A CENTURY OF DEBT CRISES IN LATIN AMERICA Frornlndependence to the Great Depression, 1820--1930 Carlos Marichal PRINCETON UNIVERSITY PRESS PRINCETON, NEW JERSEY Copyright © 1989 by Princeton University Press Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540 In the United Kingdom: Princeton University Press, Guildford, Surrey All Rights Reserved Library of Congress Cataloging-in-Publication Data Marichal, Carlos. A century of debt crises in Latín America : from independence to the Great Depression, 1820-1930 1 Carlos Marichal p. cm. Bibliography: p. Includes index ISBN 0-691-07792-4 (alk. paper) ISBN 0-691-02299-2 (pbk.) l. Debts, Extemal-Latin America-History. l. Title. HJ8514.5.M357 1989 336.3'435'098--dcl9 88-17843 Publication of this book has been aided by the Whitney Darrow Fund of Princeton University Press This book has been composed in Linotron Times Roman Clothbound editions of Princeton University Press books are printed on acid-free paper, and binding materials are chosen for strength and durability. Paperbacks, although satisfactory for personal collections, are not usually suitable for library rebinding Printed in the United States of America by Princeton University Press, Princeton, New Jersey To Juan and Solita CONTENTS Page List of Figures...........................................……………………………………..…….ix List of Tables..........................................……………………. ……………..……….xi Acknowledgements.........................................……………………………..……….xiii INTRODUCTION.............................................………………………………………3 CHAPTER 1 Independence: Silver and Loans........................……………………………….…..12 CHAPTER 2 The Crash of 1825.....................................……………………………………..…...43 CHAPTER 3 The Rediscovery of Latin America, 1850-1873...........………………………..……68 CHAPTER 4 The First World Debt Crisis...........................………………. ………………….…...98 CHAPTER 5 Loan Frenzy in the Rio de la Plata, 1880-1890.........………………………..…….126 CHAPTER 6 The Baring Panic of 1890..............................…………………………..…. ………149 CHAPTER 7 Dollar Diplomacy and the Loan Boom of the 1920's......………………………......171 CHAPTER 8 The Great Depression and Latin American Defaults......….. …………………..….201 EPILOGUE.................................................………………………………………... 229 Appendix A. Foreign Loans to Latin American Governments, 1850-1873................................................…………………………………………...243 Appendix B. Foreign Loans to Latin American Governments, 1880-1890................................................…………………………………………...247 1 Appendix C. Foreign Loans to Latin American Governments, 1920- 1930................................................………………………………………………….251 Appendix D. Guide to Foreign Banking Houses Engaged in Latin American Loans, 19th and early 20th Centuries......………………………...257 Bibliographical Note.....................................………………………………………..259 Index....................................................................................................................275 2 ACKNOWLEDGEMENTS The present work has had a long gestation period and over this time I have accumulated a large number of personal debts which I would like to acknowledge. On the other hand, I should note that in the course of my research and writing I received no grants or financial assistance, although at times they were sorely needed. Nevertheless, in presenting a critical analysis of foreign indebtedness, I believe it is just as well that this study be free of any monetary debts. My interest in the history of Latin American foreign debts grew out of research carried out a decade ago on the economic history of Argentina. The individual who contributed most to deepen my understanding of this subject was Luis Victor Sommi, was my contact with researchers of NACLA, the North American Congress on Latin America, of New York, especially with Michael Locker and Carlos Diaz Ritter, who insisted on the importance of studying the history of financial groups. Subsequently in Mexico, where I have lived and taught since 1979, many individuals have provided encouragement, stimulus and fruitful critiques. In 1980 Jose Quijano and Samuel Lichtenztejn urged me to prepare a paper for a conference which helped me to formulate ideas on the comparative history of Latin American finances. At seminars held at the Universidad Autonoma Metropolitana in Mexico City, the following colleagues listened with patience and commented with intelligence on the hypotheses I presented to them: Hira de Gortari, Jose Carlos Chiaramonte, Carlos Sempat Assadourian, Jan Patula, Juan Carlos Garavaglia, Leonor Ludlow and Daniel Cataife. My colleague from Haiti, Guy Pierre, greatly assisted me in the study of economic