It's not just Elon Musk and Millennials on Reddit who've invested heavily into cryptocurrency, governments are starting to get involved too. In this article, we're going to be taking a look at El Salvador's Bitcoin experiment which is going about as well as you'd expect, and how El Salvador's economy might recover. If you like explainers like this which dive into the details and drama of global politics and news then be sure to subscribe. You can also find us on Twitter and Instagram for even shorter explainers so you too can stay informed while you scroll. We really appreciate your support so to understand this story you need a bit of context for most of its democratic history which really begins in 1992 with the Chapultepec Peace Accords. El Salvador's politics has been dominated by two parties, the left-leaning FMLN, successor to a guerrilla movement that won the Salvadoran Civil War in the 80s. And then there's the right-leaning Arena party which defended the military-led Junta government in the same war. While these parties maintained a duopoly on Salvadoran politics they weren't actually that popular. Both were relatively impotent and ridden with corruption for the last 20 years or so. Under both Arena and FMLN governments GDP growth has averaged less than 2 percent per year. Poverty has risen and El Salvador became the most murderous country in the world. Various politicians including three of the last four presidents have been investigated for corruption usually to do with the street gangs that run parts of the country. This is something you sort of need to know to understand El Salvadoran politics. El Salvador has a serious gang problem. There are an estimated 60,000 gang members in El Salvador. That is about one percent of the population and has some of the highest rates of serious violence in the world. El Salvador's murder rate has fluctuated between about 40 and 80 per hundred thousand people for most of the last 20 years reaching a high of 100 in 2015. For context that's about 20 times that of the United States and nearly a hundred times that of the UK. Anyway, this two-party duopoly finally started crumbling in 2017 with the advent of Nayib's ideas. A sort of populist center-right party founded by Nayib Bukele. Bukele was originally a member of the left-leaning FMLN and mayor of San Salvador, the capital and largest city of El Salvador. Bukele was elected mayor in 2015 and was remarkably popular with San Salvadorans. Largely because he successfully reduced crime in the city in his first year in office. The murder rate saw a fall of 50 percent which Bukele attributed to his tough anti-crime policies including increased police and military presence on the streets and tighter security in jails. Although it's worth noting that there were reports that Bukele had made an informal deal with the gangs. Bukele also won over voters with projects to revitalize poor neighborhoods, progressive stances on social issues such as gay marriage, and shrewd use of social media. He even donated his salary to provide scholarships for poor students. Throughout his mayoralty, Bukele enjoyed approval ratings of above 70 percent and soon became the most popular politician in the country. Bukele was kicked out of FMLN in 2017 in part because the party leadership was intimidated by his popularity and announced his intention to run for president in 2019. Bukele won the 2019 presidential election by a landslide winning 53 percent of the vote. Well ahead of both of the mainstream candidates once in power. Bukele turned into a bit of an autocrat, albeit, an effective one allegedly thanks to some dodgy deals between Bukele's government and the gangs. Gang warfare had subsided and the murder rate had fallen by sixty percent when the number of killings briefly jumped in April. Bukele responded harshly, he tweeted that police could kill gangsters to defend themselves or others, ended the policy of keeping the two main gangs apart in prisons which had been in place since 2004, and his press office released humiliating photos of gangsters huddled together in prison. But when a journalist started investigating the alleged deals, the journalist was expelled from the country and a spurious money laundering investigation was launched into his newspaper. When the legislature hesitated to pass a rather expensive budget for his crime-fighting program, he stormed the Parliament with a whole load of armed soldiers. His extreme coveted policies which included draconian containment centers for travelers and using soldiers to arrest people and throw them into strict 30-day quarantine worked relatively well and were popular with the Salvadoran public but were eventually declared unconstitutional by the supreme court. In response, Bukele told officials to continue with the policies anyway. In May 2021 after his new party won with a massive majority in the February legislative elections Bukeler replaced five of the country's 15 top judges and the attorney general with his mates before passing another law in August which would sack all judges over the age of 60. That law contained a woolly proviso that said that the term limit could be waived due to reasons of necessity or specialty implying that judges could keep their jobs if they listened to Bukele not coincidentally three days later the top court announced that contrary to the constitution a sitting president can run for re-election clearing the way for Bukele 2024. Bukeler has also crammed the government with his family. is uncle is commerce secretary his cousin is president of the party and the father of his godson runs the export promotion agency but Bukele's authoritarian tilt doesn't seem to have affected his approval ratings which hover at around 90 percent buoyed by his high approval ratings on september the 7th of last year Bukeler passed a law recognizing Bitcoin as legal tender requiring businesses to accept the cryptocurrency for goods and services and ordered the Salvadoran treasury to buy 400 Bitcoin then worth about 21 million dollars over the next few months El Salvador bought a total of about 1 400 Bitcoin and Bukele announced a 1 billion dollar Bitcoin bond issuance to fund a low tax Bitcoin city next to kolchagwa volcano now Bitcoin wasn't necessarily a bad idea a diaspora of some two million Salvadorans sent remittances worth 20 of gdp home each year and wallet-to-wallet Bitcoin transfers will be faster and cheaper than traditional wire transfers it's also not like El Salvador were giving up their monetary sovereignty the country has used us dollar as the exclusive legal tender since 2002 and perhaps most obviously if Bitcoin goes up in value then El Salvador gets richer and well for the first few months things looked like they were going all right Bitcoin's price jumped from about forty five thousand dollars in september to a high of nearly seventy thousand dollars in november El Salvador's borrowing cost stabilized and there was a brief jump in remittances but well things have started going downhill and pretty fast as I'm sure some of you retail crypto investors have noticed Bitcoin's price has plummeted over the last couple of months as of monday Bitcoin is currently trading at about thirty three thousand five hundred dollars about fifty percent down on its november high fleeing investors have pushed El Salvador's borrowing costs up to all-time highs its 2023 bond now has a real interest rate of 35 the state has some hefty debt payments coming up and moody's downgraded El Salvador's credit rating to b minus in a move that was unlikely to calm investors nerves Bukele tweeted that El Salvador had decided to buy the dip with another 410 bitcoins essentially as Bitcoin's price has fallen investor confidence in El Salvador has collapsed and if Bitcoin continues to fall it's hard to see how El Salvador's finances will survive especially without the 1.3 billion loan currently being negotiated with the imf which has been thrown up in the air thanks to Bukele's unorthodox economics but will this affect Bukele's approval ratings well possibly the policy was never popular according to polling in july two-thirds of Salvadorans were not willing to be paid in Bitcoin and just under half knew nothing about it and Bitcoin slump might put fiscal limits on phuket's most popular policies which include food parcels and free computers for kids but so far there's not much sign of this the latest poll from december the 15th gives him an approval rating of 85 percent slightly down on the dizzying heights of his usual 90 to 95 percent but still one of the highest in the world ultimately though Bukele's sky-high approval ratings could spell bad news for El Salvador if he doesn't face any political pushback there's nothing stopping buchelli from continuing to risk the fate of an entire economy on a cryptocurrency but what do you think is Bitcoin a good long-term bet and will Bukele eventually be vindicated or is he turning the entire country into a meme economy let us know your thoughts in the comments down below.
