Tying it together

This post attempts to tie together the threads of many developments in the recent news from El Salvador.

United States Charge d-affaires, Jean Manes, is leaving El Salvador with a parting blast at the Bukele government.  After Bukele's May 1 sacking of supreme court magistrates and the attorney general, the Biden administration sent Manes, who had previously been Ambassador to El Salvador from 2016 to 2019, to deal with the challenging relationship between the countries.  (As of today, Biden still has not named a new ambassador to El Salvador).  On a morning interview show, Manes spoke of paid media attacks orchestrated by the government against the Embassy, herself, and Joe Biden.   Today the US Statement Department said that Bukele government had rejected a path towards a productive bilateral relationship.  

Manes' criticism included the proposed Foreign Agents Law in El Salvador. The march towards approval of that measure, targeted at NGO and independent media critics of the government, was slowed after a wave of protest from civil society and those foreign governments who support projects in El Salvador.  President of the Legislative Assembly, Ernesto Castro says the diplomatic corps and "true" civil society need to be comfortable first.

One of the targets of the Foreign Agents Law is independent investigative media sites.  The journalists who work in such media had even more reason to be worried as it was revealed that they and opposition politicians have just received warnings from Apple of state-sponsored espionage attacks.  According to the Association of Salvadoran Journalists (APES), at least 23 journalists received the warning that spyware used by governments could have infected their IPhones.  Opposition politicians and activists also reported receiving the warning.      

One area the Bukele government has challenged are media investigations of its spending.  Much more of that spending will be concentrated in the national government controlled by the Bukele regime with a new law which cuts monetary support to towns and cities and will replace those funds with delivery of public works projects. In past years, 10% of the revenue collected by the national government would be distributed to local municipalities for their use through a fund known as FODES.  The Legislative Assembly has now passed a measure to reduce FODES revenue sharing by 85% to just 1.5% of revenue and will instead provide local municipalities with public works projects, under control of a Directorate of Municipal Works, to replace the funding which was removed.  

The Legislative Assembly also adopted an eminent domain law to allow private property to be taken for public works projects.  If a property owner challenges the taking and a court approves the compensation, the only appeal allowed will be the amount of compensation and not the government's right to take the property.

The combination of slashing FODES dollars, nationalizing public works, and the ability to take private property centralizes development authority and divests much control from local communities.

Eminent domain may be needed for Bukele's latest initiative - "Bitcoin City."  Last week Bitcoin enthusiasts descended on El Salvador for a Latin America Bitcoin conference, drawn to the first country to make Bitcoin legal tender.  The week concluded with an appearance by Nayib Bukele, recounting El Salvador's Bitcoin initiative and announcing that the country would be building "Bitcoin City" in La Union, around and powered by the Comchagua volcano, and financed by offering $1 billion of Bitcoin Bonds. Half of the Bitcoin Bond proceeds will be used to buy Bitcoin, and the other half will develop infrastructure and Bitcoin mining capacities.  

The International Monetary Fund, however, is not a fan of Bitcoin as legal tender in El Salvador.   The IMF issued a staff report after meetings with Salvadoran officials.  The report is positive on the recovery of the Salvadoran economy from the impact of the pandemic and complimentary of the government's economic response and public health approach to the pandemic.  The report warns about rising levels of government debt and is pointedly critical of the Bitcoin law and the potential risks associated with the cybercurrency.  The report does not commit the IMF to approve the $1.3B in lending that El Salvador is seeking, and also does not discuss the potential impact of the Bitcoin Bond proposal.