Thursday, June 10, 2021

El Salvador's experiment with Bitcoin

 El Salvador has become the first country in the world to adopt bitcoin as legal currency

The Congress on Wednesday has approved President Nayib Bukele’s proposal to embrace the cryptocurrency. Bitcoin's use as legal tender will begin in 90 days, with the bitcoin-dollar exchange rate set by the market.

Under the law, bitcoin must be accepted by firms, including MacDonalds, when offered as payment for goods and services. Exemption is given to businesses which have no access to bitcoin technology. The government will act as a backstop for entities that aren’t willing to take on the risk of a volatile cryptocurrency. Even tax payments can be paid in the cryptocurrency. 
Even if a merchant doesn’t want to take the risk of convertibility, he has to accept bitcoin because it’s a mandated currency.  He can ask the government to exchange his bitcoin to dollars immediately or use the market for conversion.  




The government is guaranteeing convertibility to dollars at the time of transaction through a $150 million trust created at the country's development bank BANDESAL. The Development Bank’s trust fund would sell some of the bitcoin it receives for dollars to replenish the fund.
At this moment, the government and Central Bank do not currently hold any bitcoin.
Bukele has touted the use of bitcoin for its potential to help Salvadorans living abroad to send remittances back home, while saying the U.S. dollar will also continue as legal tender. In practice, El Salvador does not have its own currency.

El Salvador relies heavily on money sent back from workers abroad. Remittances by Salvadoreans mainly in US are about $6 billion or around a fifth of GDP, one of the highest ratios in the world.

The cryptocurrency offers, in theory, a quick and cheap way to send money across borders without relying on remittance firms typically used for such transactions. 

The government will promote training and mechanisms to allow access to bitcoin transactions.
The El Salvador announcement has pushed up the value of bitcoin by 6% to $35,200.

Bukele has instructed state-owned geothermal electric firm LaGeo to develop a plan to offer bitcoin mining facilities using renewable energy from the country's volcanoes.

He has offered citizenship to people who showed evidence they had invested in at least three bitcoins.

Outside the United States, countries with the highest crypto production and trading volumes are all developing nations including China, Colombia and India. The bitcoin experiment of El Salvador will be watched by the enthusiasts of the crypto currency from around the world. 

There are challenges of volatility of bitcoin as well as the poor internet infrastructure and usage in the country.


El Salvador, the smallest country (in area) in Central America with 6.5 million people, has huge problems. Besides poverty and other developmental issues the country is the victim of violence and crime committed mostly by the notorious gangs. The main issue is the ongoing gang violence and crime. The country has become notorious with one of the highest murder rates in the world. Mara Salvatrucha, popularly known as MS-13 and the Barrio 18 (18thstreet gang) are the two dominant gangs which hold the country to ransom with killings, crimes and drug trafficking. The rivalry between these two became so violent at one stage in 2012, the government intervened and brokered a ceasefire between MS 13 and the Barrio 18. In order to bring the two sides to the negotiating table, the government relaxed conditions in the prisons in which the members of the two gangs were held. Following this peace deal, the murder rate had dropped immediately. But this truce broke down in 2014 and crime has gone up again.

It is because of the violence in the country that many are fleeing, trying to enter US and seeking asylum. 

The second major problem of El Salvador is the rampant corruption. Last week, the former first lady Ana Ligia de Saca, who was found guilty of illicit enrichment, was sentenced to 10 years in prison and ordered to repay $17.6 million to the state.
Her husband, former President Tony Saca, is already serving a 10-year sentence since September 2018. The court had asked him to return to the state 260 million dollars siphoned by him. Lot of money for the small country.
Ana Ligia de Saca's brother Oscar Edgardo Sol Mixco had received a similar sentences of jail and fine earlier on corruption charges.
While Saca is the first Salvadorean president to be jailed for corruption, both his predecessor and his successor in office have also been accused of corruption
His predecessor, Francisco Flores, was accused of diverting a $15m-donation given to his government by Taiwan to help victims of the earthquakes which hit El Salvador in 2001. Mr Flores died in 2016 while under house arrest awaiting trial.

Mauricio Funes, successor to Saca has been accused of using public funds for his personal use. He fled to Nicaragua where he has got asylum since two years ago.Some of the previous presidents of the country have been accused and convicted of massive corruption.

The current President Nayeb Bukele is young and tech savvy. He is using bitcoin as part of his adventurous new agenda and experiment.

The country needs solutions urgently for the crime, corruption and poverty more than the bitcoin experiment.


Sunday, June 06, 2021

Uruguay gets its first unicorn and billionaires

The first billionaires of Uruguay, Andres Bzurovski and Sergio Fogel are the founders of the fintech dLocal, the first unicorn of the country. The company's market cap has crossed 10 billion dollars in Nasdaq.


dLocal, founded in 2016, connects global merchants seamlessly with billions of emerging market users. Its platform facilitates a connection to over 600 local payment methods across different markets to accept online payments and pay out vendors and partners.

