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Explaining Latin America's persistent defaults: an analysis of the debtor–creditor relations in London, 1822–1914

Published online by Cambridge University Press:  23 November 2020

Juan Flores Zendejas Open the ORCID record for Juan Flores Zendejas [Opens in a new window]
Juan Flores Zendejas*
Affiliation:
University of Geneva
*
J. Flores Zendejas, Paul Bairoch Institute of Economic History, University of Geneva, 40, bd du Pont-d'Arve CH-1211 Geneva 4, Switzerland; email: [email protected]
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Abstract

This article analyses the reasons why most Latin American governments frequently defaulted on their debts during the nineteenth century. Contrary to previous works, which focused on domestic factors, I argue that supply-side factors were equally important. The regulatory framework at the London Stock Exchange prevented defaulting governments from having access to the capital market. Therefore, the implicit incentive for underwriting banks and governments was to accelerate negotiations with bondholders, particularly during periods of high liquidity. Frequently, however, settlements were short-lived. In contrast, certain merchant banks opted to delay or refuse a settlement if they judged that the risk of a renewed default was too high. In such cases, even if negotiations were extended, the final agreements were more often respected, allowing governments to improve their repayment record.

Keywords

sovereign debtdefaultsunderwritingfinancial crises

JEL classification

N26: Latin America • Caribbean F34: International Lending and Debt Problems G15: International Financial Markets N23: Europe: Pre-1913
Type
Articles
Information
Financial History Review , Volume 27 , Special Issue 3: Finance, financiers and financial centres: a special issue in honour of Youssef Cassis , December 2020 , pp. 319 - 339
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Copyright
Copyright © The Author(s), 2020. Published by Cambridge University Press on behalf of the European Association for Banking and Financial History

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