Having crushed the political opposition and his country’s omnipresent criminal gangs in less than five years, disruptive Salvadoran President Nayib Bukele faces an even more demanding challenge: achieving prosperity for his people.
Some commentators have said that Bukele’s endgame should be turning El Salvador into a Latin American version of Singapore, a paradise of order and free markets where a single party dominates politics in the name of efficiency — a model that the leader is not shy to tout himself.
The argument goes: Just as Singapore became one of the world’s richest nations under former Singaporean prime minister Lee Kuan Yew, another disruptive leader, the 42-year-old millennial president can achieve progress through his total security, technology-embracing, pro-business strategy.
The idea sounds ambitious, but not totally unrealistic. Becoming a beacon of relative peace in Central America would surely help the country attract new investments and tourists, boosting activity and well-being.
The problem is that Bukele seems to be undermining that goal by ignoring the need to fix El Salvador’s unsustainable fiscal deficit and by appearing at times unreliable to the business community. When trying to become a magnet for foreign investment, that is self-defeating.
Bukele was just 37 when he became El Salvador’s president in 2019, one year older than when Lee took over as the first prime minister of Singapore exactly six decades before. Both share a tough-on-crime, tough-on-corruption approach, with the Salvadoran’s ruthless tactics turning his country from one of the world’s most violent into Latin America’s safest, at least in terms of homicides per capita.
It is hardly a secret that Bukele is also not very fond of liberal democracies, having ignored constitutional limits to run for office again in February, when he won a resounding victory with almost 85 percent of the votes.
At the same time, El Salvador’s decision earlier this month to eliminate income tax on overseas investments and remittances resonates with the model of attracting wealthy investors with generous financial arrangements, just as Singapore did.
In essence, Salvadorans would trade political freedoms for the promise of economic progress and social peace. For a region wracked by crime, the positive growth impact from clamping a lid on violence should not be underestimated.
It would be right to question Bukele’s human rights track record, but in a society that suffered so many painful years, the contrast is massive and welcome — so much so that voters ended up ignoring their own constitution.
Unfortunately for Bukele, there are also big differences with Singapore, which ranks as the world’s best place to do business. For a start, El Salvador, a country of more than 6 million people that is slightly smaller than Israel, is not a geographically strategic island, but part of a chaotic neighborhood. Central America is plagued with problems from migration and drug trafficking to low productivity and scarce economic dynamism.
However, Lee also faced a tough political situation when he took over Singapore, before the country’s split from Malaysia.
Even as Bukele might be a hero in some conservative or libertarian circles in the US, he has yet to build an honest, strategic partnership with successive US governments as Lee did over the decades. Even more significantly, the country has not yet presented a plan to tackle its unsustainable fiscal imbalances, which Barclays estimates at 4.6 percent of GDP last year once the pension deficit is included.
That is a key weakness in Bukele’s full-control strategy.
“El Salvador is clearly a lot safer, there is more tourism and more micro foreign direct investment, but not yet at the institutional level that’s needed,” Barclays credit strategist Jason Keene said. “It’s sort of all smoke and mirrors. Bukele can do the things needed to fix the fiscal position, but we haven’t seen clear evidence that he is doing so.”
As he prepares to start a new term, the government seems more focused on trying to gain time. Bukele might be hoping that if former US president Donald Trump is elected, a like-minded administration in the US next year could get him better terms in a deal with the IMF.
Investors were pleasantly surprised when the country made a bond payment early last year, avoiding default and kicking off a massive rally in the country’s securities, but now they are more circumspect.
Moreover, the possibility of a fresh IMF deal could be receding, not least because of a lack of transparency in the government’s accounting.
The introduction of bitcoin as legal tender in late 2021 did not help. If Bukele was not ready to give up on bitcoin when it plunged to almost US$15,000 in late 2022, he cannot be expected to do so now that the crypto currency trades at about US$65,000; he is likley doing victory laps.
Rejecting an IMF program is of course a valid policy option, but it cannot solve the underlying problem of having to cover US$2.6 billion in financing that Barclays estimates is needed from this year to 2027 — a significant figure for a US$35 billion dollarized economy.
It is puzzling that a leader who enjoys such popular backing is unable to chart a path to fiscal sustainability.
The austerity effort needed to improve confidence equals about 3.5 percent of GDP over the following three years, tough but not impossible, an IMF report said last year.
True, Bukele might prefer to speculate that if the economy grows faster than expected, the adjustment would be smaller. In any case, solid economic growth cannot be expected to happen until El Salvador removes the default fears ahead.
Ultimately, to see a Salvadoran miracle the country needs to post growth rates of 5 to 6 percent for years to come — not the meager 1.9 percent expected for this year. That requires consistency, planning and heavy government investment in education and innovation. El Salvador has not shown much of that yet.
Bukele instead seems more interested in lecturing the world on the end of globalism and the “dark forces” that are coming for the US. His iconoclastic, provocateur style has surely raised his global profile, but that is not the same as creating the trust needed to convince corporations to spend big bucks in his nation.
That is a shame, because according to the International Finance Corp, El Salvador could generate additional cumulative exports to the US of US$6.9 billion to US$13.8 billion in the next decade thanks to the nearshoring trend.
As some other governments in the region, democratic and authoritarian, have learned the hard way, permanent fiscal slippages are the surest way to lose political control. What is more, the sad experiences of Latin American dictatorships such as Venezuela, Nicaragua and Cuba do not back up the idea that authoritarian governments can manage their economies better — quite the opposite.
Bukele needs to get his budget numbers in order and offer a predictable business path ahead for companies and families to invest if he really wants to realize his Singaporean utopia. Otherwise, he risks ending up like many other authoritarian leaders in the region: powerful, maybe even still admired, but without having significantly improved the economic prospects of his people.
Juan Pablo Spinetto is a Bloomberg Opinion columnist covering Latin American business, economic affairs and politics. He was previously Bloomberg News’ managing editor for economics and government in the region.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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