“Bukele is highly undemocratic, highly abusive – and highly popular. For some, it’s hard to accept that these three things can coexist. But they do right now in El Salvador.”
So said Juan Pappier, the Americas deputy director at Human Rights Watch in February 2024 before the nation’s president was re-elected with 84% of the vote, in defiance of a constitutional prohibition on immediate re-election. The landslide victory was largely attributed to a reduction in crime, with the nation’s homicide rate dropping in 2023 by 70%.
Despite a widely questioned record on human rights and the ongoing authoritarian political activity of the country’s millennial President (and former publicist and Bitcoin proponent) Nayib Bukele, as well as the still-low adoption rate of Bitcoin by citizens and businesses, the July 2021 downgrading by Moody’s of the nation’s credit rating (around the time the value of Bitcoin had dropped by 23% to $37k) and the November 2022 collapse of the FTX cryptocurrency exchange, the Salvadoran market is currently in a state of modest growth and is an emerging destination of interest for (some) overseas investors.
In the same month that FTX declared insolvency, Bukele announced a free trade deal with China, with Vice-President Félix Ulloa stating that as part of the deal China had offered to purchase the country’s $21bn in foreign debt. Such economic manoeuvres, coupled with aggressive tax revenue collection, have led to a more positive forecast than previously projected. According to the February 2023 conclusion of an IMF mission, the Salvadoran economy was estimated to have expanded by 2.8% in 2022 as a result of domestic demand and the government’s effective response to the Covid-19 pandemic.
The IMF currently projects El Salvador’s GDP will grow by 3% in 2024, attributed to continued expansion of the tourism and construction sectors. Post-March 2023, growth has also been tied to declining crime.
‘The people of El Salvador have woken up, and so can you,’ said President Bukele, days after his re-election, at the Conservative Political Action Conference (CPAC), a gathering held near Washington DC, which featured, among its guest speakers, UK MP (as of July 2024) Nigel Farage and former US President Donald Trump.
It is the government’s anti-crime initiatives under Bukele (who, infamously, after addressing the UN assembly changed his Twitter bio to read ‘world’s coolest dictator’) that have received condemnation from human rights organisations.
After blaming several days of violence and 87 killings on the gang known as MS-13, on 27 March 2022 Bukele’s government declared a state of emergency, suspending constitutional rights (foremost of which was the presumption of innocence). This led to the arrests (many reportedly arbitrary) of 6,000 citizens accused of being gang members and the passing of a congressional measure authorising ten to 15-year prison sentences for members of the media who transmit to the public ‘messages or statements originating or presumably originating from said criminal groups, that could generate anxiety and panic in the population’ – an act which has led to allegations of a crackdown on freedom of the press.
By May 2023, the number of arrests reached 67,000. The same month, human rights organisation Cristosal released a report, according to which prisoners arrested during the crackdown had been tortured, with 153 dying in custody, showing signs of ‘asphyxiation, fractures, significant bruising, lacerations and even perforations’.
By September 2023, it was estimated that 1.6% of the nation’s population had been incarcerated.
The growing stability of the market, the downturn in crime and the human rights situation has had a pronounced impact on El Salvador’s legal markets.
In banking and finance, respondent firms report an environment positively impacted by the declining crime rates, with investors viewing the nation as a safe place to invest. Teams indicated a rise in construction investments. In addition, firms interviewed predicted the arrival of more overseas fintech clients seeking market entry.
In relation to dispute resolution, some respondent firms indicated no key changes and a continued flow of administrative tax litigation stemming from the government’s aggressive approach to collections.
In corporate and M&A, teams reported an uptick in M&A, as a result of the declining levels of gang violence, with a particular upswing in the pharma and oil and gas sectors. Respondent firms also predict increased activity in the tourism, infrastructure, crypto and real estate spaces.
Finally, in the intellectual property space, respondent firms report that, with the drop in crime and the government’s May 2023 introduction of a Law for the Promotion of Technological Innovation and Manufacturing, the aim of which is to ‘promote innovation and technology manufacturing in El Salvador by eliminating tariffs and taxes for 15 years’, they have seen increased interest from overseas tech companies seeking management of their IP portfolios.
In terms of the Salvadoran legal landscape, regional firms such as Arias, Consortium Legal and BLP continue to be leaders across most practice areas, while other notable Central American outfits include García & Bodán, Aguilar Castillo Love (noted for its expertise in fintech), LatamLex | Guandique Segovia Quintanilla (GSQ), LatinAlliance El Salvador, Lexincorp, Mayora & Mayora, S.C. and Central Law El Salvador. A growing number of global firms also have a presence in the Salvadoran market, including ECIJA, EY Law Central America (a leader in the tax space) and, most recently, Dentons. Full-service domestic firm Romero Pineda also remains a standout (particularly for intellectual property matters), while Torres Legal is an up-and-coming Salvadoran practice. A key move was the June 2024 departure from Arias of Jaime Rodríguez, who is now the managing partner at new firm Lex Litis Latam.