This week to announce the bankruptcy of one of the largest cryptocurrency buying and selling platforms in the world, FTX, which resulted in the collapse of Bitcoin in recent days and directly affected El Salvador, a country that adopted virtual currency as its local currency by decision of its president Nayib Bukele, who would be seeking a trade agreement with China and the government of Xi Jinping,
“Uncertainty” is the word that could best define the scenario in which you currently find yourself El Salvador, after the resounding fall of Bitcoin, and the negotiations for a possible trade agreement with China.
News that put all the eyes of the world on the Central American country, given that President Nayib Bukele decided to convert it into legal tender in 2021. This, in addition to investing a large part of the money from the fiscal coffers in that asset.
El Salvador suffers from Bitcoin and looks askance at China
This week the bankruptcy of one of the largest cryptocurrency buying and selling platforms in the world, FTX, was announced, which resulted in the collapse of Bitcoin in recent days.
This made a deep impression on the fiscal policy of El Salvador, amid rumors that an imminent trade agreement between the country led by Nayib Bukele, and China< /strong>, chaired by Xi Jinping.
“Unfortunately, when one requests information on how many resources have been invested in bitcoin, what is obtained as an answer is that this information does not exist or is reserved information,” said Ricardo Castaneda, coordinator for El Salvador of the Central American Institute of Fiscal Studies (ICEFI).
The economist explained that in his country the calculations of what is invested in bitcoin are made only taking into account the tweets of President Nayib Bukele. According to what was expressed by the president, the investment could be of the order of 120 million dollars.
China would have offered to buy El Salvador’s debt
If so, El Salvador would have to face difficult economic times. On the one hand, due to the devaluation of cryptocurrencies, and, on the other, due to the little confidence that the country enjoys in the international market.
“In the international markets, when they see that the fiscal deficit is so high, when they see that spending is not being paid and that the debt is accumulating, they begin to be more cautious and put you in a high-risk position” said Roberto Rubio, executive director of the National Foundation for Development and representative of Transparency International in El Salvador.
In January 2023, the Central American country has to pay 667 million euros of international debt for the repayment of a Eurobond. “Chinese offered to buy all our debt, but we must be careful” were the words of Vice President Félix Ulloa, which caused surprise at an event in Madrid.
DW
The new economic alliance with China
The declarations of the government authority of El Salvador did not go unnoticed, above all, because this was never confirmed by the Xi Jinping regime.
What was ratified was the interest of China and El Salvador to start negotiations for a Free Trade Agreement (FTA) between the two countries, in an event that brought together Bukele with Ambassador Ou Jianhong in San Salvador.
In 2018, El Salvadorit had already shown signs of rapprochement with the world’s second-largest economy after it ended its relations with Taiwan. This strategic move brought a series of benefits to the country.
China has given three donations to El Salvador, which is the construction of a kind of amusement park on the beach, a stadium that has not been built yet and a library. They are investments that improve the image of China and, obviously, also that of our country”, explains the economist Rubio.
Désirée Reder, a researcher at the Hamburg-based German Institute for Global and Regional Studies (GIGA), added that the current conditions of democracy in El Salvador also deprive it of an approach to other countries that criticize Bukele’s style of government, such as the United States.
“In that sense, China does not apply sanctions based on human rights and that is why it can be a solution. The big question is whether the benefits outweigh the costs in this relationship,” he told DW.
“Nothing is free”
Although an eventual alliance of El Salvador with China could mean a “lifeline” For the local economy, experts agree that such an agreement could also carry a series of risks. “Nothing is free,” says Reder.
“El Salvador could see some benefits in infrastructure, which are already being observed, but China expects something in return. It could be exclusivity in commercial benefits or demand certain projects in areas that may be protected or that may affect some communities”, adds the GIGA academic.
Similarly, the economist Castaneda has his doubts as to whether the idea of an FTA with China is a good deal for El Salvador. On the contrary, he believes that it would be left in a deficit position.
In addition, he expresses that it is a purely political move. “Let us remember that President Bukele wants to be re-elected and, practically, has no allies at the international level, added to the fact that tensions with the United States are very great. What Bukele is looking for is that his decisions be supported and China does not stand out, precisely, for the defense of democracy & # 8221 ;, he says.
“What China is doing is maintaining and increasing its presence, improving its image, little by little,” concludes the representative of Transparency International in El Salvador.