President Nayib Bukele changed his twitter profile status to ‘the coolest dictator in the world’ (on 22 September 2021). The profile change comes in response to protests against President Bukele’s actions, which the opposition sees as attempts to concentrate power with the executive branch and weaken the judiciary. His decision to make bitcoins a legal tender is an added grievance. President Bukele has stated that the people have taken to the streets to protest a dictatorship that doesn’t exist. He came to power in 2019 getting more votes than his two nearest rivals. He got close to 54 percent of the votes counted. He had fought the elections on a platform to end corruption, take action against gang violence and create more jobs.[i] President Bukele has maintained that his actions are within the constitution and he is working for the people of El Salvador.
The Constitutional Crisis-Since his election, President Bukele has enjoyed popular support even though political opponents have been critical of him. In 2020, soldiers and the police force entered the Legislative Assembly as members discussed a loan to help buy police vehicles, uniforms, video surveillance equipment and a helicopter. The move came after a majority of the members of the National Assembly opted to sit out on the debate on the loan plan. The show of force was condemned by the opposition ARENA and leftist FMLN parties which controlled the Assembly. They said they want more details on the spending plan before the vote. The loan was part of the President’s broader multiphase Territorial Control Plan to crack down on El Salvador's rampant gang problem. In a rally before the Assembly, President Bukele called his supporters to help remove the lawmakers through the ballot. In mid-term elections that followed in February 2021 President Bukele’s party, Nuevas Ideas (New Ideas) won both the unicameral assembly and the municipal elections.
In recent months, the government has established a panel to look at constitutional reforms. The first draft of reforms has called for an extension of the presidential term to six years from five, starting in 2029. The proposal allows the president to be re-elected immediately after the first term as opposed to waiting for two terms (or ten years) before re-election. Lawmakers and mayors would be able to run for immediate re-election and serve a maximum of three, three-year terms. It also includes mechanisms for citizen participation such as referendums and plebiscites, including changes to the election cycles. Reforms would also extend the term for the Attorney General from three to six years, create a new electoral authority and establish a new constitutional court to take the place of the current high court in an effort to improve efficiency.
Undermining the Judiciary-After the mid-term elections gave President Bukele’s party the majority in the Assembly[ii], it removed and replaced all the judges on the constitutional chamber of El Salvador’s Supreme Court, as well as the Attorney General. In August 2021, the Assembly passed two laws that state, judges and prosecutors age 60 or above will immediately “cease their functions.” The new legislation will apply to all judges and prosecutors, except those on the Supreme Court of Justice. Previously, the law did not set a mandatory retirement age for judges and said that they could retire after 35 years of service.[iii] The vacancies thus created would be filled by appointments made by the Supreme Court, recently appointed by President Bukele.
Earlier in September 2021, the Constitutional Chamber of the Supreme Court of Justice ordered the Supreme Electoral Tribunal to enable a President to serve two consecutive terms. In 2014, the Court ruled that Presidents would have to wait 10 years (or two five year terms of the National Assembly) after leaving office to be re-elected. The ruling by the Supreme Court, which has judges appointed by the ruling party, allows President Bukele to stand for elections in 2024.
Opposition parties have stated that President Bukele is destroying the independence of the judiciary. They have called the ruling by the Court and the reforms unconstitutional and have accused President Bukele of authoritarianism. They feel that the popularly elected leader is attempting to concentrate power in his hands. President Bukele has countered the appointment of the judges by stating that the Assembly is well within its constitutional powers to make the changes.
Bitcoins[iv]-President Bukele has also introduced legislation making El Salvador the world’s first sovereign nation to adopt bitcoins as legal tender. President Bukele has stated that bitcoins would help developing economies. El Salvador is largely a cash based economy with a large section of the population not part of the formal banking system. El Salvador relies heavily on money sent back from workers abroad. In 2020, El Salvador received nearly $6 billion in remittances, which accounted for about 23% of its gross domestic product.[v] About 70 percent of the population receives remittances making the flow of cash important for most people. Around 60 perecent of this money comes via remittance companies and 38 percent through banking institutions. Fees vary by company but are generally high especially for smaller amounts.[vi] The use of bitcoins offers, in theory, a quick and cheap way to send money across borders without relying on remittance firms free of cost. According to the government, bitcoins will help citizens to send remittances at no transactional cost and help digitise the economy in which a large percentage of the population has no access to traditional financial services. However, it is not clear what proportion of remittances sent to El Salvador will be bitcoins.[vii] To start the process, the government bought 150 bitcoins on the day El Salvador had become the first country in the world to adopt it as a legal tender. (As on date, El Salvador holds 700 coins worth roughly US $ 32 million.) The government has also launched a digital wallet for bitcoins transactions called Chivo. It has encountered some problems, but is fully functional and is being used by citizens to pay for goods and services, proving that the system works.
