Bukele’s Bitcoin experiment is plagued by security risk
El Salvador's gang problem is catching up with Nayib Bukele. That has implications for his Bitcoin policy.
El Salvador’s fledgling Bitcoin experiment is suddenly plagued by security risks.
In late March, a spate of 62 homicides in one day prompted president Nayib Bukele to declare a 30-day state of emergency and arrest hundreds of gang members. Since the arrests, some Bitcoin investors and policy activists have sided with the president. Others, however, are showing a degree of skepticism - rightly so - toward his tactics.
El Salvador’s security problems did not just come out of nowhere. A truce between the government and the country’s two main gangs MS-13 and Barrio 18 has been kept intact from June 2019, when Bukele assumed the presidency. The US Treasury Department thinks Bukele’s ministers brokered a truce with the gangs and sanctioned two of them last year. It’s possible that the sanctions, and the recent release of top MS-13 gang leaders from prison, could be part of the cause for an uptick in violence.
Bukele’s high levels of approval are based on his government’s ability to keep the peace in El Salvador. Up until recently, officials reported low homicide rates. That was good for Bukele’s mandate since ordinary Salvadorans want security. And of course, this was good news for Bitcoin investors who perceived El Salvador as a dangerous, crime-ridden country for their capital (and residency).
Security worked for investment. Bukele has since wooed Paxful, Bitfinex and ZAP to set up offices in San Salvador. Samson Mow’s JAN3 - with US$21mn - wants to invest in digital infrastructure tied to Bitcoin City. When Bukele told members of the Miami Bitcoin conference that he needed to attend to security issues at home, Mow tweeted that Bitcoiners need to stand by the president, implying that they should support his extrajudicial military crackdown.
Not all Bitcoiners are hook, line and sinker with his law and order tactics, though. Alex Gladstein is skeptical of Bukele’s lack of checks and balances. Even though he supports El Salvador’s Bitcoin legalization policy, Gladstein appears worried that Bitcoiners could be enabling an autocratic leader instead of the underlying policy regime needed for investment.
The problem is, Bukele’s law and order posture is bordering on military absolutism. Since the outbreak of violence in late March, El Salvador’s military has arrested and jailed 9,000 people who are allegedly tied to the gangs. In an otherwise functional democracy, those responsible for the 62-plus murders would be tried and prosecuted for their crimes. No doubt, El Salvador has a complex gang problem. Membership in a gang can get you 9 years in prison. Bukele wants to increase that to 45 years. Still it is hard to imagine that all of these 9,000 are responsible for the uptick in homicides. Some Salvadorans on Twitter are claiming that the military has mistakenly arrested their family members because they appear like gang members. Because of weak security institutions, it’s very possible some detentions are arbitrary and imprecise.
There’s no denying El Salvador’s gang issue. But if Bukele mismanages the human rights side of his crackdown, his government risks falling under international pressure and further sanctions by the US. That would hurt the Bitcoin policy experiment he and investors have built so far. Likewise, if Bukele were to let homicides spiral out of control, few investors will want to risk capital for a residency-based investor program - or risk deploying staff to the country.
It all reminds me of Colombia during the early 2000s. Alvaro Uribe was elected president in 2002 on a mandate to beat back FARC rebels who wanted to topple the government. Sure, his security measures were heavy-handed, but they were also successful at opening up the country and bringing in foreign investment. Energy, infrastructure and tourism prospered because foreign capital viewed strong security and legal clarity in Colombia’s policy matrix.
Colombia’s turnaround didn’t come without mistakes and costs. Under Uribe, there were multiple allegations of military abuse, including a high-profile scandal of extrajudicial killings. Those killings and other scandals stained Uribe’s legacy and complicated Colombia’s dreams for peace. Bukele, it seems, is in a similarly fuzzy dilemma. Bitcoin and crypto companies should hope he doesn’t turn El Salvador into a nightmare.