EmergingFinancialMarketsofthe1820s:LatinAmericanSovereignDebt,1825-1852
(Preliminaryversion;notforcitation)
GailD.TrinerDepartmentofHistoryRutgersUniversity
Presentedat
XVIIIWorldEconomicHistoryCongressPolityandStateFinanceinthePeripheriesoftheGlobalEconomy
AbstractAsacasestudyinthevicissitudesofemergingborrowersinglobalfinancialmarkets,thispaperanalyzesfluctuationswithinthefirstcycleofLatinAmericansovereigndebtissuedinLondon.DataderivedfromtheweeklypricesofthemajorsovereignborrowerswhohadnewlyborrowedintheLondonbondmarketcombinewithhistoricalnarrativetosuggestthatcircumstancesspecifictoeachborrowerdidnot,alone,explaineithersovereigndefaultorresolution.Creditors’perceptionofthedebtors’creditworthiness,takingaccountofarangeofinvestmentalternatives,carriedsignificantweightinunderstandingthedecisionstogointoandcomeoutofdefault.Theconclusionssuggestthatcircumstancesspecifictoeachborrowerdidnot,alone,explaineithersovereigndefaultorresolution.Creditors’perceptionofthedebtors’creditworthinesscarriedsignificantweightinunderstandingthedecisionstogointoandcomeoutofdefault.However,neitherdidsovereigndebtorsreactpassivelytomarketconditions;resolvingdefaultsreflecteddebtordecisionstoavailthemselvesofreceptivefinancialmarkets.Giventhegeneralinterpretationofacrisisin1825/26asthefirstmodernglobalsovereigndebtcrisis,thedearthofdetailedexplorationintothespecifictrajectoryofthecycleiscurious.Thepapercontributestoremedyingthatlacuna
EmergingFinancialMarketsofthe1820s:LatinAmericanSovereignDebt,1825-1852
(Preliminaryversion;notforcitation)
The1820swasadecadeofinterrelatedandgeographicallywidespreadshiftsinpolitical
arrangements,globalfinanceandbusinesspractices.Europeanstatesre-organizedthemselves
intheaftermathsoftheNapoleonicWarsandtheindependenceoftheirformercoloniesinthe
Americas.Theseshiftingpoliticaldynamicsbothcreatedandrespondedtoeconomicchange,
whichmanysawasnewopportunity.Amongthemostimportantinnovationswasanearly
periodoffinancialglobalization.Theexpansionoftheglobalfinancialmarket,centeredin
London,gavenewlyindependentLatinAmericannationsaccesstocapitalatthesametimethat
itofferedpotentialinvestorstheopportunitytoinvestanonymouslyinnewstatesand
enterprises.1Politicalindependenceamongtheformercolonies(theemergingmarketsoftheir
time)andindustrializationintheNorthAtlanticopenedthepossibilityofgreatertrade,
exchangingcommoditiesformanufacturedgoods.Economicpotentialpropelledbothproducers
(ofprimarycommoditiesandofmanufactures)andinvestorshopingtobenefitfromthegains.
Financialopennesssupportedearlycapitalinflowstonewstates,whichquicklyturnedinto
widespreadsovereigndefaults.
ThispaperanalyzesfluctuationswithinthefirstcycleofLatinAmericansovereigndebt
issuedinLondon(anddenominatedinpoundsterling)asanearlycasestudyinthevicissitudes
ofemergingborrowersinglobalfinancialmarkets.2Thecyclelastedfrom1822-1825,whenthe
1ThispaperstandsontheshouldersofCarlosMarichal,ACenturyofDebtCrisesinLatinAmerica:FromIndependencetotheGreatDepression,1820-1930(Princeton:PrincetonUniversityPress,1989);FrankG.Dawson,TheFirstLatinAmericanDebtCrisis:TheCityofLondonandthe1822-25LoanBubble(NewHaven:YaleUniversityPress,1990).ForanearlyclassicreadingonBritishinvestmentinLatinAmerica,seeLelandHamiltonJenks,TheMigrationofBritishCapitalto1875,BorzoiPoliticalScienceTexts(NewYork:A.A.Knopf,1927),Chapter2.2AsignificantboomincapitalizingLatinAmericanminingcompanieslistedontheLondonexchangeoccurredduringthesameyears.Almostallofthesehighlyspeculative(andoftenfraudulent)companiesfailedwithinafewyears.Theyarenotthesubjectofthispaper.
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loanswerecontracted,untilabout1852,whendefaultsandcomplianceproblemswerewellon
theirwaytoresolution.Giventhegeneralinterpretationofacrisisin1825/26asthefirst
modernglobalsovereigndebtcrisis,3thedearthofdetailedexplorationintothespecific
trajectoryofthecycleiscurious.Thepapercontributestoremedyingthatlacunabyassessing
thevalueofsovereignbonds,relativetoeachother,fromtheperiodleadinguptodefaultuntil
resolution.Theunderlyingquestionsoftheresearchare:towhatextentdidinvestors
distinguishbetweendifferentLatinAmericanborrowers,andhowandwhendidthevalueof
debtofemergingsovereignsrespondtoconditionsoutsideoftheircontrol?
