Dan Mahowny is a fictional character from Hollywood cinema, a compulsive gambler who bets what he doesn’t have in hopes of winning more than he loses to fill a growing personal financial hole. Nayib Bukele is a real character: he is the president of El Salvador and a sort of crypto-apostle who, since September 6, 2021, has invested some 100 million dollars of Salvadoran public funds to buy Bitcoin despite the fact that the price of the cryptocurrency has been falling for 7 months.
like dan mahowny, Bukele faces a financial scenario that, apart from the virtual casino, does not look very good. But, unlike the fictional bettor, Bukele does not play with his money, but with that of the country of which he has been president since June 2019. In January 2023, El Salvador must pay 800 million dollars of its debt. And, for now, with traditional sources of credit closed after a failed negotiation with the International Monetary Fund, neither Bukele nor El Salvador have the money to meet this payment.
Bloombergspecialized financial publication, fixed Salvadoran losses of $40 million due to falling Bitcoin price.
It was only on Monday May 9 that Bukele announced that the country had purchased 500 coins at an average price of USD 30,744 per coin, the lowest value since El Salvador adopted Bitcoin as legal tender in September 2021. Two days later, on May 11, the price fluctuated between $29,248.20 and $30,837.00, with an average of $30,042.50. That is to say, during these 48 hours, Bukele still lost money, not his, the country’s.
As of press time on May 13, the price of Bitcoin had risen by pennies to $30,442 per coin before noon. Nothing that changes the losing trend of cryptocurrency.
Bukele made the first purchase of Bitcoin on September 6, 2021, shortly after an express law approved by the Congress of El Salvador, where the president’s deputies have a supermajority, gave legal life to the circulation of cryptocurrency. That day, the government purchased 400 coins at an average price of $47,500 per coin for a total of $18,700,000. As of May 9, 2022, the real value of these coins on the market was 14,220,400 USD, which implies a loss of 24% of the initial value according to the follow-up that specialized firms on Wall Street have made of the Salvadoran dossier.
Ever since he started buying, Bukele has been losing Salvadoran money. “In every bitcoin purchase you made, you lost“, writes the specialized publication WallStreetPro in a tweet, which feeds on the official figures of the countries it evaluates and the figures issued daily by the New York market.
From September 2021 to May 9, Bukele made 10 purchases of Bitcoin: 2,301 coins for 100,933,798 USD. In total, the president of El Salvador lost at least $40 million due to falling prices. Yet, like the film’s Dan Mahowmy, Bukele always bets.
The price of Bitcoin is extremely volatile, warn experts consulted by Infobae, but the constant decline for the past few months marks a trend that, since the beginning of May, has been reinforced by the decision of the United States Federal Reserve to increase interest rates, due to the oil price crisis caused by the Russian invasion of Ukraine and rising inflation rates around the world.
To Salvadoran losses we must add the 48 million dollars spent by the government of El Salvador to launch the Chivo Walleta virtual wallet to trade with Bitcoin, and subsidize it with $30 per app to encourage its use.
It was all accompanied, as is often the case in the Bukele government, by a huge propaganda fanfare that sold, among other things, that the Chivo wallet would be used to save some $400 million in remittance fees. sent by Salvadorans living abroad, over all in the USA. This did not happen and, according to a University of Chicago study published last AprilBukele’s electronic application was another failure: 60% of those who downloaded it, motivated by the 30 USD, have already stopped using it.
It’s not just that Bukele lost several millions, it’s that his big gamble to finance the country’s debts with Bitcoin, especially the urgent one of $800 million, failed him.
Already, the most reputable risk analysis houses on the planet have warned of the great possibilities that El Salvador, with its commitment to Bitcoin, is headed for default. Infobae warned in the last days of Januaryafter Moody’s downgraded El Salvador’s credit rating after warning that the country faced a payment scenario “amid continued funding stress and persistently high funding needs”.
In mid-February, Fitch also downgraded the risk rating and warned “of a greater dependence on short-term debt, limited funding sources and rising government debt that is expected to reach 87% of GDP”. In May, Moody’s again devalued El Salvador and, with all the letters, warned of the possibility of nonpayment.
bitcoin actually It only served Bukele to speculate in a falling market. In late February, in another propaganda stunt, the government launched Chivo Pets, a veterinary hospital allegedly funded by proceeds from Bitcoin investments. It is impossible to know how much the hospital really cost and it was funded by cryptocurrency: Bukele and his deputies have closed, through legal and administrative reforms, all avenues of access to government spending information .
In tweets that his acolytes rehearsed ad nauseam, the president sold that appointments at Chivo Pets would only cost $0.25. Then, after several complaints from users and amidst whispers, the government agreed that the price only applies to those who will use the Chivo Wallet, the rest would pay the same price as at any private vet.
While Salvadoran social networks were saturated with the Chivo Pets file, Alejandro Zelaya, Bukele’s finance minister, undertook a tour of Europe to market Bono Volcán, a financial mechanism based on investment in Bitcoin that El Salvador intended to place in international markets as an alternative after failed negotiations with the IMF for a $1.4 billion credit. There was also, according to a Wall Street analyst consulted by Infobaetries to place the Volcano Bond among American investors. The sale failed.
Already in February, at least three risk analysts consulted by Infobae had warned that the markets would show no appetite for the Salvadoran proposal, which would leave Bukele with two alternatives: return to the table with the IMF, which had already made public its distrust of Bitcoin, or seek other internal funding sources to pay off immediate debt, including the January 2023 payment.
The first thing, renegotiating with the IMF, didn’t happen and that doesn’t seem like the way to go. On May 2, a week before the Bitcoin crash and the last cryptocurrency purchase made by his boss, Minister Zelaya claimed that El Salvador had not approached the IMF for “a matter of money”, but for maintain a “cordial relationship”. in January, Zelaya had said something else: that El Salvador was in negotiations with the Fund for a loan of 1.4 billion dollars.
With that avenue closed for now, the most plausible scenario seems to be a pension reform that Zelaya himself and pro-government lawmakers have already advanced.
After the failure of the Bono Volcán and the Chivo Pets, Nayib Bukele managed to turn things around after a massacre caused by the MS13 and Barrios 18 gangs, which left 87 dead in a weekend in March. The increase in violence was used by the president to decree a state of exception which has not yet ended and which has restricted several civil liberties for Salvadorans, such as the rights of association, fair trial or expression. In recent weeks, Bukele police and its attorney general have put some 30,000 people in jail. The violence has subsided, but the president still couldn’t avoid another conversation that bothers him: his pact with the gangs.
Despite all the prisoners, Bukele continues to refuse to touch the leadership of MS13, 14 of whose leaders have been extradited by the United States to answer for crimes of terrorism and homicide. On April 4, a U.S. prosecutor briefed a New York judge telling gang members that the Salvadoran government had freed the four leaders, according to a report by The printing press.
With the conversation about the gangs back on a subject that makes Bukele uncomfortable and the noise about the state of emergency and the excesses of the Salvadoran public force more subdued, the president could not avoid confronting the issue of Bitcoin’s price decline and reports from trade publications that have returned to the subject of default.
For now, on his Twitter account, Bukele has responded as usual to uncomfortable topics. He avoided referring to the underlying problem and went propaganda again with a golden model of Bitcoin City, a dream city in the southeast of Salvador that will be built, as it is supposed to be. be produced with Chivo Pets, with the profits left over from cryptocurrencies. For the moment, this city exists only in this model and in the head of the president.
What is not a story is the debt of 800 million dollars that Nayib Bukele will have to pay next January. That and the possibility of a default seem more real than Bitcoin City’s golden model.