El Salvador's Experience With Cryptocurrency Ends In Failure

Finance & economics | Bukele buckles El Salvador’s wild crypto experiment ends in failure Its curtailment is the price of an IMF bail-out. And one worth paying A Bitcoin statue in San Bartolo Plaza in Ilopango, El Salvador Relic of another agePhotograph: Getty Images Mar 2nd 2025 Save Share Give For much of the time since Nayib Bukele became president in 2019, El Salvador has teetered on the brink of default. The warning signs were familiar: high debt and interest payments, exacerbated by a wide fiscal deficit; low dollar reserves; anaemic investment and GDP growth. Negotiations with the IMF over a bail-out were deadlocked. Mr Bukele’s relentless attacks on the judiciary, his opponents and the media did not inspire confidence. Then there was his crypto fixation. In 2021 El Salvador became the first country to make bitcoin legal tender, alongside the dollar. The president vowed to shun conventional capital markets, and raise billions via tokenised blockchain bonds. He would buy $500m-worth of bitcoin, build a “bitcoin city” in the jungle and develop geothermal energy to power bitcoin miners. The conventional markets shunned him. Several Salvadoran bonds traded below 30 cents on the dollar in the summer of 2022. When the government started deferring public-sector salaries to preserve cash, investors prepared for the worst. Yet El Salvador has defied expectations—and on February 26th the IMF’s board approved a $1.4bn loan to be disbursed over 40 months. In order to obtain the money, El Salvador has made the usual promises on fiscal discipline. It is also scaling back its crypto project. After a change to the law in January, taxes are no longer payable in bitcoin, and its acceptance in the private sector is voluntary. On its way to the IMF deal, El Salvador showed remarkable commitment to paying its debts; Mr Bukele was in part motivated by a desire to show up his Wall Street doubters. The country’s bond prices have climbed all the way back to par. Officials used scarce dollars to buy back bonds at a discount, saving a good share of future payments of principal. The fiscal deficit, which hit 10% of GDP in 2020, has returned to pre-pandemic levels of 2-3%. A crackdown on tax evasion, strong inflows of remittances and an economic uptick have boosted government revenue; the phasing-out of energy subsidies and pandemic-era programmes have slowed spending. The fund’s loan lowers the risk of a debt crisis, especially if it unlocks a further $2.1bn from other multilateral lenders as is hoped. Despite the deficit-cutting, the country might not have managed much longer. When debt is high and growth low, raising money at 12%, as El Salvador did in early 2024, is unsustainable. Sovereign default is all the more costly in a dollarised economy such as El Salvador’s, with no lender of last resort to avert a bank run or financial contagion. Local bank deposits are partly backed by government debt, so default might snowball into a banking crisis and even de-dollarisation. Pumped, now dumped As for bitcoin, its demotion may be more of a blessing than a concession. Mr Bukele promoted the cryptocurrency as a way to provide financial services to the two-thirds of adults without a bank account and to lower the cost of remittances, which come to almost a quarter of GDP. But the main barriers to financial inclusion are the size of the formal economy and low digital literacy. Remittances are expensive because Salvadorans like to send and receive banknotes, a pricey business made pricier by crime. The government also rushed the roll-out of Chivo, a digital wallet. Bugs and identity theft, to snaffle the $30-worth of bitcoin for signing up, were rife. The IMF was wary of lending to El Salvador while bitcoin was legal tender. Its volatile price posed a risk to financial and fiscal stability. The fund also pointed to bitcoin’s potential use in crime. El Salvador, according to the IMF, will limit “transactions in and purchases of” the currency. The country has in fact kept buying up to 1.6 bitcoin a day since the deal, according to blockchain data. It may yet have to reduce or reverse purchases to comply with the agreement. El Salvador owns 6,102 bitcoin, valued at around $550m, including unrealised gains of $250m or so, about which the president boasts regularly. Despite these profits, crypto has brought El Salvador more costs than benefits. The free publicity has been welcome, yet crypto-investment and crypto-tourism have been small beer. Gains in financial inclusion and from more efficient payments are meagre at best: the currency never really caught on. In 2022, when the hype was at its peak, a survey by CID-Gallup found that only a fifth of firms accepted bitcoin and just 5% of tax payments were in crypto. Recent numbers are likely to be even lower, as Salvadorans have retained their strong preference for cash and payment cards. Moreover, the policy cost $375m in all—from the Chivo rollout, subsidised transaction fees, bitcoin ATMs and more—according to Moody’s, a rating agency. That far exceeds the profits on bitcoin holdings, which could still evaporate. By delaying an IMF deal, the crypto experiment kept El Salvador’s risk premium high. Mr Bukele enjoys stratospheric approval ratings, often above 90%. It was not crypto that made him “the world’s most popular dictator”, as he calls himself, but his draconian crackdown on crime, in which due process and the rights of presumed criminals have been forgotten. His obsession with cryptocurrency has done little to ease El Salvador’s economic woes. Although bitcoin may remain a reserve asset on the national balance-sheet, its days as legal tender are over. Mr Bukele is just the latest crypto-utopian to see his wild ideas dissolve on contact with reality. ■ For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter.

