Hostname: page-component-586b7cd67f-rdxmf Total loading time: 0 Render date: 2024-11-23T22:19:26.710Z Has data issue: false hasContentIssue false
  • English
  • Français

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]
Get access Rights & Permissions [Opens in a new window]

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
Check for updates
Copyright
Copyright © The Author(s), 2020. Published by Cambridge University Press on behalf of the European Association for Banking and Financial History

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Sources

ING Baring ArchivesGoogle Scholar
The Times (London)Google Scholar
Annuaires de l'Association nationale des porteurs français de valeurs mobilièresGoogle Scholar

References

Abreu, M. D. P. (2006). Brazil as a debtor, 1824–1931. Economic History Review, 59(4), pp. 765–87.CrossRefGoogle Scholar
Behr, A. (1951). Isidor Gerstenberg (1821–1876): founder of the Council of Foreign Bondholders. Transactions of the Jewish Historical Society of England, 17, pp. 207–13.Google Scholar
Berglund, S. (1985). Mercantile credit and financing in Venezuela, 1830–1870. Journal of Latin American Studies, 17(2), pp. 371–96.CrossRefGoogle Scholar
Böttcher, N. (1996). Casas de comercio británicas y sus intereses en América Latina, 1760–1860: estado y problemas de la investigación actual. Ibero-amerikanisches Archiv, 22(1/2), pp. 191–241.Google Scholar
Carrillo Batalla, T. E. (1976). Historia de las finanzas públicas en Venezuela, vol. 15. Caracas: Cuatricentenario de la Ciudad de Caracas.Google Scholar
Cassis, Y. (2006). Capitals of Capital: The Rise and Fall of International Financial Centres, 1780–2009. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Cassis, Y. (2015). Private Banking in Europe: Rise, Retreat, and Resurgence. New York: Oxford University Press.CrossRefGoogle Scholar
Chapman, S. D. (1984). The Rise of Merchant Banking. London: G. Allen and Unwin.Google Scholar
CORPORATION OF FOREIGN BONDHOLDERS (GREAT BRITAIN) COUNCIL (1877). Fifth Annual Report of the Council of the Corporation of Foreign Bondholders for the Year 1877. London.Google Scholar
CORPORATION OF FOREIGN BONDHOLDERS (GREAT BRITAIN) COUNCIL (1915). Forty-Second Annual Report of the Council of the Corporation of Foreign Bondholders for the Year 1915. London.Google Scholar
Costeloe, M. P. (2003). Bonds and Bondholders: British Investors and Mexico's Foreign Debt, 1824–1888. Westport, CT: Praeger.Google Scholar
Dawson, F. G. (1990). The First Latin American Debt Crisis: The City of London and the 1822–25 Loan Bubble. New Haven, CT, and London: Yale University Press.Google Scholar
della Paolera, G. and Taylor, A. M. (2013). Sovereign debt in Latin America, 1820–1913. Revista de Historia Economica – Journal of Iberian and Latin American Economic History, 31(2), pp. 173–217.CrossRefGoogle Scholar
Eichengreen, B. and Portes, R. (1986). Debt and default in the 1930s: causes and consequences. European Economic Review, 30(3), pp. 599–640.CrossRefGoogle Scholar
Esteves, R. (2007). Quis custodiet quem? Sovereign debt and bondholders’ protection before 1914. Economics Series Working Papers 323, University of Oxford, Department of Economics.CrossRefGoogle Scholar
Esteves, R. (2013). The bondholder, the sovereign, and the banker: sovereign debt and bondholders’ protection before 1914. European Review of Economic History, 17(4), pp. 389–407.CrossRefGoogle Scholar
Fenn, C. (1869). Fenn's Compendium of the English and Foreign Funds, Debts and Revenues of All Nations: Banks, Railways, Mines …, 10th edn, rewritten, greatly enlarged, with an appendix, bringing the work down to March 1869 by Nash, Robert Lucas. London: E. Wilson (Harvard pre-1920 social history/business preservation microfilm project).Google Scholar
Fenn, C. and Nash, R. (1883). Fenn's Compendium of the English and Foreign Funds, Debts and Revenues of All Nations Banks, Railways, Mines …, 13th edn, entirely rewritten, greatly enlarged, and brought down to the latest date by Robert Lucas Nash. London: E. Wilson.Google Scholar
Ferrada Urzúa, A. (1945). Historia comentada de la deuda externa de Chile, 1810–1945, nociones de deuda pública. PhD dissertation, University of Santiago de Chile.Google Scholar
Flandreau, M. (2013). Sovereign states, bondholders committees, and the London Stock Exchange in the nineteenth century (1827–68): new facts and old fictions. Oxford Review of Economic Policy, 29(4), pp. 668–96.CrossRefGoogle Scholar
Flandreau, M. and Flores, J. H. (2009). Bonds and brands: foundations of sovereign debt markets, 1820–1830. Journal of Economic History, 69(3), pp. 646–84.CrossRefGoogle Scholar
Flandreau, M. and Flores, J. H. (2012a). Bondholders versus bond-sellers? Investment banks and conditionality lending in the London market for foreign government debt, 1815–1913. European Review of Economic History, 16(4), pp. 356–83.CrossRefGoogle Scholar
Flandreau, M. and Flores, J. H. (2012b). The peaceful conspiracy: bond markets and international relations during the Pax Britannica. International Organization, 66(2), pp. 211–41.CrossRefGoogle Scholar