Thisresearchcomplementsthethrivingrecentbodyofscholarshiponsovereigndebtof
thenewlyindependentLatinAmericanstates,whichlargelyfocusesonthedecisionsandactions
ofindividualborrowers.4Analternativeperspectivehasbeentofocusonthecreditorsideofthe
market,withlittledetaileddistinctionmadeamongdebtors.5Intermediariesatthecenterofthe
capitalmarketalsohaverecentlycomeunderscrutiny.6Thispaper’sunderlyingpremiseisthat
3Dawson;LarryNeal,"TheFinancialCrisisof1825andtheRestructuringoftheBritishFinancialSystem,"FederalReserveBankofSt.LouisReview80,no.3(1998).4Forsomeexamplesofrecentliterature,seeLeonardoWeller,"Rothschilds''DelicateandDifficultTask':Reputation,PoliticalInstabilityandtheBrazilianRescueLoansofthe1890s,"EnterpriseandSociety16,no.2(2015);WilliamRoderickSummerhill,IngloriousRevolution:PoliticalInstitutions,SovereignDebt,andFinancialUnderdevelopmentinImperialBrazil,ed.RutledgeIan,YaleSeriesinEconomicandFinancialHistory(NewHaven:YaleUniversityPress,2015);GracielaLKaminskyandPabloVega-García,"VarietiesofSovereignCrises:LatinAmerica1820-1931,"NBERWorkingPaperSeries(2014);CatalinaVizcarra,"Guano,CredibleCommitments,andSovereignDebtRepaymentinNineteenth-CenturyPeru,"JournalofEconomicHistory,no.2(2009);RichardJ.Salvucci,Politics,Markets,andMexico's"LondonDebt,"1823-1887,CambridgeLatinAmericanStudies(NewYork:CambridgeUniversityPress,2009).AclassicearlystudyisJ.FredRippy,"LatinAmericaandtheBritishInvestment"Boom"ofthe1820's,"TheJournalofModernHistory19,no.2(1947).5ThemostnotablecontributiontothisliteratureisCarmenM.ReinhartandKennethS.Rogoff,ThisTimeIsDifferent:EightCenturiesofFinancialFolly(Princeton:PrincetonUniversityPress,2009).6AninnovativeinterpretationoftheroleofdebtunderwritersisemergingfromtheworkofMarcFlandreau,JuanFloresandtheircollaborators.Foraselectionofthiswork,seeMarcFlandreauandJuanH.Flores,"BondsandBrands:FoundationsofSovereignDebtMarkets,1820–1830,"TheJournalofEconomicHistory69,no.3(2009);MarcFlandreau,"SovereignStates,BondholdersCommittees,andtheLondonStockExchangeintheNineteenthCentury(1827–68):NewFactsandOldFictions,"OxfordReviewofEconomicPolicy29,no.4(2013);MarcFlandreauetal.,"TheEndofGatekeeping:UnderwritersandtheQualityofSovereignBondMarkets,1815-2007,"inNberInternationalSeminaronMacroeconomics2009,
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understandingglobalsovereigndebtrequiresanalysisthatintegratesalloftheseplayers.The
short-termperspective,basedonweeklychangesofbondyields,acrossbondissuerswithina
well-definedtimeframeallowsanuancedcomparativeunderstandingofthedynamics
underpinninginternationalfinancialactivity.
Conditionswithintheanonymousmarketofbondbuyersandsellersgelledwith
nationalcircumstancesinthelate1820stoinfluencewidespreaddefaultamongLatinAmerican
sovereignborrowers.Nevertheless,theemergingborrowersremainedresponsivetothe
stressesofmarketfluctuationduringperiodsoffluctuation.Theglobalfinancialenvironment
wasnotconduciveforborrowerstodecidetosettletheirdebtsuntiltheendofthe1840s.The
paperinvokesBrazilasareferentforSpanishAmericansovereignloansandnuancesthenotion
ofdefault;Brazil’sincompletedefaultresultedinmitigated,butstillsignificantcosts.
Theconclusionssuggestthatcircumstancesspecifictoeachborrowerdidnot,alone,
explaineithersovereigndefaultorresolution.Creditors’perceptionofthedebtors’
creditworthiness,takingaccountofarangeofinvestmentalternatives,carriedsignificantweight
inunderstandingthedecisionstogointoandcomeoutofdefault.However,thepaperalsofinds
thatsovereigndebtorsdidnotreactpassivelytomarketconditions;resolvingdefaultsreflected
debtordecisions,whichwerecostlyandpoliticallyrisky,toavailthemselvesofreceptive
financialmarkets.Theseconclusionsarenotsurprising;infacttheyareexactlywhatfinancial
theoristsandhistorianswouldexpect.Theirimportanceistohighlighttheubiquitoustradeoff
foremergingeconomiesinglobalfinancialcapitalmarketsbetweenaccesstocapitaland
vulnerabilitytofluctuation.
Afterthisintroduction,thepaperproceedsinsectionsthatofferadiscussionofdata
andmethodology,briefhistoricaloverviewtoestablishthesetting,ananalysisofthedebt
ed.LucreziaReichlinandKennethD.West(Chicago:NationalBureauofEconomicResearch;UniversityofChicagoPress,2010).
