Are El Salvador’s Sovereign Bonds The New Bitcoin?

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by Chris Menahan, Information Liberation:

Capital is flooding into El Salvador thanks to President Nayib Bukele’s hugely successful crackdown on gangs.

From Reuters, “Move over, bitcoin: El Salvador sovereign bonds not done rallying”:

NEW YORK, July 19 (Reuters) – Investors in El Salvador international bonds are relishing 60% returns this year alone as debt issued by the Central American country recovers from calls of doom and default, with some betting the rally is not quite over yet.

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Rising tensions between Washington and President Nayib Bukele’s government, dwindling prospects of a financing deal with the International Monetary Fund (IMF) and the fallout from bitcoin becoming legal tender against a wider difficult macro backdrop had seen El Salvador bonds drop to a quarter of face value last July.

Fast forward 12 months and two surprise debt buybacks have left the country’s payment schedule very light until 2027, while the appointment of a former IMF official as adviser to the finance ministry has sent the right signals to markets, investors say. A bond maturing in 2025 is trading at 89 cents, up from about 27 cents a year ago.

There were tons of articles railing against Bukele for buying Bitcoin near record highs but very few are covering Bukele turning his nation’s sovereign bonds into the new Bitcoin (or at least Bitcoin light).

The Economist whined on Sunday that Bukele was “gutting democracy and being applauded for it.”

From The Economist, “What the world’s budding autocrats are learning from El Salvador”:

Since March last year, when Mr Bukele imposed a state of emergency, he has arrested more than 71,000 people, equivalent to 7% of male Salvadoreans aged 14-29. Anyone suspected of ties to a criminal gang can be thrown into a crowded jail—indefinitely. Little evidence is required: a suspicious tattoo or an anonymous accusation will suffice. Those detained will eventually have proper trials, the government insists, but so far they have had only cursory hearings, sometimes with hundreds of suspects appearing simultaneously before a judge. Mr Bukele glories in brutality, tweeting photos of suspects cuffed, half-naked and packed tighter than battery hens.

Outraged liberals must admit that his crackdown has brought benefits. Most touted is a plunge in the homicide rate, which fell from 51 per 100,000 the year before Mr Bukele took office in 2019 to 18 in 2021 (before the state of emergency began) and just eight last year. Analysts dispute how much credit to give Mr Bukele, but he can surely claim some.

More important, he has changed the balance of fear in El Salvador’s extortion-plagued neighbourhoods. Before, if a gangster demanded protection money, civilians paid up or braved a bullet. Few called the police, since gangsters were seldom convicted without testimony that hardly anyone was brave enough to offer. Now, it is the gangsters who are scared. Knowing that an anonymous tip-off can put them behind bars indefinitely, those still at large are in hiding. Their absence has improved countless lives. A study in 2016 found that the annual cost of gang violence in El Salvador was 16% of gdp. Today neighbourhoods are calm and businessfolk have mustered the optimism to open new shops. Hence Mr Bukele’s rock-star popularity.

Democracy is overrated.

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