the perfect storm is looming over el salvador. although the probability of default on the nation's sovereign debt has been increasing from mild to high to probable; the fact that the president is seeking reelection in less than two years plays a major role in the course of events in the short term.
let's not overlook, however, the fact that nayib bukele is very corrupt and very deceitful. so much so that there is reason to suspect he has colluded with high profile crypto promoters like stacy herbert, max keiser and some companies from the crypto ecosystem like bitfinex and tether to intentionally degrade the country's bonds down so his partners can buy them at pennies on the dollar and later rebuy them at a higher price but still somewhat lower than face value. if those suspicions were accurate, i wonder if under NY law the SEC and other authorities could step in and open an investigation for insider trading?
the main point still remains the same; the 2023 and 2025 bonds are crucial because they mature right in time of the president's reelection and as i've mentioned before for nayib bukele, his siblings and close accomplices reelection is a matter of survival because once they leave office the risk of being arrested, extradited to the united states and sentenced to life in prison for drug trafficking, money laundering, obstruction of justice, terrorism, etc. is likely. so the salvadoran government cannot afford to fall into default and risk the economic shockwaves of such an event. nayib bukele is aware of what happened to the president of sri lanka recently and is terrified of any event that may lead to his removal from office.
the move to rebuy the debt before it matures is a good one but only in the short term and for the reasons mentioned above. but if you look at it in the mid to long term it is not good. even if the country does not go into default in 2023 and 2025, once nayib bukele has established himself in power indefinitely he can thus afford to not pay the foreign debt beyond 2025, he would have no incentive to pay. another factor to consider is that investors who lose money by selling short of the bond's face value will not easily invest in el salvador again, at least not anytime soon because, well, from the negative experience of uncertainty. that means that the country will continue to isolate itself from international, traditional sources of financing while the deficiency of corrupt practices internally continue to wear on the population while the fiscal deficit continues to grow and the economy stagnates. eventually nayib bukele will have no option but to use cruel, brutal repression to keep an ever growing popular discontent that threatens to oust him from power. that means a great danger looms over the country for the years beyond 2025 and prospects remain gloomy at best.
Hi! I agree that savings to taxpayers will entirely depend on execution. If no bondholders think the country will default and nobody tenders their bonds, then there will be no savings at all. But I don't suspect this will be the case. We'll learn more soon. On the use of funds, I am also concerned. Corruption is certainly a problem, but the government still has looming maturities it needs a strategy to deal with. This is a way to manage them. Not perfect by any means, and certainly not a substitute for a credible fiscal adjustment framework, but it's something.
the perfect storm is looming over el salvador. although the probability of default on the nation's sovereign debt has been increasing from mild to high to probable; the fact that the president is seeking reelection in less than two years plays a major role in the course of events in the short term.
let's not overlook, however, the fact that nayib bukele is very corrupt and very deceitful. so much so that there is reason to suspect he has colluded with high profile crypto promoters like stacy herbert, max keiser and some companies from the crypto ecosystem like bitfinex and tether to intentionally degrade the country's bonds down so his partners can buy them at pennies on the dollar and later rebuy them at a higher price but still somewhat lower than face value. if those suspicions were accurate, i wonder if under NY law the SEC and other authorities could step in and open an investigation for insider trading?
the main point still remains the same; the 2023 and 2025 bonds are crucial because they mature right in time of the president's reelection and as i've mentioned before for nayib bukele, his siblings and close accomplices reelection is a matter of survival because once they leave office the risk of being arrested, extradited to the united states and sentenced to life in prison for drug trafficking, money laundering, obstruction of justice, terrorism, etc. is likely. so the salvadoran government cannot afford to fall into default and risk the economic shockwaves of such an event. nayib bukele is aware of what happened to the president of sri lanka recently and is terrified of any event that may lead to his removal from office.
the move to rebuy the debt before it matures is a good one but only in the short term and for the reasons mentioned above. but if you look at it in the mid to long term it is not good. even if the country does not go into default in 2023 and 2025, once nayib bukele has established himself in power indefinitely he can thus afford to not pay the foreign debt beyond 2025, he would have no incentive to pay. another factor to consider is that investors who lose money by selling short of the bond's face value will not easily invest in el salvador again, at least not anytime soon because, well, from the negative experience of uncertainty. that means that the country will continue to isolate itself from international, traditional sources of financing while the deficiency of corrupt practices internally continue to wear on the population while the fiscal deficit continues to grow and the economy stagnates. eventually nayib bukele will have no option but to use cruel, brutal repression to keep an ever growing popular discontent that threatens to oust him from power. that means a great danger looms over the country for the years beyond 2025 and prospects remain gloomy at best.
Hi! I agree that savings to taxpayers will entirely depend on execution. If no bondholders think the country will default and nobody tenders their bonds, then there will be no savings at all. But I don't suspect this will be the case. We'll learn more soon. On the use of funds, I am also concerned. Corruption is certainly a problem, but the government still has looming maturities it needs a strategy to deal with. This is a way to manage them. Not perfect by any means, and certainly not a substitute for a credible fiscal adjustment framework, but it's something.