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characteristicsacrossthecyclefromearlyborrowingthroughdefaultuntilresolutionofdebt
irregularities,followedbyadeepdiveintothechronologyofbondyieldfluctuationin
conjunctionwithhistoricalnarrative,andaconclusion.
DATAANDMETHODS
Financialandpoliticalhistoriansrecognizethelevelandfluctuationofbondpricesasan
importantmeansbywhichinterestedpartiesassessthecreditworthinessandstabilityofa
debtor.Fordebtors,investor/creditorsandanalyststhelevelandfluctuationofthevalueof
bondsofferthemetricstoproxythevalueofdebts,evenifthesemeasuresdonotaffectthe
long-termcostofcapitalattachedtotheoriginalloan.7Analyzingthetrajectoryofpricesat
whichbondholdersboughtandsoldsovereignbondsallowsforanassessmentofmarket
fluctuationsandforinsightontheunderstandingbypropertiedeconomicactorsofthe
prospectsforborrowingstates.Thevalueofinternationalsovereigndebt,afterithasbeen
issued,doesnotaffectaborrower’spaymentobligations.However,fluctuationsinvaluedirectly
influencethevalueofcapitalwithinthatsovereign’sterritory.Thepricetrendalsoindicatesthe
credibilityandlegitimacyofasovereignborrowerinmeetingitscommitmentstoitsforeignand
domesticcreditors,itscitizensandintheglobalgeopoliticalarena.Alloftheseissuesheldsway
intheearlynineteenthcentury,astheycontinuetodosotoday.
PricesforthebondsofnewsovereignborrowersandonBritishperpetualconsolidated3
percentbonds(knownasconsols)areofinteresthere.Asthedominantinstrumentinglobal
financialmarkets,theconsolyieldservesasthebenchmarkmeasureforthemarket–the
(closestapproximationofrisk-free)returnonmarketinvesting.Normalcomparativefinancial
analysisrequiresthetranslationofloanpricesintoyields-to-maturity,tonormalizeprice
7Sincethefacevalueofthebondisestablishedwhenitisissued,themechanismforincreasingitsreturnistopayalowerpriceforitonthesecondarymarket.Investorsrequirehigherreturns(lowerprices)onbondsasexpectationsofadebtor’sdecline.
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fluctuationsfordifferencesininterestrate,maturityandinitialprice.8However,theyield-to-
maturitymeasurecannotbeusedforloansindefault,theloansofinteresthere.Although
investorscontinuedtobuyandsellbondswhileindefault,itisunlikelythatmarketparticipants
assessedanexpectedyield-to-maturitywhenmakingpurchase/saledecisions.Inorderto
normalizetheloanswithrespecttointerestrateandissueprice,andtoreflectthe
indeterminatescheduleoftheirresolution,thepaperutilizesthecurrentyield,treatingthe
bondsasthoughtheywereconsols(fixeddividendrateandperpetualdividendpayments.)9
Inkeepingwithmuchofthecurrentliteratureonsovereigndebt,thepaperinvokesthe
conceptofariskpremiumtoisolatethetrajectoryofsovereigncreditworthiness.Therisk
premium,orcountryrisk,isthedifferencebetweenthebondyieldandthemarketbenchmark
(consol)yield.10Thistransformationassumesthatriskassessmentwasindependentofthe
benchmark.Findingsfromthispapersuggest,incontrast,thatsovereignriskassessmentsfor
emergingborrowersrespondedtothestateofthemarkets.Therelationshipmakessensefrom
ananalyticperspective,ifinvestorsadjustedtheirrequiredreturnonriskpartiallyinreflection
oftheirliquidityconcerns,givenothercircumstancesinthemarket.However,animplicationof
thisrelationshipisthattheriskpremiummeasuredoesnotfullydistinguishbetweensovereign
8Alternativemeasuresoftheex-anteorex-postinternalratesofreturnarenotsuitablehere.Theex-anterateassumesthattheinitialtermsofthebondsaremet,whichweknownottobethecase;theex-postmeasureassumesthatweknowthecostofresolution.Neithermeasurerevealstheexpectationsofinvestorswhilethebondswereoutstanding.9Thecurrentyieldissimplythecouponpayment/currentprice.Forpurposesofconsistencyallofthebondprices,includingthosenotindefault,havebeenconvertedtocurrentyields.Theyieldmovesinverselywithprices:ahigherpricetranslatesintoaloweryield,whichreflectsfavorablyontheborrower(andviceversa–lowerpriceequatestoahigher,lessfavorable,yield.)10Theriskpremiumthatinvestorsrequiredonsovereigndebt,comparedtothemostrisk-free(safest)alternativeuseofcapital,conveysinformationonthefinancialstandingofborrowersininternationalfinancialmarketsandseparatessovereignriskfromoverallrisksofthefinancialmarket,whicharenotspecifictotheborrower.Thismeasureisolatescountryriskfrombroadunderlyingshiftsofthefinancialmarkets.Thebestbenchmarkof“risk-free”lendingforthenineteenthcenturyistheyieldontheBritishconsol.ThespreadbetweentheyieldsonsovereignbondsofeachnationandtheBritishconsoldefinestheriskpremium.
