El Salvador President Sees Emergency as Liquidity Crunch Deepens

  • President calls for $1.2 billion bond sale by year end
  • President Sanchez spoke in televised address to the nation

El Salvador President Salvador Sanchez said the government was in a state of emergency as he pushed lawmakers to agree to a global bond sale to ease a liquidity crunch.

A "lack of liquidity" must be solved this year to "avoid negative consequences of greater dimension," Sanchez said in a televised address, as yields on the Central American nation’s debt soared.

The government is willing to reach an agreement on a fiscal responsibility law in congress that would include tighter spending rules, Sanchez said, while calling on lawmakers to approve a $1.2 billion bond sale. Standard & Poor’s placed El Salvador on credit watch last week and said the country’s B+ rating may be downgraded if parties fail to agree on fiscal issues. The country’s "financial management is deteriorating" due to "heightened political polarization," S&P said in a report.

"They’re in trouble, but I don’t I think they’re going to shut down or default immediately," said Risa Grais-Targow, a Latin America analyst for Eurasia Group. "This is him really trying to rally his party and the base around this issue and lay the groundwork for an eventual deal."

The government has issued about $1 billion of local debt this year out of a legal limit of $1.3 billion as it struggles to pay suppliers. Finance Minister Carlos Caceres announced in July that the country is in talks with the International Monetary Fund for a potential stand-by agreement.

The yield on El Salvador’s dollar bonds coming due in 2025 leaped 27 basis points to 6.88 percent at 1 p.m. local time.

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