When the covid-19 pandemic hit in 2020, El Salvador’s economy was on the brink due. The GDP was down 8% and its economy was struggling to survive strict lockdowns.
El Salvador got a lifeline when the Central American Bank for Economic Integration (BCIE) approved a $600 million loan in 2021. The loan was supposed to aid small businesses. However, an investigation by El Salvador’s government bought Bitcoin with Covid relief funds. However, an investigation by the Organized Crime and Corruption Reporting Project (OCCRP) uncovered that only a fraction of the funds were ever used to aid small businesses.
Where did the aid money go?
President Nayib Bukele diverted over $200 million to fund his pet project rather than using the aid as intended. He wants to make El Salvador the first country to successfully embrace Bitcoin as legal tender.
This controversial crypto scheme has drawn criticism since its introduction in 2021. International financial institutions like the IMF and World Bank have repeatedly warned the country’s government to reverse the legal tender.
Bukele has ignored and criticised all their warnings. However, the unveiling of this report is evidence of him crossing the line.
Allocating the diverted pandemic aid to build the infrastructure for Bitcoin’s rollout across the nation defies the loan agreement. It specifically prohibited on using the money for buying cryptocurrencies.
Words get exchanged
BCIE President Dante Mossi admitted to these allegations. He argued that Bitcoin represents less than 1% of the country’s economy. He claimed this expenditure on Bitcoin would benefit 4 million people through small business assistance. However, OCCRP’s revealed that only $20 million had been distributed to small business loans by the time the funds arrived in July 2021.
The government spent over $200 million to finance Bitcoin infrastructure and the Chivo digital wallet app. The government promoted the wallet by distributing $30 Bitcoin to every registered Salvadoran.
Experts criticise
Many experts questioned the wisdom of gambling pandemic aid on a volatile Bitcoin experiment. Economist César Villalona pointed out that the country remains dollarized in reality, showing that Bitcoin has not become legal tender in practice. The adoption rate of Bitcoin in the country is low despite government backed promotions.
A study by the U.S. National Bureau of Economic Research revealed that less than 10% of Chivo app users actively continued using it. Its use peaked when the government handed out free Bitcoins in 2021 upon registration.
Daily usage remains low, far from achieving Bukele’s goal of transforming national economy. A survey also showed how most Salvadorans are against the government when it comes to spending tax money on Bitcoin. However, Bukele’s popularity remains high due to his crackdown on organised crime in the country.
The report reveals that this reckless diversion of relief funds has deprived Salvadorans of much-needed economic support. The Bitcoin plan failed to deliver on its promises, and adoption remains minimal, while the economic devastation brought by the pandemic persists.