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political/economicriskandmarketrisk.11Thisproblemisnotaddressedinmuchanalysisof
emergingmarketsovereigndebt;however,itplaysaroleinthemethodologicalchoicesofthis
paper.
Weeklybondpricesforthe“ForeignFunds”listedonTheCourseoftheExchange(the
reigningfinancialpressoftheday)comprisethequantitativedatabaseforderivingtherisk
premia.SomeofthefourteenborrowerslistedasForeignFunds(Table1)arenotincludedin
thisanalysis.AmongLatinAmericanborrowers,anattemptedloantoGuatemalaisexcluded;12
theinfamouslyfraudulentloantotheimaginarykingdomofPoyaisisalsonotconsidered.The
loantoGranColombiawasre-apportionedwithitspartitionintoNewGrenada,Venezuelaand
Ecuadorin1834.Redefinedpoliticalboundariesresolvedidnotdebtproblems,andNew
Grenada(Colombia)bondsweredelistedfromthepricetablesin1846,aftertradingirregularly.
EuropeansovereignborrowersalsoofferabriefmetricofcomparisonfortheLatinAmerican
states.ThedataidentifytwodistinctgroupsofEuropeanstatedebt:a“healthy”groupof
Austria,DenmarkandRussia,whomettheserviceobligationsonthedebtand“unhealthy”
borrowerswhodefaultedorfailedtoplacetheirbonds.13Forefficiencyofexposition,thispaper
11Anearlierversionofthispaperattemptedtoseparatetheeffectsofmarketchangefromchangingriskassessment.Severedataconstraintsanddifficultiesinsystematicallyidentifyingsustainedchangerenderedthisapproachinfeasible.JohnLandonLanejumpedthroughconsiderableeconometrichoopstotrytomakethiswork;evenintheabsencemethodologicalsuccess,theefforthelpedtodeveloptheideasofthepaper.12Guatemaladefaultedimmediately;thevastmajorityofthecontracteddebtremainedunsold,andtheydidnotestablishasignificanttradingrecord;thereforeithasbeendroppedfromtheanalysis.(In1838,theresidualoftheGuatemalaloanwasapportionedbetweenthesuccessorcountries(CentralAmerica,lessPanama,intwenty-firstcenturygeography);renegotiationoftheseloansbythesuccessorstateswasstaggeredfrom1844through1874.13The“unhealthy”Europeanborrowers,Greece,NaplesandSpain,arenotconsideredinthispaper.Afterdefault,GreekbondstradedveryseldomontheLondonexchange(thusgeneratinglittledata.)ThecurrentstateofthedatadonotallowmetoidentifycommonalitiesbetweenSpanishandSpanish-Americandebt,andthehistoricalanalysiswouldnotgenerateexpectationsofcommonalities.ThedesiretoavoidanysuggestionorpresumptionofsuchcommonalitieshaspromptedmetoexcludeSpain–and“unhealthy”Europefromthisanalysis.Alsoamongwhatwouldhaveconstituted“unhealthy”Europe,Naplesattemptedtoissuedebtin1824,buttheissuanceseemstohavebeenunsuccessful.Also,these
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usesthehealthyEuropeanborrowersofAustria,14DenmarkandRussiaincomparative
perspectivewiththeLatinAmericandebt.Inaddition,Portuguesebondyields,relativetothe
Brazilian,offeraninterestingmirrorintobothBrazilianindependenceandtheinter-related
connectionsofthebondmarket.Forsomeborrowers,debtrenegotiationsduringthiscycle
resultedintheactualexchangeofbonds,thepriceserieshavebeensplicedtoreflecttheseries
involvedinactivetradingatanygiventime.15(Figures1-4displaytheriskpremiaandyield
trends.SeetheDataAppendixforthedetailsofthebondseries’constructionandtheAppendix
Tablefordescriptivestatistics.)
Theanalyticalframeworkheredepartsfrommostcurrentanalysesbyeschewing
econometrictestingoftheriskpremiatrends,suchascalculatingbreak-pointsforeventstudies.
Thedecisiontorelyonhistoricalnarrativereflectsthefrequencyof,andinabilitytocontrol,
gapsindatapointsaswellasthecontinuedinterrelationshipbetweenriskpremiaandmarket
yieldidentifiedabove.16Manyofthebondstradedirregularly,andtheycontinuedtotrade(in
unknownvolumes)ontheLondonexchangeafterdefaults.Thepricesreportedfordefaulted
bondscouldreflectcurrentinformation(“news”)aboutthevalueofthedebt,sporadicadhoc
andpartialpaymentsofpast-dueamounts,speculativetradinginanticipationofdebt
settlementre-negotiations,churningtogiveanappearanceofactivemarkets,or“noise.”Prices
alsocouldchangeinresponsetochangesininvestors’liquidityorperceptionsofanygivenbond
relativetoothers.Further,priortotransatlantictelegraphcommunications,severeasymmetry
bondissuesdonotinclude(North)AmericanissuesorthoseofFrance,whichhadbeenissuedduringthereparationssettlementoftheNapoleonicWarsandTheCourseoftheExchangelistedseparately.14ThebondstradedatirregularintervalsandAustriarefinanceditsdebtdomestically,withdrawingfromtheLondonlistingin1849.15ForMexicothe1837and1846loansreplacedtheirpredecessors(thoughtheyalsofellintodefault),andthePeruvianloanwasre-negotiatedin1849.16Inanenvironmentofhighfluctuationandunknownvolumesoftransactions,theusualstrategiesofeitherassigningthelast-knownvaluetomissingdataorinterpolationbetweenknowndatapointsareunsatisfactory.Imposingarequirementofhavingdatapointsforallbondsinthesamplewouldreducethedatasettoomuch.
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inthetimingofresponsestocontinentalandinter-continentalnewsrenderstheinterpretation
inLondonofeffectsofpoliticalandeconomicnewsfromLatinAmericaimprecise.17
ThebondsofBrazil,MexicoandPerutradedwithrelativeregularity.Historicalnarrative
andlesscompletequantitativeobservationswithrespecttootherborrowerssupplement
informationfromthesebondseries.TheTimes(ofLondon)isthemajorsourcefordetermining
what,andwhen,theaverageinvestorlearnedofeventsinLatinAmerica.18
Finally,twenty-eightyearsisaverylongtimeinfinancialmarketsandthetrajectoryof
riskpremiaandyieldsinFigures1and2suggestscommonpatternsalongwithsignificant
differences,whichmeritdetailedchronologicalstudy.Justastheexperiencesofborrowers
varied,sodiddistinctsub-periodsofheightenedfluctuationdemonstratedifferencesinrisk
premiabehavioracrosstheentire28-yearsofthefirstsovereigndebtcycle.Financialhistory
andFigures1-4identifythreeperiods(betweenwidelyexperiencedlocalizedpeaksofrisk
premiaandconsolyield)whencommonalitiesintheriskpremiaandconsolyieldtrendssuggest
thepredominanceofgeneralmarketforcesovernationalcircumstancetoexplainvariation:
1825-June1830,1845-1848and1849-1852.Withinthesetimeperiods,thedatarevealthatthe
movementsofriskpremiaandtheconsolyieldweregenerallyinthesamedirection.Inthe
interim,fromJuly1830through1845LatinAmericanbondsdemonstratedmoredisparate
movement,whilehealthyEuropeansecuritiesgenerallyshowedslowimprovement(declining
riskpremia.)Further,localizedshort-termpeaksandtroughsofpremiaandtheconsolhada
17ThispaperdistinguishesbetweeneventsthathappenedinEurope,whichhadimmediateimpactonbondprices,andthoseoccurringinLatinAmerica.Forthelatter,theireffectonbondyieldinLondonisconsideredrelativetotheirannouncementinTheTimes.Thetimegapsoftransatlanticinformationflows,intheerabeforetransoceanictelegraphinthe1870sareanimportant,consideration.ItgenerallyrequiredeightweeksforcommunicationtoflowbetweenLondonandRiodeJaneiro,andsixweeksbetweenLondonandMexicoCity.(Steamtransportwasintroducedduringthe1850s.)Althoughthismethodneedstobeinterpretedloosely,itprovidesasurprisinglyaccuratemappingbetweenimportantnewseventsandbondyieldshocks.18TheTimeswasthenews-providingpublicationoftheday;othersourceswouldhavebeenmorelimitedininformationdissemination.
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tendencytoclusterwithinconsecutiveweeks,servingasausefultoolforidentifyingmarket
causalityincontrasttosovereignrisk.(Table2presentsthemeasuresoffluctuationofinterest
inthepaperandTable3identifiestheclusteringofweeklyfluctuations.)
Althoughcircumspectionisnecessaryininterpretingthedataseries,thishistoryofthe
bondyieldsrequiredofsovereignborrowersrevealsconsistentandnuancedinsightintothe
particularitiesofbothearlycapitalmarketactivitiesandearlyLatinAmericannationformation.
HISTORICALSETTING
Inthe1820s,theideathatsovereignstatescouldborrowsubstantialamounts,forlong
periodsoftime,fromanonymouslenders/investorsinaforeigncountryexpandedtonew
borrowers.19Existingscholarshipattributestheexpansionofthedebtmarketsduringthese
yearstotherapidandverylargeincreaseininvestorliquiditywiththeendin1815ofwartime
borrowingthathadfinancedBritain’sundertakingoftheNapoleonicWars.20Between1822and
1825,thefourteensovereignstateslistedinTheCourseoftheExchangeraised£40.1million.
TheseborrowersincludedsevennewlyindependentLatinAmericannations,theemerging
marketsoftheera,with£20.75millionofdebtobligations.Brazilianbondsaccountedfor£3.69
million(£5.69million,includingthePortugueseobligationsidentifiedbelow,forwhichthey
assumedresponsibilityasaconditionofPortugueserecognitionofindependence.)Theother
majorborrowerswereMexicoandPeru,with£6.4millionand£1.2millionofbonds,
19Althoughdomesticdebtandintra-Europeanmarketshadlongexistedforasmalluniverseofsovereigns,theexpansiontonewsovereignborrowersinthe1820swasanexpansionfromearlieryears.(ReinhartandRogoff.)20Neal;LarryNealandMarcWeidenmier,"CrisesintheGlobalEconomyfromTulipstoToday:ContagionandConsequences,"inNBERWorkingPaperNo.9147(CambridgeMA:NationalBureauofEconomicResearch,2002);Dawson.
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respectively(SeeTable1.)Many(biased)contemporaryobserversandsomesubsequent
financialhistorianshavesuggestedthatthesedebtswerenotexcessive.21
Thenewstatesincurredtheloansforpurposesofmilitaryexpenditureandfiscal
balancing.Someanalystshavecontrastedtheseloanswiththedevelopmentalpurposes
associatedwithsubsequentborrowingtofinancelarge-scalephysicalinfrastructure.22An
alternativeinterpretationcouldsuggestthatthesestate-buildingactions,intheabsenceof
havinginheritedviablepoliticalorfiscalsystemsfromimperialgovernors,wereamongthemost
importantdevelopmentalactivitiesfacingthenewlyindependentstates.Intheirera,forallof
thenewlyindependentstates,state-buildingincludedthewarfareinvolvedwithestablishing
legitimacyandterritory.Italsoincluded,fromtheperspectiveofdebtors,puttinginplace
financialresourcesthatbridgedfromindependencetotheestablishmentoflegitimacyand
constructionofarevenue-generatingfiscalsystem.Londonfinancialmarketshadpreviously
servedthesepurposes,albeitwithdifferentsovereigndebtors.
Brazilianbondsservedasanimportantreferentinthemarkets.Brazilwasaloneamong
theLatinAmericanborrowerstonotenterintocompletedefaultduringthisperiod.23In
comparisonwiththenewlyindependentSpanishAmericanrepublics,Brazilalsopossessedmany
21Contemporaryinvestorswouldhavebeenbiasedtowardsthisopinionbecauseitbothbolsteredtheirargumentsforpromptrepaymentanditdidnotreflectadverselyontheiroriginaljudgmenttoextendcredit.SeeforexampleTheTimes(London)15April1826and21January1836;RobertCrichtonWyllie,"ALettertoG.R.Robinson,Esq.,ChairmanoftheCommitteeofSpanishAmericanBondholders,onthePresentStateandProspectsoftheSpanishAmericanLoans.,"ed.CommitteeofSpanishAmericanBondholders(London:TheMakingoftheModernWorld.Web.19May2017.,1840).andSalvucci,91-92.22AlbertFishlow,"LessonsfromthePast:CapitalMarketsDuringtheNineteenthCenturyandtheInterwarPeriod,"InternationalOrganizations39,no.3(1985);W.M.Mathew,"TheFirstAnglo-PeruvianDebtandItsSettlement,1822-49,"JournalofLatinAmericanStudies2,no.1(1970):83;Summerhill.Analternativeperspectiveon“developmental”borrowingofthenineteenthcentury’sthirdquarterisavailableinMarcFlandreau,AnthropologistsintheStockExchange:AFinancialHistoryofVictorianScience(Chicago:TheUniversityofChicagoPress,2016).23SomeofthenotableliteratureonBraziliansovereigndebt,inadditiontoSummerhill’srecentcontribution,includes:MarcelodePaivaAbreu,"BrazilasaDebtor,1824–1931,"TheEconomicHistoryReview59,no.4(2006);ValentimF.Bouças,HistóriaDaDívidaExterna(RiodeJaneiro:EdiçõesFinanceiras,1950).
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characteristicsthatinvestorswouldfavor.Thetransitiontoindependencewasrelatively
peaceful,asopposedtotheyears-longwarsoftheSpanish-andBritish-Americancolonies.