Ecuador: Bring In The Calvary

Bring in the Cavalry Ecuador Ecuador will seek foreign military aid to combat drug cartels and organized crime groups in the South American country, officials said this week, as authorities continue to grapple with rising violent crime, the Associated Press reported. On Wednesday, Ecuadorian President Daniel Noboa ordered the foreign ministry to create cooperation agreements with “allied nations” that would allow “the incorporation of special forces” to aid Ecuador’s security forces. The arrangement did not specify which countries Ecuador is asking for security assistance. The proposal comes weeks after Noboa won the first round of presidential elections, with the second vote scheduled in April. It also comes as Ecuador struggles with a spike in violence tied to the trafficking of cocaine produced in neighboring Colombia and Peru. Mexican, Colombian, and Balkan cartels operate in the country with help from local gangs. Noboa’s administration has managed to reduce the homicide rate from 46.18 per 100,000 people in 2023 to 38.76 per 100,000 people last year. Despite the dip, it remained far higher than the rate of 6.85 killings per 100,000 people recorded in 2019. Security analysts said the request is a temporary measure that would see foreign troops help in gathering intelligence, and local security officials stop trafficking via the country’s ports. Wednesday’s announcements came months after Ecuador’s constitutional court ruled in favor of an amendment to the constitution that would allow foreign military bases in the country. For a decade, the United States military operated a base in Ecuador primarily dedicated to anti-narcotic operations. However, this ended in 2009 when then-President Rafael Correa terminated the agreement with the US, citing concerns over sovereignty. The constitutional court’s decision will now be debated in the legislature and, if approved, ratified through a referendum. Share this story