It operates across 29 countries in Asia, Africa and Latin America including in India. It processes payments for companies like Microsoft, Amazon, Spotify and Didi.

It has over 300 employees. It has offices in US, UK, China , Brazil and Israel besides in Uruguay

Sebastian Kanovich, a Uruguayan is CEO. Sumita Pandit an American Indian is the COO

Bolsonaro, Bible, Beef and Bullets

The Brazilians did not elect Jair Bolsonaro as President in 2018 because of his agenda, accomplishments or charisma. The voters wanted to punish the Workers Party (PT) of Lula after the sensationalized Car Wash corruption scandals. Bolsonaro was carried by the high tide of public anger. Anyone who stood against Fernando Haddad, the PT candidate would have won. 

 

Bolsonaro does not have any leadership qualities to speak of.  In February 2017, when he stood as a candidate for president of the lower house, he won just four votes including his own out the assembly’s 513 deputies. Bolsonaro’s incendiary pro-military views put him at odds with many pro-business and pro-market conservatives. His political ideas were regarded as anachronistic and out of tune with the liberal democratic mood of the post-dictatorship era. His pronouncements on sexuality and violence were so inflammatory and outrageous. “I’ve got five kids but on the fifth I had a moment of weakness and it came out as a girl”, he told an audience at the Clube Hebraica in Sao Paulo in April 2017. His vulgar, obscene and abusive language shocked the cultured and educated class.

 

Bolsonaro did not sustain membership of any political party nor did he succeed in creating his own party. He had changed parties seven times. When he announced his Presidential candidature in 2016 he was member of the Social Christian Party. In 2018 he shifted to the Social Liberal Party. He left it in November 2019. His efforts since then to form a new party, the Alliance for Brazil, has not succeeded. 

 

Some overlooked these negatives and voted for Bolsonaro hoping that he might change for the better after becoming President. But he has become worse with even more outrageous behaviour.  While the Brazilians are grieving over the 472,000 covid deaths and suffering from the economic and social impact of the virus, Bolsonaro rides horses, motorcycles and jetskies, smiling, joking and laughing. The death count would have been much less but for his denialism, championing of wrong cures and propaganda against masks, social distancing and vaccines. The world leaders practice social and political distancing from the toxic Bolsonaro, who has driven the country into isolation. 

 

While consistently and constantly doing and saying everything negative, Bolsonaro has no positive achievements or fulfillment of major promises or legislative initiatives to show in his term so far. The only positive thing that has happened was the passing of the pension reforms bill in 2019. But this was done by the Congress in spite of Bolsonaro’s lack of interest and the open opposition of many of his hardline supporters. 

 

Most Brazilians are ashamed when the puzzled foreigners ask how could Brazil elect such an obnoxious character as President. The Brazilians are angry again, outraged more by Bolsonaro’s crimes than the corruption of PT. Going by the logic of anger which defeated PT in the last elections, Bolsonaro should suffer the same fate in the next election in 2022. His role model Trump has been voted out in US. 

 

But even if Bolsonaro loses the 2022 elections, some forces and constituencies which have surfaced or strengthened in this age of Bolsonaro need to be watched out for their long term impact. This is the conclusion of Richard Lapper, former Latin America editor of Financial Times, in his book “Bible, Beef and Bullets: Brazil in the age of Bolsonaro”. 



 

Lapper is an authentic expert on Latin America and Brazil. He had worked as a journalist in Central America in the early eighties. He has a personal and emotional relationship with Brazil, being married to a Brazilian from Salvador. He had lived in Sao Paulo from 2002 to 2008. With this background, Lapper has given comprehensive back ground information and objective analysis of the rise of of Bolsonaro and the conservative constituencies.

 

Lapper characterises Bolsonaro as part of a broader populist phenomenon with makings of a fascist. He sees him as an extreme right-wing populist, as someone similar to leaders such as Donald Trump, Viktor Orban, the Hungarian president, or Rodrigo Duterte, the Philippine leader.

 

According to Lapper, three developments have come together to activate the dormant genes of Brazilian right wing forces , coinciding with the rise of Bolsonaro. First, the country’s recession between 2014 and 2016 was the worst in its modern history until hit by covid even harder. Second was the Car Wash corruption scandal which tarnished the image of all the established political parties and discredited the major corporations. The third was  the increase in violent crime, which became the subject of obsessive interest in the press and on social media. 

