Bitcoin City

El Salvador’s ‘limited’ use of Bitcoin prevents forecasted risks, says IMF

The IMF has suggested that El Salvador “reconsider” its plans for Bitcoin following a recent visit to the country.

The global monetary watchdog has advised El Salvador to exercise caution in expanding government exposure to Bitcoin (BTC) due to the “speculative nature” of crypto markets.

A Feb. 10 statement from the International Monetary Fund (IMF) emphasized Bitcoin’s risks to El Salvador have “not materialized” yet due to the country’s “limited” use of Bitcoin. IMF staff paid a recent visit to the country.

The IMF stated that El Salvador should address Bitcoin’s risk to the country’s fiscal sustainability and consumer protection, as well as its financial integrity and stability.

It highlighted the importance of acknowledging these risks, as Bitcoin’s use in El Salvador “could grow,” given it had been recognized as legal tender in the country since Sept. 2021.

El Salvador was urged to rethink its decision to issue tokenized bonds, as the IMF stated it should be “eschewed” due to its legal and financial risks. The statement noted:

“Given the legal risks, fiscal fragility and largely speculative nature of crypto markets, the authorities should reconsider their plans to expand government exposures to Bitcoin, including by issuing tokenized bonds.“

The need for “greater transparency” from the Salvadoran government was also emphasized regarding both its Bitcoin transactions and the “financial situation” of its state-owned Bitcoin wallet, the Chivo wallet.

Related: El Salvador’s Bitcoin decision: Tracking adoption a year later

This comes after recent news that a legal framework for a Bitcoin-backed bond in El Salvador, known as the “Volcano bond,” was established on Jan. 11.

The Salvadoran government said that these bonds would be used to pay down sovereign debt and fund the construction of its proposed “Bitcoin City.”

Bitcoin City is part of El Salvador’s plan to continue attracting crypto investors. It was previously noted that a priority for the country in 2023 is to address any possible cryptocurrency-related criminal activity.

Guillermo Contreras, CEO of DitoBanx, previously told Cointelegraph on Jan. 6 that the opening of the National Bitcoin Office in El Salvador will function as “a central entity” to deal with these issues.

Bitcoin-friendly Próspera hits back at controversy in The Guardian

Some residents have reportedly told the crypto-friendly city of Próspera to “go home” following the Honduran government’s repeal of the ZEDE legislation which enabled it.

The leadership of the crypto-friendly charter city of Próspera in Honduras has hit back at reports it is facing a backlash from residents of the neighboring community of Crawfish Rock over its expansion plans.

A Tuesday article from The Guardian reported the special economic zone, touted as an island paradise with low taxes/fiscal responsibility, luxury homes and crypto-friendly regulation, has seen pushback from some residents of the Crawfish Rock community.

Some residents are reportedly concerned about being displaced from their homes due to Próspera’s potential expansion plans, with the article describing the project’s headquarters as sitting “amid a landscape scarred by a bulldozer and deep holes dug for the foundation of the next phase of construction.”

It’s another salvo against the Bitcoin-loving city, which has been battling with the Honduran government after it repealed a Zones for Employment and Economic Development (ZEDEs) legislation in April — a key piece of legislation that would allow it to operate as a self-governed fully autonomous zone.

A lengthy Twitter thread from Próspera and article by general counsel Nick Dranias on Wednesday, however, claimed that articles such as the one from The Guardian are just another example of a “barrage of lies and misinformation from the mainstream media:”

“Unsurprisingly, given the impactful nature of our project, we have been confronted with a barrage of lies and misinformation from the mainstream media.”

Drani outlines three key myths allegedly being disseminated by mainstream media including:

“Myth #1: The Próspera team did not adequately socialize the project prior to launch.”

“Myth #2: Próspera is an ideological/crypto/libertarian project.”

“Myth #3: In Honduras, the Próspera ZEDE expropriated land from locals.”

A Próspera representative told Cointelegraph that, in general, the community response has been positive bar a select few:

“We have a fantastic relationship with the local community, are the largest employer of the community, and generally work well with them. In fact, only two members of the community dislike us — the media just always speaks to only those two individuals.”

Próspera Global also claims on Twitter that the supposed bulldozer scraped lands that are construction sites for environmentally friendly “low-cost housing available to any islanders,” with the building jobs serving as a source of employment for the local community.

Próspera has been locked in a legal standoff with the government since President Castro repealed the ZEDE law in April, which would give the project 12 months to register under a different framework such as a “Free Zone,” which would offer tax cuts but not allow self-governance.

