El Salvador defaults on pension payment

El Salvador has defaulted on a US$57mn debt payment to the country's private pension fund managers (AFPs), the government said in a press release.

The administration of President Salvador Sánchez Cerén (pictured) failed to reach the necessary 56 votes in congress to make the budget changes that would have made the April payment to the AFPs possible. The debt for the rest of the year is US$230mn, according to the president's office.

The center-left government blames the right-wing Arena opposition for stubbornly opposing budget changes.

"The situation is extremely serious and of unpredictable consequences for the nation," said Sánchez Cerén, who added that it could lead to cuts in the country's credit ratings and higher interest rates for both individuals and companies.

REACTION

The payment default "adds more uncertainty" to an already difficult situation in El Salvador and there is no promise of any short-term solution, said research firm Credicorp Capital.

As for the situation facing El Salvadoran banks, Credicorp Capital noted that "local banks have not provided much information about this situation. Pressure on growth, liquidity, and asset quality cannot be ruled out."