President Burkele has also stated that El Salvador will mine bitcons using geothermal power from volcanoes. However, the plans remain vague and unclear. Bitcoin mining requires vast amounts of computing energy and its environmental impact has been under scrutiny. If El Salvador is able to produce bitcoins in an energy efficient manner, it would become a hub for of crypto-technology while improving its overall technology base.
The introduction of bitcoins as legal tender has, however, complicated El Salvador’s negotiations with the International Monetary Fund (IMF) for a US $ 1 billion loan. Both the World Bank and the IMF have pointed to legal and economic concerns regarding the move. The bitcoin law of the government of El Salvador means that bitcoins will have an equal footing with the dollar. The IMF has warned that the use of cryptocurrencies as a parallel legal tender would threaten macro-economic stability and potentially harm financial integrity as these can be used anonymously for illicit activities. El Salvador has tried to address some of the concerned raised by the IMF. The government has clarified that the U.S. dollar will continue to be a legal tender along with bitcoins. (El Salvador has no currency of its own since it adopted the U.S. dollar in 2001.) The Central Bank has clarified that it would not be mandatory for business to accept bitcoins. They have also stated that money-laundering rules would also apply to crypto-currencies and to the Chivo e-wallet, allowing regulators to track transactions. The question is how the Central bank will regulate transactions as cryptocurrency transactions are noted in servers across the world to which governments have no access. It also remains to be seen if bitcoins becomes a popular means of conducting transactions and has an impact on the broader economic stability of El Salvador. Nonetheless, the stability of cryptocurrencies is being increasingly studied in Latin America, given the region’s history of financial meltdowns and hyperinflation.
Assessment- President Bukele continues to remain popular among the people of El Salvador. His response to the pandemic included a strict lockdown and soft loans and grants from the international financial agencies to overcome the economic set back. He also used the military to provide aid to families that had faced a financial downturn as a result of the pandemic and/or the lockdowns. President Bukele’s attempt to address gang violence through use of force and deploying more police force has brought down the crime rate and gained him the approval of the people. If the experiment with bitcoins is successful, it will ensure support to his party for the next elections.
President Bukele represents a growing desire for change across Latin America from the traditional political parties to populist alternatives. Voters are focused on governance, education, basic facilities and want less crime and violence.
*Dr. Stuti Banerjee, Research Fellow, Indian Council of World Affairs, New Delhi.
Disclaimer: Views expressed are personal.
[i] El Salvador along with Guatemala and Honduras forms the Northern Triangle of Central American nations. Due to difficult socioeconomic and security conditions exacerbated by natural disasters and corruption by government officials it pushes many people to become economic migrants and asylum-seekers, often illegal migrants.
[ii] The party has 57 seats in the 84 seat assembly.
[iii] Human Rights Watch, “El Salvador: New Laws Threaten Judicial Independence,” https://www.hrw.org/news/2021/09/02/el-salvador-new-laws-threaten-judicial-independence, Accessed on 24 September 2021
[iv] There are different types of cryptocurrencies such as Ethereum, Tether, Solance etc. Bitcoin is one of the oldest and most stable digital currency.
[v] CNBC, “El Salvador’s new bitcoin plan could cost money providers like Western Union and others $400 million a year, says President Bukele,” https://www.cnbc.com/2021/09/09/el-salvador-bitcoin-move-could-cost-western-union-400-million-a-year.html,Accessed on 24 September 2021
[vii] Reuters, “In a world first, El Salvador makes bitcoin legal tender,” https://www.thehindu.com/news/international/in-a-world-first-el-salvador-makes-bitcoin-legal-tender/article34775947.ece, Accessed on 23 September 2021.