Emergingwithadiplomaticallyrecognizedandconstitutionalmonarchy,basedonitsEuropean
antecedents,offeredasemblanceofpoliticalstability.24IncontrastwiththeformerSpanish
colonies,thealteredpoliticalstatusdidnotraisequestionsaboutwhothesovereignwas.From
adistance,thestateseemedtoclearalowstandardoffiscalrectitude.25Thecountry’sexport
performance,reputationfornaturalresourcewealth,anditspotentialasatradingpartner
furthersustainedeconomicexpectations.26
Offsettingthesepoliticalbenefits,Portuguese(andBritish)recognitionofBrazilian
independencerequiredthatBrazilcompensatePortuguesecitizensforpropertyremainingin
theformercolonyandassumeresponsibilityforPortuguese1823loan,incurredinLondon;
theseobligationstotaled£2million.Althoughtheliteratureisvague,honoringthisagreement
wasanexpectationembeddedwithinBrazil’sfirstsovereignloansin1824and1825.27Over
time,Brazildidnotenterintototaldefault;butneitherdidtheTreasuryremainincomplete
24Infact,inasurveyof“TheSovereignsofEurope”TheTimesincluded“theEmperorofBrazil,whobelongstoanEuropeandynasty.”(TheTimes(London)11January1850.)25In1830,Brazilcarriedalowerlevelofforeigndebtserviceobligation,relativetogovernmentrevenues,thandidtheSpanishAmericanrepublics.(Vizcarra,Table3.)26ForanexcellentexampleoftheoptimismwithwhichEuropeansviewedBrazil,seeJohannJakobSturz,AReview,Financial,Statistical,&Commercial,oftheEmpireofBrazilandItsResources:TogetherwithaSuggestionoftheExpediencyandModeofAdmittingBrazilianandOtherForeignSugarsintoGreatBritainforRefiningandExportation(Wilson,1837).RecentscholarshipreinforcestheconclusionofBrazil’sexportdynamismforthefirstthreedecadesoftheindependence.(C.AbsellandA.Tena-Junguito,"BrazilianExportGrowthandDivergenceintheTropicsDuringtheNineteenthCentury,"JournalofLatinAmericanStudies(2016).)Populationgrowth,largelyrelatedtoslaveimportsresultedinthestabilityofGDPpercapita,ratherthanitsgrowth.(GiovanniFedericoandAntonioTena-Junguito,"ExportsandAmericanDivergence.LostDecadesandEmancipationCollapseinLatinAmericaandtheCaribbean:1820-1870,"inWorkingPapersinEconomicHistoryWP17-01(Madrid:UniversidadCarlosIII,2017).)Butthatconstratintdidnotaffecttheabilitytoserviceinternationaldebt.27Bouças;MarcelodePaivaAbreu,"ADívidaPúblicaExternaDoBrasil,1824-1931,"EstudosEconômicos;(InstitutodePesquisasEconômicas,UniversidadedeSãoPaulo)15,no.2(1985);Marichal;Summerhill.Summerhillistheexceptioninthecategorizationoftheloans;herefersonlytodeficitfinance;theotheranalystsrefertothePortugueseobligationsasjustification,atleastpartially,fortheloans.Tomyknowledge,nothingspecifiedwhethertheBrazilianswouldredeemthefullamountofthedebtorsimplycontinuetomeettheservicingobligationsofdividendandsinkingfundpayments.
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compliancewiththetermsofits1824/25debt.Inadditiontosuspendingitspaymentsonthe
Portuguesedebtin1828uponchallengestocontinuedpoliticaltiesbetweenthetwostates,its
owndividendpaymentsandsinkingloanobligationswereofteninarrears.TheTreasuryentered
intoprivateloanswithitsBritishbankersin1828andagainfrom1832to1835,whichwere
subsequentlycapitalizedbyturningthemintopubliclyissuedloansinordertomeetdividend
obligations.From1828until1851,meetingthecommitmenttomaintainasinkingfundwas
irregularandrare.28
IncontrasttoBrazilianpartialcompliance,alloftheSpanishAmericanborrowers
enteredintodefaultwhentheydidnotmakescheduleddividendpaymentsinlate1826and
1827.Thispaperdemonstratesadifficultandlongpath,butaswithBrazil,thedebtswerere-
scheduledinthelate1840sandearly1850s.Bythelate1850s,whenLondoncapitalmarkets
enteredanewphaseofexpansion,theywereagainreceptivetoLatinAmericansovereigndebt.
THEDEBTCYCLE,1825-1852
ManyhistoriansandanalystshaveaddressedtheearliestfinancialmarketforLatin
Americanbondsintermsthatsuggestcommonalityamongborrowingsovereignstates.Thedata
suggesttheneedforamorefinelytunedassessment,whichcanparsesimilaritiesfrom
importantdifferences.AmongLatinAmericanstates,thedifferencesofexperienceswerewide;
riskpremiavariedsubstantiallyinlevels,timingofchangesanddynamics(Figure1andAppendix
Table.)Mostnotably,investorsidentifiedBrazilianbondswithalowerriskprofile.Throughout
thesetwenty-eightyears,Braziliandebtdidnotrequireariskpremiuminexcessof8.53
percentagepoints;SpanishAmericanbondsseldomcommandedapremiumthatlow.The
averagecostofriskonBrazilianbondsbetweenDecember1824andDecember1852was3.52
percent,amarkupofmorethan100percentovertheconsolyield;themeanfortheSpanish
28Onthismatter,seetheconflictingopinionsinMFR1843:14andRAL000/401A/7[undatedletter,1852]fromNMRtoBrazilianMinisterofFinance.
13
Americanrepublics(excludingColombia)rangedfrom10.19percent(Chile)to18.49(Peru)
percent(maximumsrangedfrom36.56percentto63.29percent.)Beyondtheirlevel,therisk
premiumattachedtoBrazilianbondsalsowasmorestablethanthoseoftheSpanishAmerican
issues,asdemonstratedbythelowerstandarddeviation(ofthefirstdifferenceforweekly
premia,Table2A.)
InvestorsoftenconflatedtheirassessmentsofBrazilianandPortuguese
creditworthiness(Figure3)reflectingthenations’intertwinedpoliticalandfinancial
circumstances.Theriskpremiarequiredofeachwererelativelysimilarandcloselycorrelated,
butattimes,reflectedtheuncertaintyoftheirentwinedgovernancedebatesandthe
PortugueseCivilWar.Thereversalintheorderofthelevelafter1828,discussedbelow,was
permanent.