Flandreau, M., Flores, J. H., Gaillard, N. and Nieto-Parra, S. (2010). The end of gatekeeping: underwriters and the quality of sovereign bond markets, 1815–2007. NBER International Seminar on Macroeconomics, 6(1), pp. 53–92.CrossRefGoogle Scholar
Flores Zendejas, J. (2010). Competition in the underwriting markets of sovereign debt: the Baring Crisis revisited. Law and Contemporary Problems, 73(4), pp. 129–50.Google Scholar
Flores Zendejas, J. (2016). Capital markets and sovereign defaults: a historical perspective. In Cassis, Y., Grossman, R. S. and Schenk, C. R. (eds.), The Oxford Handbook of Banking and Financial History. Oxford: Oxford University Press.Google Scholar
Ford, A. G. (1956). Argentina and the Baring crisis of 1890. Oxford Economic Papers, 8(2), pp. 127–50.CrossRefGoogle Scholar
Fortune, T. (1838). Fortune's Epitome of the Stocks & Public Funds: containing every necessary information for understanding the nature of those securities, and the manner of transacting business therein: to which is added, a complete guide to the foreign funds, 14th edn. London: Sherwood, Gilbert and Piper (Goldsmiths’-Kress Library of Economic Literature, no. 30445).Google Scholar
GREAT BRITAIN. PARLIAMENT (1875). Report from the Select Committee on Loans to Foreign States; with the Proceedings of the Committee (Parliament, 1875. H. of C. Repts. and Papers). London.Google Scholar
Jenks, L. H. (1927). The Migration of British Capital to 1875. New York: Knopf.Google Scholar
Kamlani, D. S. (2008). The four faces of power in sovereign debt restructuring: explaining bargaining outcomes between debtor states and private creditors since 1870. PhD dissertation, London School of Economics and Political Science.Google Scholar
Klovland, J. T. (1994). Pitfalls in the estimation of the yield on British consols, 1850–1914. Journal of Economic History, 54(1), pp. 164–87.CrossRefGoogle Scholar
Liehr, R. (1989). La deuda exterior de la Gran Colombia frente a Gran Bretaña, 1820–1860. In América Latina en la época de Simón Bolívar: la formación de las economías nacionales y los intereses económicos europeos, 1800–1850. Berlin: Colloquium Verlag.Google Scholar
Marichal, C. (1989). A Century of Debt Crises in Latin America: From Independence to the Great Depression, 1820–1930. Princeton, NJ: Princeton University Press.Google Scholar
Mathew, W. M. (2009). La firma inglesa Gibbs y el monopolio del guano en el Perú. Lima: Banco Central de Reserva del Perú and Instituto de Estudios Peruanos.Google Scholar
Mauro, P. and Yafeh, Y. (2003). The Corporation of Foreign Bondholders. IMF Working Paper 03/107.CrossRefGoogle Scholar
Mejía Cubillos, J. (2012). Diccionario biográfico y genealógico de la élite antioqueña y viejocaldense. Segunda mitad del siglo XIX y primera del XX. Pereira: Red Alma Mater.Google Scholar
Neal, L. and Davis, L. (2006). The evolution of the structure and performance of the London Stock Exchange in the first global financial market, 1812–1914. European Review of Economic History, 10(3), pp. 279–300.CrossRefGoogle Scholar
O'Hagan, H. O. (1929). Leaves from My Life. London: John Lane.Google Scholar
Panizza, U., Sturzenegger, F. and Zettelmeyer, J. (2009). The economics and law of sovereign debt and default. Journal of Economic Literature, 47(3), pp. 651–98.CrossRefGoogle Scholar
Prebisch, R. (1922). Anotaciones sobre nuestro medio circulante, a propósito del último libro del Dr. Norberto Pinero, capítulos ix–x. Revista de Ciencias Económicas, 10(10–11), pp. 287–307.Google Scholar
Reinhart, C. M., Reinhart, V. and Trebesch, C. (2016). Global cycles: capital flows, commodities, and sovereign defaults, 1815–2015. American Economic Review, 106(5), pp. 574–80.CrossRefGoogle Scholar
Salvucci, R. J. (2009). Politics, Markets, and Mexico's ‘London Debt’, 1823–1887. Cambridge: Cambridge University Press.Google Scholar
Sicotte, R. and Vizcarra, C. (2009). War and foreign debt settlement in early Republican Spanish America. Revista de Historia Económica – Journal of Iberian and Latin American Economic History, 27(2), pp. 247–89.CrossRefGoogle Scholar
Stone, I. (1999). The Global Export of Capital from Great Britain, 1865–1914: A Statistical Survey. Basingstoke: Macmillan; New York: St Martin's Press.CrossRefGoogle Scholar
Suter, C. (1990). Schuldenzyklen in der Dritten Welt: Kreditaufnahme, Zahlungskrisen und Schuldenregelungen peripherer Länder im Weltsystem von 1820 bis 1986. Athenäums Monografien, Sozialwissenschaften, vol. 32. Frankfurt am Main: A. Hain.Google Scholar
Suter, C. (1992). Debt Cycles in the World Economy: Foreign Loans, Financial Crises, and Debt Settlements, 1820–1990. Boulder, CO: Westview Press.Google Scholar
Suzuki, T. (1994). Japanese Government Loan Issues on the London Capital Market, 1870–1913. London and Atlantic Highlands, NJ: Athlone Press.Google Scholar
Wetenhall, J. (1818). Course of the Exchange, &c, &c. London: James Wetenhall.Google Scholar
Williamson, J. G. (2008). Globalization and the Great Divergence: terms of trade booms, volatility and the poor periphery, 1782–1913. European Review of Economic History, 12(3), pp. 355–91.CrossRefGoogle Scholar
Ziegler, P. (1988). The Sixth Great Power: Barings 1762–1929. London: Collins.Google Scholar