Rubio Expands U.S. Borders to the Darién Gap

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We welcome you to the Greater Caribbean Monitor (GCaM).

In this issue, you will find:

•Rubio Expands U.S. Borders to the Darién Gap

•El Salvador Abandons Bitcoin As Legal Tender

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The GCaM Team

This week, U.S. Secretary of State Marco Rubio successfully concluded his inaugural tour of Central America, consolidating the Trump Administration’s new carrot and stick approach to the region.

Perspective. Salvadoran President Nayib Bukele emerged as the tour’s big winner. He put up scant resistance on the deportation front and offered the United States an “unprecedented” immigration agreement, promising to house U.S. inmates in Salvadoran prisons in exchange for a “relatively low” fee. This fee, Bukele posits, would suffice to fund the country’s correctional system.

• Rubio expressed his gratitude in no uncertain terms, saying: “No country's ever made an offer of friendship such as this.” Whether the plan goes ahead or not, Bukele is well on his way to becoming the region’s Washington darling, a remarkable change considering his clashes with the Biden Administration.

• The U.S. also promised to support El Salvador in developing nuclear energy, with a memorandum of understanding being signed to that effect. El Salvador somewhat optimistically hopes to have an operational research nuclear reactor in seven years’ time.

• After some doubts following President Donald Trump’s remarks at last year’s Republican National Convention, it cannot be denied that Bukele is in the White House’s good graces. The administration has promised a pragmatic, less “moralizing” foreign policy; it is unlikely to look askance at El Salvador’s heterodox security efforts.
  
  

Regional Echoes. Rubio also had Costa Rican President Rodrigo Chaves, a pro-U.S. conservative, on his radar. They agreed to curb immigration, combat organized crime, and challenge China on cybersecurity issues. Chaves shares many of Trump’s anxieties regarding immigration, as his country has had to house a considerable number of foreign migrants, notably Nicaraguans.

• Rubio pledged to deploy DEA and FBI agents to assist Costa Rican authorities in their fight against “narcoterrorism.” This is appropriate: Costa Rica, which one fancied itself the region’s “Switzerland,” has seen an uptick in crime in recent years, with the murder rate reaching 17.2 per 100,000 inhabitants in 2023; the rate has since dropped to 16.6.

• Additionally, he offered support in San José’s dispute with Huawei, which could see the Chaves embroiled in an international arbitration suit. Costa Rican policy excludes companies from countries outside the Budapest Convention from bidding on 5G network development tenders. China is one such country.

• The agreements align with Rubio’s stated goal of reducing Chinese influence in infrastructure and telecommunications projects in the region. In Costa Rica, where domestic exporters have expressed grievances regarding Chinese trade policy, this was a relatively simple sale; other Latin American countries will prove far more defensive of their ties to Beijing.
  
  

Yes, But. Panama was Rubio’s most anticipated destination. It appears that the controversy regarding the Panama Canal has been mostly resolved, after weeks of U.S. pressure due to Chinese control of key Panamanian ports. In essence, the U.S. persuaded Panama to withdraw from China’s Belt and Road Initiative. 

• Panama is now going after Washington’s bête noire, Hong Kong-based Hutchison Ports. In order to please Trump and find a more amenable port operator, President José Raúl Mulino’s government has identified what it believes to be deficiencies in Hutchison’s 2021 concession contracts. Legal action is ongoing.

• Last Wednesday, the State Department announced Panama would exempt U.S. government ships from paying canal transit fees. This was denied by the Panama Canal Authority, with Mulino decrying the State Department statement’s “lies and falsehoods,” adding that such an agreement would violate Panama’s Constitution. 

• Trump never intended to seize the canal; his strategy was to leverage the threat of severe measures to negotiate favorable terms, specifically to distance Panama from Beijing. For Mulino, a pro-U.S. right-winger, the past weeks have been unexpectedly tense.
  
  

Highlights. Guatemala occupied an awkward place on Rubio’s roster. Unlike Nicaragua, and to a lesser extent Honduras, it is certainly not hostile to the U.S., but President Bernardo Arévalo’s close ties to the Biden Administration raised fears of a sour reaction from the Trump White House. This did not come to pass, as Arévalo acquiesced to Washington’s terms.

• Guatemala agreed to reinforce its border with Mexico and accepted a 40% increase in deportation flights. The country will temporarily host foreigners. Details are lacking, but it is generally understood that the country signed a safe third country agreement in all but name.

• Washington pledged to support the development of major infrastructure projects: the expansion of port facilities, highways, railways, and the Guatemala City metro. Across the region, Chinese infrastructure promises have been a major draw; the U.S. is evidently attempting to strike back.

