion.