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An exposé has illuminated the misallocation of a substantial portion of El Salvador‘s COVID-19 relief loan, revealing how the government diverted funds to fuel its controversial Bitcoin project.
In the wake of the COVID-19 pandemic, El Salvador grappled with economic turmoil in 2020, with GDP plummeting by almost 8%. Strict lockdown measures left many struggling to survive. Therefore, when the Central American Bank for Economic Integration (BCIE) approved a $600 million loan in 2021 to provide relief for small businesses severely impacted by the crisis, it promised a lifeline for millions of Salvadorans. However, an investigation by the Organized Crime and Corruption Reporting Project (OCCRP) has unveiled that only a fraction of the funds reached those in dire need.
Rather than channeling the aid as originally intended, President Nayib Bukele’s government diverted over $200 million to support his pet project: making El Salvador the first country to adopt Bitcoin as legal tender.
This controversial cryptocurrency initiative had already faced criticism from international financial institutions like the IMF and World Bank. Nevertheless, Bukele proceeded to allocate the diverted pandemic aid to develop the infrastructure for Bitcoin’s implementation across El Salvador, in direct violation of the loan agreement’s specific prohibition on using the funds for cryptocurrency. BCIE president Dante Mossi acknowledged the fungibility of money, even as he admitted that Bitcoin constitutes less than 1% of El Salvador’s economy.
A Majority of the COVID Loan Fails to Reach Small Businesses
When the $600 million loan from the Central American Bank for Economic Integration (BCIE) was approved in April 2021, BCIE president Dante Mossi stated that it would benefit 4 million people through assistance to small businesses. However, according to OCCRP’s investigation, by the time the funds arrived in July 2021, only $20 million had been disbursed for small business loans as intended.
Instead, OCCRP uncovered that $425 million was allocated to “general obligations of the state,” which ended up being associated with the country’s Bitcoin agenda, in direct violation of the loan agreement’s prohibition on using the funds for cryptocurrency projects. While the fungibility of money may have facilitated its diversion, it nonetheless contradicted the original purpose of relief.
Government Prioritizes Bitcoin Rollout Over Pandemic Aid
In June 2021, President Bukele announced plans to adopt Bitcoin as legal tender. When the IMF and World Bank raised concerns about financial stability risks, Bukele remained resolute.
When the BCIE COVID loan arrived the following month, over $200 million was funneled into Bitcoin infrastructure, including the government’s Chivo digital wallet app. Every Salvadoran who registered received $30 in free Bitcoin, part of the incentives aimed at driving adoption. However, many experts questioned the wisdom of staking pandemic aid on a volatile cryptocurrency experiment.
“The Bitcoin law was passed, but in reality, Bitcoin does not exist; Bitcoin is not legal tender,” remarked economist César Villalona. “There is the law and there is reality. The reality is that the country remains dollarized.”
Bitcoin Adoption Falls Short of Goals in El Salvador
A study by the U.S. National Bureau of Economic Research revealed that less than 10% of Chivo app users continued actively using Bitcoin in 2022. Daily usage remains low, leading economists like Mossi to conclude that Bitcoin accounts for less than 1% of El Salvador’s economy—falling far short of Bukele’s vision of a national economic transformation.
The diversion of COVID relief funds to finance El Salvador’s Bitcoin rollout underscores concerning issues of corruption and misallocated aid money. The $600 million loan from the Central American Bank for Economic Integration was intended to aid small businesses grappling with the pandemic’s impact. Instead, over $200 million was redirected to fulfill President Bukele’s cryptocurrency ambitions, defying the objections of international financial institutions.
This imprudent allocation of relief aid for experimental crypto infrastructure not only violated the loan agreement but, more importantly, deprived Salvadorans of the much-needed economic support they desperately required. The Bitcoin plan has largely failed to deliver on its promises of transforming commerce and finance in El Salvador. Adoption remains minimal, while the economic devastation caused by the pandemic continues.
Ultimately, the misappropriation of funds and stalled recovery underscores the critical importance of transparency and accountability in the distribution of relief aid. When assistance meant for those in need is diverted to pet projects, ordinary people bear the consequences.