Rio Suffers Its Hottest Day In A Decade

World Rio de Janeiro records its hottest day in at least a decade — about 145 degrees hotter than North Dakota Updated on: February 18, 2025 / 8:06 AM EST / CBS/AP Rio de Janeiro recorded its hottest day in at least a decade when temperatures on Monday reached 44 degrees Celsius (111 degrees Fahrenheit) — about 145 degrees warmer than Bismarck, North Dakota — as residents flocked to the ocean to try to cool off. It was the highest temperature since the southeastern Brazilian city started a climate alert system just over 10 years ago. The second-highest was 43.8°C in November 2023. City officials issued an alert for extreme heat for the coming days, set up hydration stations and prepared the public health system to handle an increase in heat-related cases. People cool off in showers during a heatwave at the Ipanema beach in Rio de Janeiro People cool off in showers during a heatwave at the Ipanema beach in Rio de Janeiro, Brazil February 16, 2025. Pilar Olivares / REUTERS Raquel Franco, chief meteorologist of the Rio Alert System, said the previous heat record for February in the city was 41.8C, recorded in February 2023. With no rain on the horizon, "we may have one of the driest Februarys in history," Franco said. Rio Mayor Eduardo Paes on Sunday ruled out canceling Carnival festivities that ramp up over the coming weeks, but he recommended that revelers take precautions. "We are expecting the hottest summer in recent years," Rio's health secretary Daniel Soranz told AFP on Monday. "In January, more than 3,000 people were treated in municipal emergency services due to the intense heat," particularly for sunburns and dehydration, Soranz said, adding this was more than double the numbers seen in recent years. APTOPIX Brazil Summer Weather People flock to Ipanema beach during summer in Rio de Janeiro, Sunday, Feb. 16, 2025. Bruna Prado / AP There has been heightened concern about heat at public events in Brazil since a Taylor Swift fan died during her Eras Tour concert in Rio during the November 2023 heat wave. In Copacabana, wilting doorman Robson Oliveira stopped to take a picture of an electronic display showing the temperature at 39C. "This heat is unbearable," he told AFP. "I'm not used to it. It's about time for a little rain to cool off." The weather picture was decidedly different in the U.S. on Monday. The National Weather Service warned of "life-threatening cold" as wind chills dropped to minus 50 Fahrenheit in parts of Montana and minus 60 Fahrenheit in parts of North Dakota. The temperature in Bismarck, North Dakota on Monday reached a low of minus 35 Fahrenheit. Agence France-Presse contributed to this report. More from CBS News Brazil's Bolsonaro charged for alleged plot for coup, poison try on successor "No Kings on Presidents Day" rallies across the country target Trump, Musk Over 150 false killer whales stranded on beach can't be saved, experts say The pope has a "polymicrobial respiratory tract infection." What is it? In: Brazil Heat

Uruguay Is Moving Toward China

Stability Über Alles Uruguay Last fall, when Uruguayans were asked in a referendum whether they would like to retire five years early with bigger pension payments, they resoundingly said no. They worried that the country would become unstable if it took on more debt to fund the changes. It’s unusual for voters to vote against their own personal interests anywhere. But in this small, prosperous South American country of 3.4 million people in the center of a region marked by violence, instability, and authoritarian governments, voters see stability as their interest. That drive for moderation and stability is evident in the politics of the country – here, elections are fought from the center, wrote World Politics Review. That was especially true of the elections last fall. For example, the winner, Yamandú Orsi of the left-wing Broad Front party, won on a campaign that promised stability and “Safe change that won’t be radical.” His opponent, Álvaro Delgado of the center-right National Party, delivered a similar message. During the election, as the Americas Society/Council of the Americas explained, voters liked the idea of decreasing the retirement age from 65 to 60. But they worried it would put too much pressure on the national budget. Some say that such caution isn’t helping the country solve its problems. For example, one top concern is the deteriorating security situation, mainly due to the rise of criminal gangs, which is harming the country’s reputation as a beacon of stability. Cocaine shipments to Europe have surged through the port of the capital, Montevideo, fueling a rise in gang violence, wrote Insight Crime. The murder rate has almost doubled in a decade to 11 per 100,000 people. That has shocked the population, which is unaccustomed to such violence. “Uruguay is in a precarious position,” wrote Reuters, “fighting a lonely battle against cocaine-smuggling gangs” that have expanded into every corner of Latin America over the last decade, turning once-tranquil nations like Ecuador into cartel badlands. Other issues facing the country, in spite of it being one of the wealthiest countries in Latin America, are the cost of living, education, and poverty. About half of all children finish high school, one in five children live in poverty, and the country has one of the highest youth unemployment rates in Latin America – about 26 percent. Another issue that worries voters is the economy and trade. Economic growth is slow and steady in the country, at around 4 percent last year. But Ecuadorians are rattled by US President Donald Trump’s tariff threats and other shocks to the global economy. As a result, Uruguayans are growing closer to China and also Europe. “Energy is expensive. China is now seen as a complicated competitor. The US is getting more and more protectionist. In this new geopolitical scenario, it is key for Europe to strengthen the partnerships they can have,” Uruguay’s Foreign Minister Omar Paganini told Politico. “For Latin America, the situation is rather similar … in the sense that we are being pulled by different powers like China, the US. We need long-term friendships with stable partners.” Top European Union officials visited Uruguay in December to sign a landmark free-trade agreement with the Latin American Mercosur trade bloc, made up of Brazil, Argentina, Uruguay, and Paraguay. The deal had been in the works for decades. Meanwhile, China and Uruguay are negotiating a bilateral trade deal even as Uruguay is also pushing for a wider Mercosur trade agreement with China. China and Brazil are Uruguay’s top trade partners. Uruguayan officials say they have tried for years to get a free trade agreement with the US and would have preferred that, given that they have “issues related to how the Chinese believe, and their political organization, the human rights issues,” Uruguay officials explained. “So let’s be pragmatic, we are a small country in a complicated world, we need trade partners – and they are stable people,” added Paganini. “Moreover, the world is changing and not for good for those who believe in rules-based relationships and agreements.”

