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,, The firm added that debt to gross domestic product (GDP) is expected to rise to 86.9% in 2022, “increasing concerns around debt sustainability over the mediu

,, The firm added that debt to gross domestic product (GDP) is expected to rise to 86.9% in 2022, “increasing concerns around debt sustainability over the medium term.” As a comparision US debt to GDP ratio is 133% Also forex reserves is 3.4B, I don’t see why it would be impossible to pay $800M

stephen_g 4y ago
The US only issues bonds in its own currency, which makes a massive difference. Foreign-denominated debt is a huge trap for developing countries. Some more conspiratorial folk would say that’s intentional (to take their natural resources by making them indebted, buying their resource exports and then they have to pay much of that revenue back to you as interest).
ceejayoz 4y ago
$800M is just the payment due in six months. There’s lots more behind it. Hence, they said medium term, not short. There are significant differences between the US and El Salvador that raw debt to GDP does not capture.
toyg 4y ago
Probably because it would be just a sticky plaster. You want to hold on that liquidity for survival, particularly in a situation where you can't borrow anymore - so at least you can keep the lights on by paying cash for the essential transactions (petrol, food, etc). > As a comparision US debt to GDP ratio is 133% The bigger and wealthier the country is, the more markets are willing to cut them some slack. Japan is at 263%, France 112%, etc etc. It's something of a fraud but that's how it is. Capital markets are often very bigoted, to be charitable.
- CPLX 4y ago
  It’s not a fraud it’s a reaction to the total level of assets the sovereign holds and their ability to get more. Needless to say the countries you mention considerably outpace El Salvador in this department.
- drexlspivey 4y ago
  It’s not just that, if you issue debt in a currency you control you can theoretically never default, you can just keep devaluing your currency to pay off previous debts. El Salvador has two currencies right now and they control neither of them.
- croes 4y ago
  It also depends on who you are in debt to. For example, Japan is mainly indebted to its citizens.
  - Danieru 4y ago
    Even better, a majority of Japan's government debt is owed to the Japanese Government. Through the Japan Central Bank. The remainder is owed to Japanese citizens and corporations. The remainder no doubt held by other central banks. Meanwhile the prefectures and towns are not allowed to carry net debt. Granted various accounting tricks and lots of weirdness exists. Including a scheme where the federal government skips paying towns their transfer payments and instead tells them to borrow "on the federal government's behalf". This "favour debt" is then not reported as proper debt as the federal government has promised to pay the missing transfer payments, sometime, in the future.
    - panick21_ 4y ago
      > Through the Japan Central Bank. Then its meaningless. It should just be subtracted form total debt.
      - dahfizz 4y ago
        It's a useful budgeting tool. It's not like there is one "government bank account" that every agency and bureaucrat shares. In the US, agencies can end up with surplus cash (either taxes were higher than needed, or budgets were off, etc). Agencies will buy T bonds with this excess cash to transfer it back to the Treasuries general fund, so it can be reallocated. The T bonds that the agency now holds are far from "meaningless". From a thousand foot view, the government is one homogenous entity. But that perspective breaks down pretty quickly in the real world. It's pretty easy to find Intragovernmental debt stats and subtract that from the total, if you are so inclined. Usually, people are concern with the total liability of a government. You can't dismiss intragovernmental debt in this calculation.
        panick21_ 4y ago
- simonh 4y ago
  It’s about risk. US debt is sustainable because bond holders trust them to effectively manage their economy so that they can pay them back. Are you seriously suggesting that not trusting the Salvadorian government to the same extent is fraudulent, or bigoted? Would you trust them? If so and you’re right, then you should make a killing investing in their bonds given the return rates.
RobertoG 4y ago
People always talk about debts GDP ratio and forget to tell in what currency the debt is. It's, obviously, not the same, a debt in your own currency that in a currency that you don't control. A country that is taking debt in a currency that they don't control is, almost always, searching for trouble.
- CyanBird 4y ago
  El Salvador doesn't have a currency, they operate in US dollars, a consequence of US's Neocolonial situation on the region, they are de facto a sorts of "economic colony"
  - el-salvador 4y ago
    As a Salvadoran here. Using the USD is a great advantage. I'd rather be paid in USD than in any other Latin American currency. Every country is different. But would we, in the particular case of El Salvador, be better if we operated in another currency? - The USD is the currency of our main trade partner and the currency of the 30% of Salvadorans that live in the US. Our remittances don't incurre in expensive foreign exchange. - Less Foreign Exchange risk, compared to what Colombians, Chileans, Argentina or Mexicans experience. - We also have lower interest rates than many bigger Latin American economies. - Most Latin American currencies have been devalued in the past years. With few exceptions like the Guatemalan Quetzal. I've heard about the Cuban Peso Convertible and the Panama Balboa too but those are pegged to the dollar anyways. Or French Guyana and some Caribbean islands which use the Euro perhaps.
notahacker 4y ago
A quarter of your forex reserves in the short term means a potential issue in the medium term. The US obviously has a lot more ability to pay US dollar denominated debts...

