- El Salvador’s government is under scrutiny as an investigative report reveals that over $200 million of COVID-19 relief funds were diverted to finance the country’s Bitcoin infrastructure.
- Despite the government’s promotion, Bitcoin adoption remains low in the country, with less than 10% of Chivo app users actively using the platform, showcasing a disconnect between the administration’s crypto aspirations and the economic reality.
When the world was grappling with the onslaught of the COVID-19 pandemic in 2020, El Salvador found itself on the edge of economic collapse. The nation’s Gross Domestic Product (GDP) plummeted by 8%, and stringent lockdown measures further strangled its economic vitality.
Follow the Money: Unpacking El Salvador’s COVID-19 Aid Allocation
In 2021, a glimmer of hope appeared when the Central American Bank for Economic Integration (BCIE) sanctioned a $600 million loan aimed at resuscitating small businesses. Nonetheless, an inquiry led by the Organized Crime and Corruption Reporting Project (OCCRP) revealed a starkly different reality; only a minimal portion of the funds reached the intended beneficiaries.
NEW: An investigative project by OCCRP & 10 partners found that Central America’s main regional development bank #CABEI has bankrolled projects that have enabled waste and corruption in one of the most unequal regions on Earth.👇https://t.co/GizAPra762
— Organized Crime and Corruption Reporting Project (@OCCRP) October 31, 2023
President Nayib Bukele, a staunch Bitcoin advocate, rerouted over $200 million of the aid to fuel his vision of transforming El Salvador into a Bitcoin haven. The move attracted widespread criticism and admonishments from global financial entities like the IMF and the World Bank, all of which fell on deaf ears.
The OCCRP report underscores a blatant defiance of the loan agreement, which explicitly forbade the use of funds for cryptocurrency acquisitions. BCIE President Dante Mossi conceded to these revelations, albeit downplaying the impact by stating that Bitcoin’s footprint in El Salvador’s economy is negligible. He argued that the investment would eventually benefit four million citizens by bolstering small businesses. Contrarily, the OCCRP disclosed that a mere $20 million had been allocated to small business loans by July 2021.
Critics Weigh In: Questioning the Crypto Strategy
Economists and experts have voiced their concerns regarding the gamble of pandemic relief funds on an inherently volatile Bitcoin. César Villalona, an economist, highlighted that El Salvador’s economy remains predominantly dollarized, showcasing the limited practical adoption of Bitcoin. This sentiment is echoed by a study from the U.S. National Bureau of Economic Research, revealing the low active usage of the government-backed Chivo app.
The Salvadoran populace has also expressed their discontent, with a majority opposing the use of tax money for Bitcoin investments. Despite this, President Bukele’s approval ratings remain high, buoyed by his efforts against organized crime.
In essence, the report by OCCRP sheds light on a precarious diversion of essential relief funds, leaving the Salvadoran people deprived of critical economic support. The Bitcoin venture, riddled with unmet promises and minimal adoption, stands as a stark reminder of the complexities and risks involved in intertwining cryptocurrency with national economic strategies.