At the start of June, Próspera submitted a request for government consultations under the Investment Chapter of the Dominican Republic-Central America–United States Free Trade Agreement (CAFTA-DR), in a bid to maintain its ZEDE status under the legal terms of the initial agreement.

Related: Bitcoin exchange outflows surge as ‘not your keys, not your crypto’ comes back into fashion

Honduras Próspera Inc. has remained staunch that its registration as a ZEDE has a valid “legal stability” for at least another 50 years due to the legal framework of the agreement it signed with the government back in 2017. In a June 4 blog post, the firm noted that:

“A failure to uphold these commitments would constitute a breach of international and Honduran law, as well as wrongful and unfair treatment of Honduras Próspera. Moreover, it would send a message to the world that no foreign investment in Honduras is secure.”

The company stated it hopes to avoid an “international investor-state arbitration” and hopes that the government will act in “good faith” to the initial ZEDE agreement. The firm plans to “invest hundreds of millions of dollars more in the coming years.” In April, Honduras Próspera Inc. raised $60 million to invest in the project despite the ZEDE repeal.

The representative added that the government is “yet to formally respond to our request for official consultation.”

Próspera is a privately-managed settlement in Honduras managed by Honduras Próspera Inc. The initial size of the Próspera Village is 58 acres and contains areas for its headquarters, housing and areas for businesses to set up shop. Its size can grow over time if local landowners agree to integrate their properties into the ZEDE territory.

Bitcoin bond still on hold, El Salvador accused of human rights violations

El Salvador’s finance minister believes the ongoing price volatility of Bitcoin means the awaited “Bitcoin bond” won’t be launched anytime soon. Meanwhile, the country faces a “human rights crisis.”

El Salvador’s Finance Minister Alejandro Zelaya has said the country will further delay launching its anticipated billion-dollar Bitcoin (BTC) bond, citing price volatility and uncertain market conditions resulting from the ongoing Russia-Ukrainian war.

The news comes at the same time that Amnesty International accused the Salvadoran authorities of “flagrant violations of human rights and criminalizing people living in poverty.”

In a Wednesday interview on the local “Frente a Frente” (Face-to-Face) news program, Zelaya was asked if the situation with the $1 billion Bitcoin bond issuance from a “few months ago” had changed.

“No, not yet, the [Bitcoin] price continues to be disrupted by the war in Ukraine,” he said according to a rough translation. He added that “in the short term the variations are constant but in the long term it always tends to appreciate in value:”

“There is a future and there is an economic innovation [in Bitcoin] that we must bet on.”

The plan for the bond was originally announced in November 2021 by El Salvador’s president Nayib Bukele. Half of the $1 billion expected is to fund the construction of a Bitcoin City built near a volcano, with the idea that its geothermal energy could be harnessed for Bitcoin miners. The other half of the funds raised would be invested into Bitcoin.

The $1 billion bond was originally scheduled to launch in mid-March 2022 but ​in an interview in March, Zelaya delayed the launch, citing price volatility, giving a possible launch date around June with a timeline extending until September 2022.

Mounting fears that the country could default on an $800 million bond due in January 2023 caused rating agency Moody’s to downgrade El Salvador’s credit rating on May 4, citing a “lack of a credible financing plan.”

El Salvador’s government has been buying Bitcoin since September 2021, with Bukele announcing that the country purchased a further 500 BTC on May 9. El Salvador is estimated to have lost more than $35.6 million from its BTC investments so far.

Amnesty International: “Human rights crisis”

Meanwhile, human rights advocacy nonprofit Amnesty International accused El Salvador’s government of committing “massive human rights violations” through arbitrary arrests, ill-treatment and torture of prisoners.

A state of emergency (SOE) was declared by President Bukele on March 27 due to a rising homicide rate, which the government blamed on gangs and organized crime. The SOE has since been extended twice.

The human rights group said the SOE changed laws and legal procedures which undermine the rights to defense, the presumption of innocence, effective judicial remedy and access to an independent judge.

Related: El Salvador’s Bitcoin play: What does the current slump mean for adoption?

During the crackdown, more than 35,000 people have been imprisoned in less than three months, with the increase in arrests causing 1.7% of the country’s population over 18 years old to be in detention, resulting in overcrowding of over 250% of the prison capacity.

But, despite the abuses, many El Salvadorians agree with Bukele’s harsh measures, as the president remains popular in opinion polls. The most recent poll released by local media on Wednesday shows a near 87% approval rate for the current president.