{"code":"26169","sect":"El Salvador","sect_slug":"el-salvador","hits":"1245","link":"https:\/\/elfaro.net\/en\/202205\/el_salvador\/26169","link_edit":"","name":"Finance Could Be Bukele's Achilles Heel","slug":"finance-could-be-bukeles-achilles-heel","info":"El Salvador, in Brief: The falling price of bitcoin underscores El Salvador\u2019s precarious debt crisis, financial experts say. Bukele, nevertheless, perseveres: On Monday he announced a new $15 million state bitcoin purchase and, ignoring those who forecast a default, boasted about his mockup of the megaproject Bitcoin City, a libertarian tax haven and crypto-paradise in the Gulf of Fonseca. Subscribe to our newsletter","mtag":"Newsletter","noun":{"html":"El Faro English","data":{"el-faro-english":{"sort":"","slug":"el-faro-english","path":"el_faro_english","name":"El Faro English","edge":"0","init":"0"}}},"view":"1245","pict":{"cms-image-000037227-jpg":{"feat":"0","sort":"37227","name":"cms-image-000037227.jpg","link":"https:\/\/elfaro.net\/images\/cms-image-000037227.jpg","path":"https:\/\/elfaro.net\/images\/cms-image-000037227.jpg","back":"","slug":"cms-image-000037227-jpg","text":"<p>Salvadoran President Nayib Bukele announces the issuance of government bonds denominated in bitcoin and the construction of Bitcoin City during the Latin American Bitcoin Conference on Nov. 20, 2021. Photo: Casa Presidencial.<\/p>","capt":"\u003Cp\u003ESalvadoran President Nayib Bukele announces the issuance of government bonds denominated in bitcoin and the construction of Bitcoin City during the Latin American Bitcoin Conference on Nov. 20, 2021. Photo: Casa Presidencial.\u003C\/p\u003E"},"cms-image-000037513-jpg":{"feat":"1","sort":"37513","name":"cms-image-000037513.jpg","link":"https:\/\/elfaro.net\/images\/cms-image-000037513.jpg","path":"https:\/\/elfaro.net\/images\/cms-image-000037513.jpg","back":"","slug":"cms-image-000037513-jpg","text":"<p><em>On May 9 Bukele unveiled a mockup of Bitcoin City. \"The actual city will be mostly green (trees) and blue (sea),\" he tweeted. Photo: Twitter<\/em><\/p>","capt":"\u003Cp\u003E\u003Cem\u003EOn May 9 Bukele unveiled a mockup of Bitcoin City. \"The actual city will be mostly green (trees) and blue (sea),\" he tweeted. Photo: Twitter\u003C\/em\u003E\u003C\/p\u003E"}},"pict_main__sort":37513,"date":{"live":"2022\/05\/13"},"data_post_dateLive_YY":"2022","data_post_dateLive_MM":"05","data_post_dateLive_DD":"13","text":"\u003Cp dir=\"ltr\"\u003EOn Monday night President Nayib Bukele announced he had bought 500 bitcoins, the latest move casting doubt and controversy on El Salvador\u2019s public finances. If true, he has now purchased a grand total of 2,300 \u2014from his cell phone, he says\u2014 since the Bitcoin Law was passed in September.\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003E\u201cEl Salvador just bought the dip,\u201d he tweeted, in reference to the fact that bitcoin was trading at $30,700 \u2014 the lowest point since July. Two days later it had dropped to $26,000, though by Friday it had recovered to $30,000. London-based financial research firm EMFI and Bloomberg estimated the \u003Cstrong\u003Egovernment had in less than a year lost 35 percent\u003C\/strong\u003E, or $36 million, of its heavily-publicized, controversial investment of $103 million in public funds.\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003E\u201cSalvador hasn\u2019t yet announced a default, but its bonds are trading as if they had,\u201d wrote EMFI on May 5. On a five-year horizon international credit evaluators say that, barring the market signal of an IMF agreement, \u003Cstrong\u003Ethe \u003C\/strong\u003E\u003Ca href=\"https:\/\/www.afr.com\/markets\/debt-markets\/el-salvador-s-bitcoin-losses-are-as-big-as-its-next-bond-payment-20220513-p5akyf\"\u003E\u003Cspan style=\"text-decoration: underline;\"\u003Erisk of insolvency\u003C\/span\u003E\u003C\/a\u003E\u003Cstrong\u003E jumps to 87 percent. \u003C\/strong\u003EThe bitcoin losses represent less than one percent of El Salvador\u2019s fiscal income, though EMFI notes that \u201cevery cent counts due to the current funding constraints.\u201d\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003EThe country needs to come up with $2.1 billion to meet its financial obligations this year and, additionally, pay back $800 million in Eurobonds due in January. The government is seeking an array of loans from international funders including the Central American Bank for Economic Integration and the Andean Development Bank of Latin America (CAF).\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003E\u201c\u003Cstrong\u003EEl Salvador\u2019s fiscal problems don\u2019t stem from bitcoin\u003C\/strong\u003E, but it is true that it [the Bitcoin Law] has contributed to the deterioration of the country\u2019s risk profile,\u201d Ricardo Castaneda, analyst with the Central American Institute for Fiscal Studies, told El Faro English.