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El Salvador takes risks for Chinese investment – DW – 11/19/2022

El Salvador takes risks for Chinese investment - DW - 11/19/2022

Perhaps the word “uncertainty” best describes the situation in El Salvador.

FTX, one of the largest cryptocurrency exchange platforms in the world, filed for bankruptcy this week. This news has caused bitcoin’s price to plummet in recent days and has made all eyes turn to El Salvador. Central American President Nayib Bukele made bitcoin legal tender in 2021 and also invested most of the country’s budgetary reserves in it.

Bukele’s decision to invest El Salvador’s reserves in bitcoin sparked mixed supportImage: Camilo Friedman/SOPA Images via ZUMA Press/picture Alliance

“Unfortunately, if you ask for information on the scale of investment in bitcoin, the answer is either this information does not exist or it is confidential,” – Ricardo Castaneda, El Salvador Country Coordinator at the Central American Institute for Financial Studies (ICEFI). ). Castaneda said the only way to calculate El Salvador’s investment in bitcoin was through the president’s tweets. According to what the president has made public, the investment could be around $120 million (116 million euros).

Following a global devaluation of cryptocurrencies and a lack of confidence in international markets, El Salvador faces new economic challenges.

“When international markets see how high the budget deficit is, how spending cannot be paid and how debt is accumulating, they will be more cautious and will consider you very risky,” Roberto Rubio Fabian, executive director of the National, told DW a spokesman for the Development Fund and Transparency International in El Salvador.

In January, El Salvador will have to pay 667 million euros (691 million dollars) of international debt to pay off Eurobonds. “China has offered to buy all of our debt, but we need to be careful,” Vice President Felix Ulloa said at an event in Madrid.

New Economic Union

This has never been confirmed by the Xi Jinping regime in Beijing. However, three days later, the governments’ mutual interest in opening negotiations on a free trade agreement was confirmed at an event in San Salvador attended by Bukele and Chinese Ambassador Ou Jianhong.

Back in 2018, El Salvador was already showing signs of building closer ties with the world’s second-largest economy after breaking ties with Taiwan. This brought with it some advantages.

Bukele, wearing a belt in the colors of the Salvadoran flag, gestures towards the Parliament.
Naib Bukele has been President of El Salvador since June 2019.Image: Jose Cabezas/REUTERS

“China has made three donations to El Salvador: the construction of a kind of beach amusement park, a stadium that has yet to be built, and a library. These investments improve the image of China and, obviously, the image of our country,” Rubio Fabian explained. .

Desiree Raeder, a researcher at the Hamburg-based German Institute for Global and Regional Studies, added that the current state of democracy in El Salvador also prevents closer ties with countries that have criticized Bukele’s government, such as the United States. “In this regard, China does not apply human rights-based sanctions, and this makes it a possible solution. The big question is whether the benefits of the relationship outweigh the costs,” she told DW.

“Nothing is free”

While a possible alliance with China could serve as a lifeline for the Salvadoran economy, experts agree that such an agreement could also carry numerous risks. “Nothing is free,” Raeder said.

“El Salvador may see some benefits for its infrastructure, which we are already seeing, but China will want something in return. It could be exclusive rights to commercial profits, or it could require certain projects in areas that might be protected or that might impact some communities,” she added.

ICEFI’s Castaneda also doubts that the idea of ​​a free trade agreement with China is a good deal for El Salvador. On the contrary: he believes that the Central American country will suffer losses.

Moreover, Castaneda believes that it all comes down to politics. “Remember that President Bukele wants to be re-elected, and he has virtually no allies at the international level, plus there is a lot of tension with the US. Bukele is looking for support for his decisions, and China definitely does not stand out when it comes to defending democracy,” he added.

Experts also wonder how much real interest there is in El Salvador, especially since its strategic position cannot be compared to countries like Brazil or Panama. However, they also note that China is gradually strengthening its relationship with Latin America, breaking the region’s long-standing dependence on the United States. In fact, this may be one of the main motives of the Xi Jinping regime.

“China maintains and increases its presence while gradually improving its image,” said FUND’s Rubio Fabian.

This article was originally written in Spanish.

Written by khirou

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