Brasil: Why The World's Green Engine Is Stalling

Why the world’s green engine is stalling Ana Lankes Brazil bureau chief A few weeks ago I visited the port of Açu, which lies 320km north-east of Rio de Janeiro. There were no containers piled up in warehouses or big gantry cranes hanging over terminals. Instead, the site looks almost like a nature reserve—including a sanctuary for baby loggerhead turtles and a broad-leaf forest—with most of the action concentrated on the distant horizon. The port was built to provide offshore logistical support to oil platforms that pump crude out of nearby basins, as part of a plan to establish Brazil as a global oil-and-gas hub. Now, though, the current owners have different plans. They are ploughing billions of dollars into turning it into a hub for green industry, including factories to build wind farms, make clean steel and produce ammonia. The transformation of the Açu is representative of Brazil’s broader aspirations. The country has everything it takes to become a green powerhouse. It has huge potential sources for clean energy, thanks to mighty rivers in the Amazon basin, consistent sunshine in the north-east and strong winds from the Atlantic. It is also an agricultural behemoth, producing much of the sugar, soyabeans, cotton, coffee and oranges the world consumes. The waste from these products can be converted into fuel. All this could make Brazil one of the cheapest places to produce green hydrogen (which requires vast amounts of renewable electricity to replace the power usually provided by coal) as well as biofuels, which are needed to decarbonise heavy industries like steel, shipping and aviation. Investors should be flooding in. Brazil has attracted some foreign direct investment in renewables, but it will need much more to realise its green ambitions. Why is the cash slow in coming? There are several reasons, but an important one is Brazil’s volatile economy. Even in more stable countries there are dangers to investing in big decarbonisation projects. The German government has ploughed $525m into a green-steel plant owned by ThyssenKrupp. It was set to open in 2027, but may be cancelled due to escalating costs. Now think of Brazil: last year the real was the world’s worst-performing major currency. The interest rate is expected to reach 14.25% in March, compared with 4.25-4.5% in the United States and 6.25% in India. Many investors worry that President Luiz Inácio Lula da Silva is a spendthrift and that their investments could eventually get caught up in a wider economic crisis. The president has also sent mixed signals. Even while pursuing green ambitions, he is pressuring the environmental regulator to grant Petrobras, the state oil firm, a licence to drill for oil near the mouth of the Amazon. That is a bad look for a country that will host the COP30 climate summit in November. Brazil has everything it needs to be the world’s green engine. It just needs the right driver. Thanks for reading this edition of the Climate Issue. Do you think Brazil can become a green superpower while still pursuing oil? Should it push ahead with big green investments regardless of the risks? We’re always interested to hear our readers’ views. Write to us at climateissue@economist.com. .

