Financial Crime World

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IMF Staff Report on El Salvador’s Economic Situation

The International Monetary Fund (IMF) has issued a staff report evaluating El Salvador’s economic situation, highlighting both positive developments and areas for improvement.

Positive Developments

El Salvador has made significant progress in several key areas:

  • Anti-Corruption Efforts: Major advances have been made in high-profile cases, demonstrating the country’s commitment to combating corruption.
  • Sound Anti-Money Laundering Framework: El Salvador has a robust anti-money laundering framework in place, which helps to prevent illicit financial activities.
  • Financial Inclusion Initiatives: The introduction of Bitcoin as a legal tender and the e-wallet Chivo are welcome efforts to improve financial inclusion.

Areas for Improvement

While progress has been made, there are several areas that require attention:

  • Fiscal Transparency and Accountability: Strengthening fiscal transparency and accountability is essential, including publishing audit reports on COVID-19 funds and public information on following up on audit recommendations.
  • Governance and Anti-Corruption Frameworks: Governance and anti-corruption frameworks need to be improved in line with international standards.
  • Bitcoin as a Legal Tender: The use of Bitcoin as a legal tender poses risks to consumer protection, financial integrity, and financial stability.
  • Regulation and Supervision of the New Payment Ecosystem: Strengthening regulation and supervision of the new payment ecosystem is crucial.

Recommendations

To address these areas for improvement, the IMF recommends:

  • Narrow the Scope of the Bitcoin Law: Narrow the scope of the Bitcoin law to minimize risks to consumer protection, financial integrity, and financial stability.
  • Strengthen Regulation and Supervision: Require Chivo to fully safeguard customers’ funds in both U.S. dollars and Bitcoin, and implement stronger regulation and oversight for consumer protection, anti-money laundering, and risk management.
  • Consider Winding Down the Trust Fund or Withdrawing Public Subsidies: Consider winding down the trust fund or withdrawing public subsidies to Chivo.

Other Recommendations

In addition to these recommendations, the IMF suggests:

  • Upgrade Statistical and Accounting Frameworks: Upgrade statistical and accounting frameworks by implementing IFRS standards for the entire banking system and migrating to the 2014 Government Finance Statistics manual (GFSM).
  • Complete Sectorization of the Nonfinancial Public Sector: Complete a sectorization of the nonfinancial public sector, including Chivo.
  • Revisit Coverage and Adequacy of Public Debt Statistics: Revisit coverage and adequacy of public debt statistics to ensure they are accurate and reliable.