Ten days after Hurricane Bonnie ripped across El Salvador, causing flooding, damaging homes and cars, and killing at least one person, an economist took the government to task for spending 17 times more on bitcoin than on the entire Ministry of Environment and Natural Resources.
Noting that $223 million had been spent buying bitcoin, trying to incentivize people to use it and building out a deeply unpopular and unsuccessful bitcoin payments infrastructure, Ricardo Castaneda, an economist at the Central American Institute for Fiscal Studies (ICEFI), pointed out that the entire environment budget was just $13 million, the El Diario de Hoy newspaper reported July 8.
Given that “El Salvador has few financial resources, and strategic decisions have to be made,” Castaneda said, the bitcoin budget “means that those resources were not used for other issues, which in economics we call opportunity cost. The opportunity cost ends up being high because investments are made where this does not bring any benefit to society, but rather more costs.”
That came as several experts took the government to task for failing to prioritize funds to manage storm risks.
Noting a series of cuts to the ministry’s budget in recent years, and particularly in 2022, Castaneda said it “shows that the environmental issue in general terms is not a priority,” for Bukele.
Resource or Movement?
That would make sense if Salvadoran political analyst and commentator Dagoberto Gutiérrez is right in calling bitcoin a “political move” linked to “geopolitics against the U.S. dollar,” Be In Crypto reported.
It’s one that Gutiérrez called “a necessary political movement to free ourselves from the dollar bond,” adding that the No. 1 cryptocurrency is a threat to the “dollar hegemony.”
A Separate Country
Opposition legislator Marleni Funes of the FMLN party had harsher words for Bukele, saying he “lives in a psychological country created by him and for him” when it comes to the state of El Salvador’s economy, El Diario de Hoy reported.
Funes said that the country’s bitcoin investment “would be disastrous” for the country if bitcoin continues to fall in value.
“Their hope is that bitcoin has a stroke of luck, and they can fulfill their commitments,” Funes said of the administration.
Noting that Salvadorans would be left unprotected in the event of a massive bitcoin crash — it’s already down 70% from the November all-time high — Funes also said the funds could have been spent better, giving an example of farmers seeing the price of fertilizer up 2.5 times.
IMF Loan Insignificant, Zelaya Says
If bitcoin is a political movement, it’s one Bukele appears to have no intention of backing down from.
Reiterating the administration’s refusal to accede to the International Monetary Fund’s demand that El Salvador end bitcoin’s status as a legal tender in order to get a $1.3 billion loan it needs to pay off debt in early 2023, Salvadoran Finance Minister Alejandro Zelaya “played down the deal’s fiscal impact,” July 14, Reuters reported.
“You have to put all these issues into context,” he said, per the report, noting that the loan would be less that 10% of the national budget.
That’s actually quite a lot and doesn’t take into account that the bitcoin currency experiment has seen its ability to borrow on the bond markets crushed, with its sovereign debt roughly on par with Ukraine, which is being invaded by Russia.
“You have to put all these issues into context, but we’re maintaining conversations, and once we have something concrete, we will announce it,” Zelaya added.
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