Most Latin AMerican Migrants No Longer Go To The United States

The Americas | Migration Most Latin American migrants no longer go to the United States Can the region cope with a new wave? Venezuelan migrant holds his daughter while resting in a hammock Photograph: AP Feb 13th 2025|Cúcuta Save Share Give Listen to this story. Esther Hernández fled Venezuela to Colombia in 2017 with her husband, three daughters and a sewing machine. Her voice cracks as she recalls sleeping in a shelter, cooking on an open fire and at times going hungry. Her husband left for Chile in 2018, desperate for work. He eventually got a construction job in Puerto Montt, some 8,000km (5,000 miles) away. Ms Hernández built up a sewing business. Saving furiously, and with regularised legal status in Colombia, the family eventually bought land in El Zulia, a small village near the Venezuelan border. Brick by brick she built a house there. Now, after six years away, her husband is coming home at last. “I am a Zuliana now,” she smiles. If you listen to American politicians you might think that every migrant in Latin America is heading for the United States. In the past most did, but not any more. The Hernández family, rather than those who make for the United States, is now typical of Latin American migrants. Between 2015 and 2022 the number of intra-regional migrants in Latin America and the Caribbean soared by nearly 7m to almost 13m. Over the same period the number of migrants from the region living in the United States increased by just 1m. Map: The Economist Most of those migrants are Venezuelans fleeing dictatorship and economic chaos. Some 8m now live outside Venezuela, 85% of those in Latin America and the Caribbean. They are joined by Nicaraguans, also ditching dictatorship, who tend to make for Costa Rica. Haitians, escaping the horror of their gang-run state, also tend to settle in Latin America and the Caribbean, particularly in the Dominican Republic and Chile. With a 2,200km border with Venezuela, Colombia is on the front line. Some 2.8m Venezuelans live there, one in every 20 people in Colombia. The country has been remarkably welcoming. In 2017 it opened the first of a series of schemes giving some Venezuelans access to health care and education, and the right to work, for two years. In 2021 it went further, guaranteeing Venezuelans who had arrived before February that year most of the rights enjoyed by Colombians, even if they had entered the country irregularly. This scheme lasts for a decade, and provides a path to permanent residency and citizenship. Almost 2m Venezuelans, including Ms Hernández, have already received their new identity card under this scheme. Some 350,000 more applications are being processed. This warm welcome can be seen at the Centro Abrazar (roughly, hugging centre) in Bogotá, a kindergarten-cum-migrant-centre funded by the city’s government. Mere days after long, scary journeys, dozens of Venezuelan children twirl and sing, wearing paper sashes decorated in crayon with their favourite word about themselves (“happy”, “beautiful”, “brave”). The centre is free, open every day of the year and, crucially, helps new arrivals quickly get their papers in order and their children registered in Bogotá’s school system. A nativist might expect such a welcome to lead to severe economic disruption. Yet migrants did not push up unemployment among local workers, even in Colombia. The wages of less-educated and informal workers did fall in Brazil, Colombia and Ecuador, but the decrease was usually small and temporary. The IMF estimates that since 2017, Venezuelan migrants have increased annual GDP growth by an average of 0.1 percentage points in receiving countries like Panama, and by 0.2 in Colombia, a boost which will last until 2030. Hospitals and schools feel the strain, nowhere more so than in Colombia. In 2019 the country spent 0.5% of its GDP looking after migrants, according to the IMF. Spending has declined since then to around 0.3% of GDP. The IMF says the costs will be balanced over time by rising tax revenues as more migrants enter the labour force. Quick regularisation is helpful, as it brings down health-care costs as well as boosting the tax take. Many Latin Americans, especially Chileans, think migrants bring crime. A study by Nicolás Ajzenman of McGill University and co-authors, which examined data from between 2008 and 2017, found that when the proportion of migrants in a given part of Chile doubles, the share of people there who say crime is either their biggest or second-biggest concern jumps by 19 percentage points, relative to the nationwide mean of 36%. But they found no impact on crime of any sort. Colombia saw an increase in violent crime near the border in 2016, when migration was surging, but the victims tended to be Venezuelan, suggesting it is migrants who bear the risks. Still, crime has risen overall in Chile in recent years. Politicians blame migrants. The influx of black Haitians also “triggered much more evident racism”, says Ignacio Eissmann of the Jesuit Migrant Service in Chile, an NGO. Attitudes are hardening elsewhere, too. Between 2020 and 2023 the share of Costa Ricans who say migrants damage the country jumped by 15 percentage points to 65%. In Peru and Ecuador four in five people believe the same. Governments—most of which were welcoming initially—are reaching their limits. From 2018 Chile demanded that Venezuelans and Haitians must get a visa before coming. Peru and Ecuador started demanding the same of Venezuelans in 2019. It is now nearly impossible for Venezuelans to get a visa at home; after Nicolás Maduro stole the election in July, all three countries closed their embassies there. Chile’s leftist president, Gabriel Boric, says the country cannot take more migrants. Regularisation has stopped, and he is pushing to widen deportation powers. Peru’s government has made it much harder for migrants to regularise their status. In theory migrant children can attend school regardless. In practice the missing paperwork often blocks them. Brazil and Colombia remain relatively generous. Carlos Fernando Galán, the mayor of Bogotá, says political leaders have a responsibility “to ensure there is not more xenophobia, to show the benefits that migration can bring”. Yet angry voices are growing louder. Almost 70% of Colombians think that migrants cause an increase in crime. That may be why Gustavo Petro, Colombia’s president, has been slow to introduce new regularisation schemes for recent Venezuelan arrivals. (He recently announced a scheme so restrictive that few will benefit.) “The central government has gone backwards,” sighs Gaby Arellano of the Together We Can Foundation, an NGO which helps Venezuelans. Mr Maduro’s rule in Venezuela is becoming more despotic. Arrivals to Colombia have increased since July 2024, though official numbers are unreliable. The border is riddled with trochas (illegal crossings); at official crossings people are often waved through without a document check. Some say the Maduro regime’s persistence makes little difference to migration. “Whoever comes will be manageable,” says Jorge Acevedo, mayor of the border town of Cúcuta. His words reflect Colombia’s welcoming spirit, but his city is now dealing with an influx of Colombians displaced by violence in the nearby region of Catatumbo. More Venezuelans could break a strained system. Whoever comes, Colombia, Peru and the region, not the United States, will again feel the biggest impact. ■ Sign up to El Boletín, our subscriber-only newsletter on Latin America, to understand the forces shaping a fascinating and complex region. Explore more Venezuela Immigration The Americas United States