stephen_g 4y ago

The US only issues bonds in its own currency, which makes a massive difference. Foreign-denominated debt is a huge trap for developing countries. Some more conspiratorial folk would say that’s intentional (to take their natural resources by making them indebted, buying their resource exports and then they have to pay much of that revenue back to you as interest).

ceejayoz 4y ago

$800M is just the payment due in six months. There’s lots more behind it. Hence, they said medium term, not short. There are significant differences between the US and El Salvador that raw debt to GDP does not capture.

toyg 4y ago

Probably because it would be just a sticky plaster. You want to hold on that liquidity for survival, particularly in a situation where you can't borrow anymore - so at least you can keep the lights on by paying cash for the essential transactions (petrol, food, etc). > As a comparision US debt to GDP ratio is 133% The bigger and wealthier the country is, the more markets are willing to cut them some slack. Japan is at 263%, France 112%, etc etc. It's something of a fraud but that's how it is. Capital markets are often very bigoted, to be charitable.

CPLX 4y ago
It’s not a fraud it’s a reaction to the total level of assets the sovereign holds and their ability to get more. Needless to say the countries you mention considerably outpace El Salvador in this department.
drexlspivey 4y ago
It’s not just that, if you issue debt in a currency you control you can theoretically never default, you can just keep devaluing your currency to pay off previous debts. El Salvador has two currencies right now and they control neither of them.
croes 4y ago
It also depends on who you are in debt to. For example, Japan is mainly indebted to its citizens.
- Danieru 4y ago
  Even better, a majority of Japan's government debt is owed to the Japanese Government. Through the Japan Central Bank. The remainder is owed to Japanese citizens and corporations. The remainder no doubt held by other central banks. Meanwhile the prefectures and towns are not allowed to carry net debt. Granted various accounting tricks and lots of weirdness exists. Including a scheme where the federal government skips paying towns their transfer payments and instead tells them to borrow "on the federal government's behalf". This "favour debt" is then not reported as proper debt as the federal government has promised to pay the missing transfer payments, sometime, in the future.
  - panick21_ 4y ago
    > Through the Japan Central Bank. Then its meaningless. It should just be subtracted form total debt.
    - dahfizz 4y ago
      It's a useful budgeting tool. It's not like there is one "government bank account" that every agency and bureaucrat shares. In the US, agencies can end up with surplus cash (either taxes were higher than needed, or budgets were off, etc). Agencies will buy T bonds with this excess cash to transfer it back to the Treasuries general fund, so it can be reallocated. The T bonds that the agency now holds are far from "meaningless". From a thousand foot view, the government is one homogenous entity. But that perspective breaks down pretty quickly in the real world. It's pretty easy to find Intragovernmental debt stats and subtract that from the total, if you are so inclined. Usually, people are concern with the total liability of a government. You can't dismiss intragovernmental debt in this calculation.
      - panick21_ 4y ago
simonh 4y ago
It’s about risk. US debt is sustainable because bond holders trust them to effectively manage their economy so that they can pay them back. Are you seriously suggesting that not trusting the Salvadorian government to the same extent is fraudulent, or bigoted? Would you trust them? If so and you’re right, then you should make a killing investing in their bonds given the return rates.

RobertoG 4y ago

People always talk about debts GDP ratio and forget to tell in what currency the debt is. It's, obviously, not the same, a debt in your own currency that in a currency that you don't control. A country that is taking debt in a currency that they don't control is, almost always, searching for trouble.

CyanBird 4y ago
El Salvador doesn't have a currency, they operate in US dollars, a consequence of US's Neocolonial situation on the region, they are de facto a sorts of "economic colony"
- el-salvador 4y ago
  As a Salvadoran here. Using the USD is a great advantage. I'd rather be paid in USD than in any other Latin American currency. Every country is different. But would we, in the particular case of El Salvador, be better if we operated in another currency? - The USD is the currency of our main trade partner and the currency of the 30% of Salvadorans that live in the US. Our remittances don't incurre in expensive foreign exchange. - Less Foreign Exchange risk, compared to what Colombians, Chileans, Argentina or Mexicans experience. - We also have lower interest rates than many bigger Latin American economies. - Most Latin American currencies have been devalued in the past years. With few exceptions like the Guatemalan Quetzal. I've heard about the Cuban Peso Convertible and the Panama Balboa too but those are pegged to the dollar anyways. Or French Guyana and some Caribbean islands which use the Euro perhaps.

notahacker 4y ago

A quarter of your forex reserves in the short term means a potential issue in the medium term. The US obviously has a lot more ability to pay US dollar denominated debts...