cycles. Once the preliminary drafts had been transformed into a manuscript, the following persons were so good as to read and comment on some or all of the chapters: Nicolas Sanchez Albornoz, William Callahan, Barbara Tenenbaum, John Womack and Paul Bushkovitch. Their perceptive observations and criticisms were invaluable. My good friends Adela Harispuru and Margot Andersen Imbert provided me with hard to obtain bibliographical materials and information. The librarians of the following institutions were particularly helpful: Widener Library (Harvard University), the Hispanic Divison of the Library of Congress, the library of the Ministerio de Economia in Buenos Aires and that of the Secretaria de Relaciones Exteriores in Mexico City. Magdalena Fernandez, Irma Escobar Reyes and Tehila Liberman assisted me with secretarial chores. Enrique Vega did work on the graphic material and Jorge Orozco Zuart assisted me with the appendixes. I should also like to thank the two anonymous readers who reviewed the text on behalf of Princeton University Press for their many useful observations. And I would like to thank the editor in chief of the Press, Sandy Thatcher, for his punctual letters and his support. xiii My greatest debt I mention last. This study would not have been possible without the assistance in many things, great and small, of my wife and companion, Soledad Gonzalez, of my parents and of my parents-in-law through a now long stretch of years during which my explorations of the Latin American past often seemed a difficult though never a fruitless task. I can only hope that the present study reflects, in some measure, the affection which they have so liberally bestowed on the author. xiv INTRODUCTION The world debt crisis began in the early 1980's but its end is still not in sight. The enormous financial burden which weighs upon the less-developed nations of the globe has already had such a devastating impact that it is illusory to think that a sustained economic recovery is possible in the near future. The dramatic rise in unemployment levels in most Asian, African and Latin American countries in the last few years has been accompanied by an equally striking fall in the per/capita income of the majority of the population and has provoked hardship and discontent. The financial debacle has therefore sown the seeds of increasingly widespread social and political protests. Nowhere has the impact of the debt crisis been felt more harshly than in Latin America which struggles to free itself of an oppressive load of 350 billion dollars in foreign debts. Much attention has been directed to the analysis of the plight of the big debtors, Brazil, Mexico, Argentina and Venezuela, but it should be underlined that the smaller countries are beset with a similar dilemma. The external debts of Bolivia, Ecuador, Peru and the Central American and Caribbean nations have disrupted their economies and immeasurably intensified the suffering of the poorest peoples of the Western Hemisphere. The debt crisis initially caught bankers, politicians and economists--as well as practically everyone else--off guard. Why did this happen? In part, no doubt, because the swings of the international economy have become increasingly acute during the last decade. None of the participants in the great loan boom of the late 1970's expected that it would end in the debt crisis of the 1980's. The euphoria of prosperity mesmerized all those engaged in these financial negotiations and obscured the signs of increasing instability in the world capitalist economy. But it may also be suggested that the lack of a historical perspective made it difficult to comprehend the cyclical nature of the loan flows and the inevitability of a financial upheaval. The present debt crisis is, in fact, not an unprecedented event but part of a chain of recurrent crises throughout the history of Latin America. During more than a century and a half the Latin American nations have been buffeted repeatedly by international financial storms that have wreaked enormous damage upon their economies and strapped them into an apparently irrevocable succession of boom and bust cycles that reinforce underdevelopment. The debt cataclysm of the 1980's is on a greater scale than those of the past because of the huge volume of financial resources now at stake and because of the increasingly complex structure of the economies of modern Latin America. However, the dimensions of the current dilemma do not imply that nothing can be learnt from similar past experience. The evolution of the diverse societies of Latin America has been molded by a complex set of historical factors that are not merely a legacy but a continuing reality. From the early nineteenth century Latin American elites