The US Is Giving El Salvador A Nuclear Reactor For Housing US Prisoners There

The Trade El Salvador El Salvador offered to incarcerate criminals of any nationality deported from the US and house them in its mega-jail, a deal made the same day that the US offered to help El Salvador develop nuclear energy capabilities, CBS News reported. According to El Salvador’s Foreign Minister Alexandra Hill Tinoco, the civil nuclear cooperation agreement signed by El Salvador and the US aims at providing the country with “competitive” energy pricing while cutting its dependence on favorable geopolitics and oil prices. Tinoco explained that the US’ experience on civil nuclear energy will provide El Salvador with the tools to train the expert personnel who will manage the technical and regulatory aspects of this “unprecedented” transition. US Secretary of State Marco Rubio approved the nuclear agreement immediately after praising El Salvador President Nayib Bukele’s offer to take individuals incarcerated in the US, including US citizens, as an “offer of friendship” that no other country ever made, the BBC reported. Bukele said he would house convicted criminals in El Salvador’s Terrorism Confinement Center (CECOT) – a mega-jail capable of holding up to 40,000 people – charging the US a fee that would be “relatively low” for the country but “significant” enough to make El Salvador’s prison system sustainable. El Salvador’s nuclear plans are in a very early stage. According to the World Nuclear Association, the US is the largest producer of nuclear energy. Nuclear supporters say that this resource is one of the most reliable and environmentally friendly energy sources, while critics believe it is dangerous, wasteful, and expensive. Before receiving significant exports of US nuclear material and equipment, partner countries will need to sign a 123 Agreement intended to promote mutual nuclear nonproliferation between the United States and its partners. Because El Salvador is not one of the eight countries able to enrich uranium and procure the necessary fuel for nuclear power, it has to rely on other countries for new nuclear technology. El Salvador signed a similar agreement with Argentina last October.