 

Bolsonaro’s presidential candidature got traction with the rise of a broad conservative alliance of people who had been unhappy about Brazil’s drift towards the socially liberal left. The alliance had already existed in the Congress in the form of the Bible, Bullet and Beef lobbies. These have latched on to Bolsonaro, the first President, who share their views even more enthusiastically. No mainstream politician would dare to be openly associated with their agenda, let alone promote their interests as Bolsonaro does.

 

The Bible lobby represents the growing power of the evangelicals. An estimated 30 per cent of Brazilians were evangelical Protestants in 2020, up from only about 6 per cent in 1980. They are against abortion, liberal education, same-sex marriage and other such socially progressive proposals. Bolsonaro’s noise on these issues resonate with the Evangelicals. Many of the Evangelical pastors have become millionaires and Edir Macedo, the founder of Universal Church is a billionaire. They wield power in the media and Congress. They advise their flocks to whom to vote for. Besides implementation of their obscurantist proposals, they seek a share in political power.  Edir Macedo’s nephew Marcelo Crivella became a minister in Rousseff government. Macedo supported Bolsonaro since his church had issues with Fernando Haddad, the PT candidate.

 

The Beef lobby includes ruralistas, ranchers, loggers and large land owners who want more freedom to exploit the lands in Amazon and in the reservations of indigenous people. Their Congressional caucus has been steadily increasing its strength. It had 192 deputies and 11 senators after the 2010 election in which Rousseff took office. Four years later the lobby increased its weight with 228 deputies and 27 senators. And by 2018 it went up to 243 deputies and 37 senators.

 

The Bullet lobby consist of police and military officers, both serving and retired as well as their sympathisers which include Bolsonaro. Twenty years earlier, there had been barely any police officers in Brazil’s Congress, but in 2018 more than three dozen won seats. The Bullet lobby is financed by the gun companies who want to increase their sales.  Former police and military officers dominate or run the militias in the violence ridden parts of the cities. These are a kind of self-defence forces claiming to provide protection to the communities against drug gangs and criminal elements. They doo racketeering, extortion and even drug trafficking. They collect illegal monthly taxes from residents and business owners for the protection service. They have monopoly of sales and distribution of gas and other items at higher rates than the market prices. The residents have no option but to buy only the militia’s products and services. These militias commit crimes and murders with impunity since they have made the security forces as accomplices by sharing their collection. The militias have the support of the security forces. They control the voting blocs too.  The Bolsonaro family have longstanding deep connection to the militias in Rio de Janeiro. Besides  protecting and patronizing the militias, the Bolsonaros praise them in public and have even taken initiatives to shower public rewards to them.

 

Besides helping these three constituencies to become stronger and more powerful, Bolsonaro has added a new constituency in the politics of the country. He has co-opted the military in government at various levels with several hundreds of both serving and retired officers. His cabinet includes several officers of the armed forces. He has let the military officers to taste power which they had enjoyed during the time of military dictatorships. 

 

Bolsonaro, the former army captain, has not only militarized the government but has also politicised the armed forces. Chavez had done the same in Venezuela with tragic results. General Eduaro Pazuello appeared in a political rally with Bolsonaro, violating the army conduct rules. Bolsonaro prevailed on the army high command against taking disciplinary action against him. The General was till recently the Health Minister, in which capacity he bungled the covid management by blindly obeying the disastrous line of Bolsonaro. 

 

Bolsonaro has always been proud of the military dictatorship and the killings and tortures of leftists openly and unapologetically. He has never hidden his contempt for democracy. During his visit to Chile, he praised Pinochet dictatorship, causing embarrassment to his Chilean hosts. “Elections won’t change anything in this country”, an angry Bolsonaro told an interviewer on the programme Câmara Aberta, broadcast by TV Band in 1999. “It will only change on the day that we break out in civil war here and do the job that the military regime didn’t do, killing 30,000 people. If we kill some innocent people that’s fine because in every war innocent people die.” Shouting at the interviewer, an intemperate Bolsonaro said that if he became president he would dissolve Congress on his first day in office. 

 

The release of Lula from jail and his announcement of Presidential candidate has given hope for the optimists. Lula is leading in the opinion polls ahead of Bolsonaro. However, one should watch out for the voters from the Bible, Beef and Bullet constituencies, who have received unconditional and proactive support from Bolsonaro. No President has ever done so much to protect and promote their agenda. Even if Bolsonaro becomes a one-term nightmare, those constituencies would continue to be a force demanding share in power and narrowing the space for liberal and progressive political leaders in the coming years. The mainstream candidates including Lula have to make compromises to get the votes of the Bible, Beef and Bullet constituencies. 

 

If he loses the 2022 elections, Bolsonaro might try a drama similar to the one staged by Trump and might even try a coup. The Brazilian military might not bring out the tanks for him in this new era of democracy in Latin America. But Bolsonaro and his crazy extremist supporters, with blind belief in bullets, might not give up power easily.