\u00a0\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\t\t\u003Cfigure class=\"pict pict_land pict_move_posc 0 cs_img cs_img--curr rule--ss_c\" data-shot=\"pict\" data-hint=\"pict\"\u003E\u003Cdiv class=\"pict__pobj text-overflow\"\u003E\u003Cimg src=\"https:\/\/elfaro.net\/get_img?ImageWidth=3000&ImageHeight=1998&ImageId=37513\" class=\"pobj\" style=\"max-width: 100%\" rel=\"resizable\" alt=\"On May 9 Bukele unveiled a mockup of Bitcoin City. \"The actual city will be mostly green (trees) and blue (sea),\" he tweeted. Photo: Twitter\" \/\u003E\u003C\/div\u003E\u003Cdiv class=\"pict__line block edge--ss_lax edge--ss_rax padd--ss_l0x padd--ss_r0x line--ss_s0b lineh rule--ss_c\"\u003E\u003Cspan class=\"block-inline full-width align-middle lineh__rect tint-back--nake\"\u003E\u003Cspan\u003E\u00a0\u003C\/span\u003E\u003C\/span\u003E\u003C\/div\u003E\u003Cfigcaption class=\"pict__text cs_img_caption folk_content typo_buttons line--ss_s0c line--ss_s0c--auto block full-width text-overflow rule--ss_l relative\"\u003E\u003Cdiv class=\"__content block-inline full-width align-top tint-text--idle relative\"\u003EOn May 9 Bukele unveiled a mockup of Bitcoin City. \"The actual city will be mostly green (trees) and blue (sea),\" he tweeted. Photo: Twitter\u003C\/div\u003E\u003C\/figcaption\u003E\u003C\/figure\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003EThe three major U.S.-based credit evaluators have ranked El Salvador as \u003Ca href=\"\/en\/202203\/el_salvador\/26047\/World-Condemns-War-Bukele-Sees-Bitcoin-Opportunity.htm\"\u003E\u003Cspan style=\"text-decoration: underline;\"\u003Ethe riskiest in Central America\u003C\/span\u003E\u003C\/a\u003E. Fitch Ratings cited the Bitcoin Law, as well as the \u201cweakening of institutions and concentration of power in the presidency,\u201d in its appraisal.\u00a0\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003E\u201cIf El Salvador were to look to issue bonds now, assuming that somebody would buy, they would have to pay 25 to 26 percent interest,\u201d Castaneda continued, \u201cwhereas a year ago they would have paid around 7 percent.\u201d\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003EDebt refinancing negotiations with the International Monetary Fund (IMF) \u003Ca href=\"\/es\/202112\/el_salvador\/25900\/Cr%C3%B3nica-de-los-tropiezos-pol%C3%ADticos-en-la-negociaci%C3%B3n-con-el-FMI.htm\"\u003E\u003Cspan style=\"text-decoration: underline;\"\u003Eappear to have halted\u003C\/span\u003E\u003C\/a\u003E, but the Bukele administration \u003Cstrong\u003Erebuts any assertion of troubled waters\u003C\/strong\u003E. Treasury Minister Alejandro Zelaya has repeatedly asserted that El Salvador is facing \u201czero\u201d chance of default and that risk evaluators \u201c\u003Ca href=\"https:\/\/www.eleconomista.net\/economia\/El-indicador-EMBI-per-se-no-sirve-20220503-0029.html\"\u003E\u003Cspan style=\"text-decoration: underline;\"\u003Earen\u2019t measuring the reality\u003C\/span\u003E\u003C\/a\u003E.\u201d\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003E\u201cSome people keep talking about the country\u2019s risk profile, but in two years we\u2019ve demonstrated that El Salvador is undergoing a historic economic transformation,\u201d \u003Ca href=\"https:\/\/twitter.com\/HaciendaSV\/status\/1504450310617669632?s=20&t=jS5BY_kpSZ0OCJy4TwTW7Q\"\u003E\u003Cspan style=\"text-decoration: underline;\"\u003Ethe minister said\u003C\/span\u003E\u003C\/a\u003E in March, adding: \u201cPast governments never planned for the future. Our job is to plan for our fiscal commitments, all of which are covered.\u201d\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003EHours before his latest purchase of bitcoin, Bukele unveiled a gold-colored, circular mockup of Bitcoin City, a municipality exempt from income, property, and capital gains taxes and shaped in a circle with a bitcoin sign in the middle. He promises to construct \u003Ca href=\"https:\/\/twitter.com\/nayibbukele\/status\/1523800155060797441\"\u003E\u003Cspan style=\"text-decoration: underline;\"\u003Ethe city at the foot of the volcano\u003C\/span\u003E\u003C\/a\u003E Conchagua, in the eastern coastal department of La Uni\u00f3n. Such an investment of public funds would also entail large-scale improvements of rural roads and highways, plus he has said he will build a new airport.