• Regarding China, Guatemala enjoys special consideration in Washington due to its long-running ties to Taiwan. Rubio appeared to suggest Taipei would allocate further investment to the country in recognition of its steadfast loyalty.
  
  

On the Radar. Trump’s skirmishes with Gustavo Petro, Claudia Sheinbaum, and Justin Trudeau offered Rubio an advantage, allowing him to partake in a Trump-led “good cop, bad cop” routine. He returned to the U.S. having furthered the entirety of the administration’s priorities in the region. 

• The U.S. government will collaborate on infrastructure in exchange for Central America’s cooperation on immigration and drug trading. China has, for now, been checked, after a decade of unchallenged expansion in Central America.

• Rubio left Central America knowing that apart from Nicaragua and Honduras, he had effectively extended the U.S. southern border to the Darién Gap.

El Salvador has amended its laws to cease recognizing bitcoin as a national currency. Bukele, a prominent defender of cryptocurrencies, had previously agreed to the change in order to fulfill the conditions for a $1.4 billion loan deal agreed with the IMF.

 

Perspective. On January 29, the Legislative Assembly, dominated by the ruling party, amended the Bitcoin Law, which no longer officially recognizes bitcoin as “currency.” Confusingly, it has technically remained as legal tender, although the reform also repealed Article 4, which allowed tax contributions to be paid in bitcoin, and Articles 8 and 9, which mandated the state to “provide alternatives for users to conduct transactions in bitcoin.”

• The obligation for “every economic agent to accept bitcoin as a form of payment” was also removed. The revised article changed “shall” to “may” and narrowed down “every economic agent” to any individual or private firm.

• The government nonetheless insists it remains deeply attached to bitcoin, having amended the law only to gain access to IMF funding. Indeed, it retains its bitcoin reserve, now valued at around $600 million, and is expected to continue buying bitcoin. 
  
  

Between the Lines. The IMF was, from the outset, the law’s staunchest critic. When speaking to the press, the fund’s representatives would laud their Salvadoran counterparts in all the other regards. In December 2024, when a deal was reached after four years of  negotiations, Bukele’s government was required to “confine” the use of bitcoin.

• The amended legislation has largely carried out the IMF’s wishes. Accepting bitcoin is now optional for businesses, which merely means the law has recognized the de facto situation, and taxes are only payable in US dollars.

• Bukele’s attempts at popularizing bitcoin among the Salvadoran masses have been acknowledged as a failure. The government is expected to reduce investment in the state-backed Chivo Wallet, instead using bitcoin as a mere investment vehicle.
  
  

Yes, But. The government’s backtracking on bitcoin is entirely comprehensible. For all his much-vaunted achievements on the security front, Bukele has been unable to end El Salvador’s economic stagnation. With a debt-to-GDP ratio of 90.76%, the highest in Central America, El Salvador has relatively few willing creditors, hence its reliance on the IMF. 

• The 2025 budget imposed austerity measures, with Bukele promising a “zero-debt” year. This promise has not been kept, with the government accepting a $60 million loan from the Inter-American Development Bank. The loan is expected to go towards data centers.

• The government has also enacted some relief measures in light of its penny-pinching budget, including $80 and $30 credits for electricity and water bills, respectively. A ban on mining was also overturned, in hopes of boosting foreign investment and exploiting lucrative gold deposits in the country’s north.

• By 2024, the country’s public debt reached $32.053 billion. The last two years of Bukele’s administration have accounted for nearly 20% of this.
  
  

Miscellanea. The Legislative Assembly also simplified the procedure for constitutional amendments, with so-called “express” changes now being possible. Previously, constitutional amendments had to be approved by current and future deputies, that is, an election had to take place before an amendment could be made.

• This has led to widespread speculation that pro-Bukele deputies, who command a supermajority in the Assembly, will remove restrictions on reelection. 

• Bukele’s stated motive for the amendment was to eliminate government funding of political parties. Such a change would virtually bankrupt the opposition, which is wholly reliant on constitutionally mandated state payments.
  
  

Balance. The dream of transforming El Salvador into a crypto-tax haven has collided with the state’s liquidity problems. The country’s low productivity—and, it appears, scant appeal for foreign investors—has forced a reckoning.

• For Bukele, the economy remains the biggest challenge. He is, despite international criticism, widely popular for his achievements on the security front. This has not translated into vast economic growth, however. 

• Yet there is hope that close relations with the U.S., joined by increased dynamism due to the legalization of mining, will permit further growth. The country is in dire need of it.