China surrounds the economy of El Salvador as the country edges toward the crypto plunge | Bitcoin

As crypto-Twitter cascaded with apocalyptic memes about Bankruptcy cryptocurrency exchange FTX and a sharp drop in the price of bitcoin, an account has remained particularly silent on the topic.

Unlike in the previous accident, the president of El Salvador, Nayib Bukele, which made bitcoin legal tender a year ago, do not exhort his followers to “buy dip”. The laser eyepopular among crypto currency traders, has long since been removed from his Twitter profile.

On the day FTX declared insolvency, he announced that the country would sign a free trade agreement with CHINESE. Its vice president, Félix Ulloa, said China had offered to buy $21 billion of the country’s foreign debt as part of the deal.

The Central American country of 6.5 million finds itself in a tough financial position. In January it had to pay €667m ($688m) for Eurobond amortization. At the beginning of the year, Bukele promised that his country would issue bitcoin-denominated bonds to pay the national debt and predicted that the price of bitcoin would reach $100,000.

But the so-called “volcano bonds” never emerged and today the price of bitcoin hovers around $16,000. The the best tracker from the president’s opaque trade estimates that he has spent over $107m on 2,381 bitcoins. Today the investment is worth a little over $40m.

“If Bukele dreamed that he could create a different and innovative political economy, against the advice of the IMF, that dream has failed,” said Luis Membraño, a Salvadoran economist. “There are no easy alternatives, no shortcuts.”

The loss of bitcoin is relatively insignificant for the overall debt, but the president’s determination to ignore the advice of the IMF to back off on his bitcoin policy has spooked international markets. When rating agency Moody’s announced a January downgrade in the country’s credit, Bukele tweeted: “Breaking: Savior DGAF”, an acronym for “don’t give a damn”. Now Fitch says that some form of default is likely in January.

With rising inflation, a looming recession and a worsening fiscal situation, El Salvador could not turn on the printing press because the country adopted the US dollar as the national currency in 2001. Instead the government has dipped into its reserves to cover its fiscal hole. If the situation deteriorates, the country may eventually be forced to move off the dollar, according to Membreño.

However, to receive debt financing from China will mean a definitive break from the US and move the country closer to China, Russia and Turkey, according to Membreño. “It will represent a total realignment of El Salvadoran foreign policy,” he said.

The funding won’t come cheap, according to Evan Ellis, a senior associate at the Washington DC-based Center for Strategic & International Studies. “China acts as a payday lender, they make good money from these deals,” he said. “But they often find ways to link loans to long-term commercial and strategic benefits paving the way for Chinese companies.”

because El Salvador ended its relationship with Taiwan in 2018China has agreed to build a stadium and a library in the country but its plan to turn the port of La Unión into a logistics hub has been stalked.

Closer ties with China may also suit Bukele’s own ambitions. He has drawn criticism from the US and Europe for seeking re-election in 2024 in violation of the country’s constitution.

“When a populist government, left or right, comes to power, China acts as a non-judgmental underwriter,” Ellis said. “China can give Bukele financial independence to become authoritarian and follow the constitution.”

With an approval rating of around 90%, Bukele remains the most popular president in Latin America, according to a heavy-handed approach to law and order and regular attacks on the old political elite.

When Salvadorans voted for him in 2019, after decades of corruption from the traditional party and spiraling gang crime, many felt they were in the salon of their last chance.

But as a bitcoin gambler, Bukele doesn’t know when to hold them or when to fold. A closer relationship with China would represent another roll of the dice.

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