El Salvador president's bitcoin push casts shadow over IMF efforts

* El Salvador’s Bukele in push to make bitcoin legal tender

* Investors concerned this could complicate talks with IMF

* Spreads on El Salvador bonds widen sharply

LONDON, June 7 (Reuters) - A push by El Salvador’s President Nayib Bukele to make his country the first in the world to formally adopt bitcoin as legal tender has sparked concerns about the outlook for its programme with the International Monetary Fund (IMF).

Bukele said on Saturday he will send a bitcoin bill to Congress in days to come, touting its potential to help Salvadorans living abroad send remittances home.

However, this could make the Central American country’s quest to seek an over $1 billion program with the IMF even more difficult after Bukele’s party strained relations with Washington when it ousted five Supreme Court judges and the top prosecutor in May.

“Recent tweets from President Bukele to fully embrace bitcoin as legal tender will likely further complicate and delay IMF technical discussions,” said Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpoint Securities.

“This may just reflect a long-term initiative or maybe even just a flashy PR tactic; however it shows lack of coordination with impulsive announcements that contradict a cohesive economic plan,” she said, adding Salvadorian bonds faced a Bukele risk premium of as much as 75 basis points over comparable Costa Rica bonds.

JPMorgan EMBI global diversified index showed the premium investors demanded to hold El Salvador hard-currency bonds over U.S. Treasuries widening sharply by 11 basis points to 593 bps .

El Salvador’s dollarized economy relies heavily on money sent back from expatriate workers. World Bank data showed remittances to the country made up nearly $6 billion or around a fifth of GDP in 2019 - one of the highest ratios in the world.

Carlos de Sousa, a portfolio managers at Vontobel Asset Management, said the Bitcoin push looked ill-thought through with Bukele potentially shooting himself in the foot by making the raising of tax revenue more difficult.

“Cryptocurrencies are overall a very easy way to avoid taxation and a very easy way to simply avoid the authorities because it’s a completely decentralised system, you can do money laundering, you can do tax avoidance and so on,” he said, adding it remained to be seen what the IMF thought of Bukele’s foray.

“Typically, he gets a lot of positive reactions on Twitter and the reactions to this were kind of like ‘Mr President okay, where we can read about this? What does it mean?’ - so people don’t really understand.”

Bukele changed his Twitter profile picture over the weekend to give himself red laser eyes used by supporters of cryptocurrencies on social media.

The IMF did not immediately respond to a request for comment. (Reporting by Karin Strohecker and Tom Arnold in London, additional reporting by Rodrigo Campos in New York; Editing by David Gregorio)