\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003EHe has not explained where he will get all of the money for the project, but has said he will partially fund construction with $500 million in \u201c\u003Ca href=\"https:\/\/www.reuters.com\/markets\/us\/what-we-know-so-far-about-el-salvadors-volcano-powered-bitcoin-bond-2021-11-22\/\"\u003E\u003Cspan style=\"text-decoration: underline;\"\u003Evolcano bonds\u003C\/span\u003E\u003C\/a\u003E\u201d denominated in dollars that the administration will convert to bitcoin. He announced the bonds in November and suggested they could be ready in 60 days, but has indefinitely delayed their issuance, citing the war in Ukraine, the downturn in global markets, and a nationalization of pensions that would open another pocket of cash to finance the government.\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003ESince the dawn of his political career as mayor of Nuevo Cuscatl\u00e1n, Bukele, a former publicist, has shown a \u003Cstrong\u003Epenchant for promising megaprojects and accumulating debt\u003C\/strong\u003E, notes El Faro\u2019s Gabriel Labrador in the \u003Ca href=\"\/en\/202205\/el_salvador\/26155\/How-Bukele-Crafted-a-Best-Selling-Political-Brand.htm\"\u003E\u003Cspan style=\"text-decoration: underline;\"\u003Efirst comprehensive profile\u003C\/span\u003E\u003C\/a\u003E of the president. In his first 21 months as mayor of the town, for example, he acquired as much debt as the town\u2019s previous five-year average. Nuevo Cuscatl\u00e1n, sitting on the outskirts of the capital, is now the only town to refuse to release public information on municipal debt.\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003E\u003Cspan style=\"font-size: medium;\"\u003E\u003Cstrong\u003EElectoral Calculus\u003C\/strong\u003E\u003C\/span\u003E\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003EEMFI says that some market analysts believe the administration is looking to avert a major credit incident before election season begins next year in the lead up to 2024 elections.\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003EAnalysts like former Central Reserve Bank president Carlos Acevedo believe the \u003Cstrong\u003Egovernment is \u003Ca href=\"https:\/\/diario.elmundo.sv\/politica\/acevedo-el-salvador-no-caera-en-impago-antes-de-elecciones-2024\"\u003E\u003Cspan style=\"text-decoration: underline;\"\u003Eunlikely to default\u003C\/span\u003E\u003C\/a\u003E before the elections\u003C\/strong\u003E by tapping into a combination of international loans, foreign currency reserves, and the country\u2019s embattled pension fund. El Salvador also joined the Caracas-based CAF on March 10 and could negotiate additional short-term financing.\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003E\u201cWhat Minister Zelaya does not or is afraid to understand is that the greatest risk facing the government is in Casa Presidencial and has a Twitter account with more than three million followers,\u201d writes Salvadoran journalist and Cal State Fullerton academic Ricardo Valencia in a \u003Ca href=\"\/en\/202205\/columns\/26168\/Bukele\"\u003E\u003Cspan style=\"text-decoration: underline;\"\u003Ecolumn for El Faro English\u003C\/span\u003E\u003C\/a\u003E.\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003E\u201cThere are those in international finance who suspect that if Bukele is unconstitutionally re-elected in 2024 he could unilaterally rewrite the terms of the debt, or decide not to pay altogether,\u201d Valencia adds. \u201cBukele would have the perfect cast of scapegoats: multilateral financial organizations, the U.S. government, and the political opposition.\u201d\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003EOn Thursday Bukele \u003Ca href=\"https:\/\/twitter.com\/nayibbukele\/status\/1524550918016012288?s=20&t=v-c-ouD3G25se0fEOCdM8w\"\u003E\u003Cspan style=\"text-decoration: underline;\"\u003Eretweeted his own post\u003C\/span\u003E\u003C\/a\u003E from last June, the day after he announced he would make bitcoin legal tender: \u201cOne thing I\u2019ve always admired about Steve Jobs is that he never even looked at Apple\u2019s stock price. He knew where his company was going,\u201d he wrote. \u201cThe stock market will follow, when they understand.\u201d\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003EThat\u2019s hardly the message of someone poised to cut his losses in the bitcoin arena.\u003C\/p\u003E\u003Cbr\/\u003E\u003Cbr\/\u003E\u003Cp dir=\"ltr\"\u003EThanks for your time. If you\u2019ve gained from getting our work in your inbox, please consider \u003Cstrong\u003Efunding independent journalism in Central America\u003C\/strong\u003E, in its most critical hour, at\u003Ca href=\"https:\/\/elfaro.us19.list-manage.com\/track\/click?u=a822abdb775cca5db840e11e5&id=f6dc8ebab3&e=3e101df639\"\u003E \u003Cspan style=\"text-decoration: underline;\"\u003Esupport.elfaro.net\u003C\/span\u003E\u003C\/a\u003E.\u003C\/p\u003E"}