In a tweet on February 20, 2022, El Salvador President Nayib Bukele declared that a new “citizenship by investment” program was on his list of proposed reforms and could be available as early as spring.
Here’s what we know so far …
Who Is President Nayib Bukele?
President Bukele is a right-wing populist who enjoys significant popularity with his constituency. He emphatically embraces Bitcoin. In September, under his leadership, BTC was adopted as one of the official currencies of El Salvador. Under his leadership, El Salvador has added 1,800 BTC to its national treasury.
The Salvadoran people showed their support for the leader by overwhelmingly re-electing President Nayib Bukele. His campaign against gangs certainly played a huge role in earning this strong trust from the electorate.
Securing a second five-year term with more than 82% of the vote according to the electoral tribunal, Bukele's victory was confirmed on Friday, February 9th, following the Sunday election.
His party, Nuevas Ideas, dominated the polls, receiving 2.7 million out of 3.2 million votes cast both domestically and abroad, amounting to 82.66% of the total votes after all 8,644 polling stations were counted.
With a participation rate of 52.60% from the 6.2 million registered voters, the 2024 election marked a significant moment as Bukele's victory in 2019 had already ended three decades of power alternation between the Farabundo Marti National Liberation Front (FMLN) and Nationalist Republican Alliance (Arena) since the end of the civil war in 1992.
What Do We Know About the Proposed Citizenship By Investment Program?
President Bukele first floated the idea in June 2021, mentioning a program whereby investors could contribute 3 BTC to the El Salvador treasury and in exchange be granted permanent residency.
In November, President Bukele changed his tune, instead saying that the program would be available to investors not for 3 BTC but for USD$100,000, a competitive rate compared to other “citizenship-by-investment” programs.
Bukele indicated that so-called “Volcano Bonds” would be eligible investments. What are Volcano Bonds? They are part of a USD$1 billion bond issue with 6.5% yield, initiated by President Bukele.
Half of the funds raised will be used to buy more bitcoin for El Salvador; the other half will be used to fund the development of a “Bitcoin City” positioned at the base of one of El Salvador’s 23 active volcanoes to power the city with geothermal energy. Hence the name “Volcano Bonds.”
As you can see, while a BTC investment no longer seems to be mandatory, there’s still room for the moniker “Bitcoin Citizenship By Investment,” given the involvement of bitcoin-focused Volcano Bonds and the country’s heavy investment in the cryptocurrency under Bukele’s leadership.
According to the proposed program, participants would be eligible for El Salvador citizenship in five years — or as short as one year for citizens of Spain or other Latin American countries.
What is Life Like in El Salvador?
If relocation is the goal, you will find that El Salvador is one of the most densely-populated countries in Central America. It is also one of the poorest, with low education levels and a low cost of living. It boasts a mild climate and beautiful beaches, but it is also prone to floods, tropical storms, and volcanic eruptions.
Between 1990 and 2019, El Salvador’s Human Development Index (HDI) increased more than 25%, from 0.536 to 0.673. This puts it in the “medium” range of the HDI, ahead of neighbors Honduras, Nicaragua, and Guatemala, but behind Belize and Venezuela and well behind Brazil and Colombia.
El Salvador is known for having one of the highest violent crime and murder rates in the region. In 2018, it had the highest murder rate in the world according to the UN Office of Drugs and Crime. Under President Bukele, violent crime has decreased by over 50%. Bukele attributes this to stricter law enforcement, although the US Department of State has alleged deals between the government and cartels as the reason for the decrease.
Economically, El Salvador has faced its share of challenges and setbacks, especially due to widespread gang extortion. However, the situation has significantly improved following this period of enhanced security conditions and the drastic reduction in violence. As a result, El Salvador's economic landscape began to show promising signs of recovery and growth.
The rebound from the economic downturn in 2020 was nothing short of remarkable. After experiencing a sharp contraction in GDP of -7.9% in 2020, El Salvador's economy grew by 11.2% in 2021. Although the growth rate moderated to 2.6% in 2022, projections from the World Bank indicate a steady pace of growth moving forward, with an expected average of 2.1% in the medium term.
In its commitment to fostering a thriving economy, the Salvadoran government, with the support of the World Bank through the Country Partnership Framework (CPF) for 2023-2027, has laid out an ambitious agenda. This strategic framework is focused on achieving higher growth levels, generating quality employment opportunities, bridging human capital gaps, and enhancing resilience to natural disasters and climate change impacts.
Six projects have already been approved, each aimed at continuous human development at every stage of life. These initiatives include efforts to improve early childhood development, promote job opportunities and skills development, as well as enhance infrastructure resilience, specifically in the transportation and water sectors.
In its recent positive development, El Salvador has seen an upgrade in its credit rating, reflecting a somewhat improved outlook on its economic stability and governance. This change is a clear indicator of progress amidst the country's ongoing efforts to overcome its financial and socio-economic challenges.
As of 2024, El Salvador's journey through economic reforms and strategic financial management has started to bear fruit, as evidenced by the adjustments in its credit ratings from major agencies. Previously, in 2023, the country's ratings were somewhat less favorable, with Standard & Poor’s (S&P) rating it at B- with a stable outlook, Fitch at CCC+, and Moody’s at Caa3 also with a stable outlook.
The highlight of this fiscal evolution came from S&P Global Ratings, which, on September 7, 2023, elevated El Salvador’s rating to B- from CCC+. This upgrade signals a positive shift, attributing it largely to the government's successful efforts in refinancing short-term debt, which is expected to mitigate default risks in the near future. Moreover, the incorporation of Bitcoin as legal tender, despite its controversies, has been a factor considered in reassessing the country's financial health and prospects.
Moody’s maintained its rating at Caa3 with a stable outlook as of February 2, 2024, pointing out ongoing concerns regarding fiscal policies and governance that continue to challenge the country's creditworthiness. Nonetheless, this stability in Moody's outlook suggests a recognition of the efforts made by the Salvadoran government to deal with its complex economic landscape.
Fitch Ratings, too, acknowledged El Salvador's financial efforts by upgrading its rating from CC to CCC+ earlier in May 2023. This adjustment was motivated by the timely payment of bonds due in 2023 and successful debt repurchase operations, reflecting improved fiscal and external liquidity positions than previously anticipated.
Overall, El Salvador's recent credit rating upgrade talks about one thing: the country is making strides toward economic stability and improved governance. Even though there are still problems, especially with money management and social issues, this improvement gives a cautiously optimistic view that El Salvador will better handle its finances in the future. With continued efforts towards economic reform and strategic international cooperation, El Salvador aims to further strengthen its position on the global stage, offering hope for a more prosperous future for its citizens.
How Mirabello Consultancy Can Help
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If you think El Salvador residency or citizenship might be right for you, Mirabello Consultancy can help you make an informed decision. If you decide to go for it, we can help you cut through the red tape to obtain it as quickly and easily as possible.
