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Jun 1, 2022Liked by Frank Muci

this is a comprehensive, down to earth analysis of el salvador's financial options in light of its likely sovereign default.

first, we have to take into account that nayib bukele is corrupt and very deceitful and so is his government so we should expect just about any possible scenario, whether it's good, bad, regular, whatever. at this point they can literally do just about ANYTHING, whether it is to default on the sovereign debt, use the international reserves to pay the debt, nationalize the pension funds system and take their money to pay the debt, etc.

secondly, the fact that bukele wants reelection, even though it is illegal under the current constitution; does make it more likely than not that he will repay the debt in the short term because he's terribly scared of the bad noise the news of default and the economic shock would make on his reelection campaign where he portrays himself as a bigger than life phenomenon that is carrying the country on his back to the way to development. and the way things have played out reelection is no longer so much about his ego and media presence anymore but about survival as the possibility of arrest, extradition and conviction appears on the horizon for him, his clan and his close collaborators. bukele cannot afford to leave the presidency because he knows well he will end up in jail when he does, so he's actually after unlimited reelection. if you've followed his career you can see the drastic shift from the things he preached while he was mayor and presidential candidate versus the actions he takes as president now. just to illustrate my point look at his tweets on former honduran president hernandez being reelected a few years ago and his comments concerning his extradition to the united states recently.

last, bukele leads a double life. on one hand he presents himself as a smooth, futurist politician and on the other he's deeply immersed in dealings with organized crime. even the government stable-coin app chivo's failure may have been premeditated as a means to launder capital from criminals at the expense of local tax payers taking the loss. jose luis merino is clearly the strong man who operates in the shadows and with the protection of bukele himself; merino was under investigations by the former attorney general's office for his role in drug trafficking, the alba petroleos corruption and money laundering scandals and has been a bukele business partner since early on. he was the brains behind the intentionally-failed low cost salvadoran airline VECA, for example, which was just a facade for alba laundering hundreds of millions for merino. they were also partners in the launching of the television channel TVX of el salvador and bukele is also known to have received millions of dollars in personal loans from alba's financial subsidiaries that he never repaid.

so with all that murky background as context, i do think that the government of el salvador will make use of any available option, which you've pointed out that quite a few of them exist; to avoid default this time around, but after he's reelected in 2024 all bets are off and the future of el salvador's social, political and economic projections are extremely opaque because el salvador's economy simply cannot sustain a dictatorship, in venezuela's case they have oil, a significant domestic and regional market and an extensive territory blessed with natural wealth. el salvador has debt, an impoverished population that wishes to migrate to the united states and very limited natural resources. the only thing that holds bukele in power are his media presence and all the power he has amassed. once the population begins to wake up from the enchantment and realize he is just another charlatan who promised development while stealing the country's limited resources behind their backs two things could happen: either he's overthrown in a violent coup, traditional latin american style; or full scale repression will be imposed to keep dissent in check, think cuba for example. that's the likely panorama after the 2023 bonds are due and the 2024 elections are over.

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