(Adds Salvadoran government’s no immediate response)

By Nelson Renteria and Rodrigo Campos

SAN SALVADOR/NEW YORK, June 16 (Reuters) – The World Bank
said on Wednesday it could not assist El Salvador’s bitcoin
implementation given environmental and transparency drawbacks.

“We are committed to helping El Salvador in numerous ways
including for currency transparency and regulatory processes,”
said a World Bank spokesperson via email.

“While the government did approach us for assistance on
bitcoin, this is not something the World Bank can support given
the environmental and transparency shortcomings.”

Earlier on Wednesday, Salvadoran Finance Minister Alejandro
Zelaya said the Central America country had sought technical
assistance from the Bank as it seeks to use bitcoin as a
parallel legal tender alongside the U.S. dollar.

El Salvador’s government did not immediately respond to a
request from Reuters regarding the World Bank’s decision.

The minister also said ongoing negotiations with the
International Monetary Fund had been successful, although the
IMF said last week it saw “macroeconomic, financial and legal
issues” with the country’s adoption of bitcoin.

Zelaya said on Wednesday the IMF was “not against” the
bitcoin implementation. The IMF did not respond to a request for
comment.

Investors have recently demanded higher premiums to hold
Salvadoran debt, on growing concerns over the completion of the
IMF deal, key to patching budget gaps through 2023.

On Wednesday, bonds sold off across the curve, with the 2032
issue down more than 2 cents at 96.25 cents on the
dollar. The spread of Salvadoran debt to U.S. Treasuries
dipped to 705 basis points after hitting on
Tuesday a four-month high of 725 bps.

“There is no fast track for a solution on an IMF program and
even uncertainty on whether the bitcoin proposal is compatible
with diplomatic U.S. (or) multilateral relations,” said Siobhan
Morden, head of Latin America fixed-income strategy at Amherst
Pierpont Securities in New York.

El Salvador this month became the first country to adopt
bitcoin as legal tender, with President Nayib Bukele touting the
cryptocurrency’s potential as a remittance currency for
Salvadorans overseas.

This month, Bukele also pulled out of an anticorruption
accord with the Organization of American States, which dismayed
the U.S. government, as Washington looks to stem corruption in
Central America as part of its immigration policy.

“The recognition of a ‘Bukele’ risk premium has probably
done some permanent damage to investor sentiment,” Morden said
in her client note.

The market may be focusing too much on the news headlines,
however, and not enough on the possibility of a deal with the
IMF, said Shamaila Khan, head of EM debt strategies at
AllianceBernstein in New York.

“It is important for El Salvador to get the IMF program
done. If it was lost on them, they wouldn’t have the
conversations,” she said.

“Our view is too much risk is priced in at these levels.”

(Reporting by Nelson Renteria in San Salvador, Karin Strohecker
in London and Rodrigo Campos in New York; Editing by Diane
Craft, Richard Chang and Peter Cooney)