ComparisonoftheBrazilianexperiencewiththe“healthy”Europeanborrowersoffersa
verydifferentinterpretationfromthoserelativetoSpanishAmericaandPortugal.Brazilcould
notpassasa“healthy”borrower(Figure4.)Theconsistentlylow,decliningandrelativelystable
premiaweresignificantadvantagesfornewlyemergingEuropeanborrowerswhomettheirdebt
servicingobligations.TheseadvantagesdidnotaccruetotheBrazilians.Denmark,thelowest
costborrower,realizedanaverageriskpremiumof97basispoints(0.97%)anditsmaximum
reached2.25percent,adifferentialofgreaterthan2.5-foldrelativetotheBraziliantrends(3.52
and8.53percentforthemeanandmaximum,respectively.)
Nevertheless,thegeneralrelationshipsbetweenthebondseriesdemonstrated
importantsimilaritiesacrossalloftheperiods;shiftsoflevelanddirectionofchangeduring
crucialyearsalsogenerateusefulfindings.Assessingspecificperiodswithinthisdebtcycle
allowsforinsightonthebalancebetweengeneralmarketforcesandcountry-specificconditions
inthetrajectoryofsovereigndebtinearlyglobalfinancialmarkets.
14
EARLYCRISIS,DEFAULT&IMMEDIATEAFTERMATH:1825-JUNE1830
Bytheendof1824,whenBrazilianbondsbegantrading,allofthenewlyindependent
LatinAmericanstateshadborrowedinLondon.29AsFigure1reveals,investorperceptionof
creditworthinesswasestablishedfromthebeginningofthecycle,inincreasingorderofrisk:
Brazil,MexicoandPeru;thebondsofBuenosAires,ChileandColombiafellintoanintermediate
range.However,alloftheriskpremiafellwithinarelativelynarrowrangeuntillate1825,when
divergencebegan.Marketfluctuations,asconnotedbythechangingconsolyield,weresmall
whencomparedtothevariabilityexhibitedbytheLatinAmericanbonds:thestandarddeviation
ofweeklyyieldchangewaslessthanone-halfofanyotherbondseries,andone-fifthtoone-
eighthoftheLatinAmericanbonds(Table2A.)WiththeexceptionofChileandAustria,all
weeklychangesofriskpremiawerecorrelated,atastatisticallysignificantlevel,with
fluctuationsintheconsolyield(Table2B.)
EvidencefromtheconsolsuggeststhattheheightoftheLondonfinancialcrisisoccurred
inFebruary-March1826,whentheyieldhoveredaround3.95percent.Riskpremiaforother
sovereignborrowersroseintandemwiththeconsolyield.TheriskattributedtoBrazilian,
RussianandDanishbondsalsoreachedtheirhighestleveloftheperiodwithinathree-week
windowofthemarketcrisis.TheheightoftheLatinAmericanriskassessmentsclusteredtightly
afewmonthslater,inthefirsthalfofJuly1826,whenallofthenewstates’bondspeaked
simultaneouslywithasecondarypeakoftheconsolyield(Table3.)
ResolutionoftheLondonbankingcrisisoccurredrapidlyin1826,asdemonstratedby
thedecliningbenchmark(Figure2.)OutcomesvariedfortheLatinAmericanborrowers.Shortly
priortothegeneralizedclusteringofJuly,Perutriggeredthefirstsovereigndefaultwhenit
failedtopayitsscheduleddividendon15April1826.AttemptstorenegotiatetheColombian
29In1825,secondtranchesofloanswereextendedforBrazil,MexicoandPeru;Guatemala(ortheCentralAmericanRepublic)contractedaloanin1825,whichinvestorsfailedtosubscribe.
15
debtwerealsoflailing.DespiteincreasingriskpremiaforotherSpanishAmericandebt,neither
Brazilnorthemarketregisteredchangeinimmediateresponsetothedefault.InOctober1827,
MexicowasthelastSpanishAmericaborrowertodefaultduringtheperiod.30Reserveswithheld
fromtheloanproceedstomeettheearlypaymentswereexhaustedandservicingthefull
obligationrequired(non-existent)currentrevenuesfromMexico.31Witharapidturnoverof
governinggroupsandwithoutasecuremeanstocapturecustomsrevenues(themajorsource
ofstatefinance)Mexicansdidnotmeetthedebtpayments.Shortlyafterward,Brazilianbonds
reflectednationalpoliticaluncertainties.During1828,theBrazilianTreasurysuspendedits
servicingofthePortuguesedebt32anditsownsinkingfundobligations,andittookonprivately
placedloansfromitsLondonbankerstomeetdividendpayments.Inconsequence,Brazilianrisk
premiaincreasednearly75basispoints,from4.28percentto5.05percentbetweenMarchand
April,despiteanimprovingmarketreturn.ThetrajectorybegantolookliketheirSpanish
Americancounterparts.However,theshiftingrelationshipbodeevenlesswellforPortugal,and
therelativeorderingofBrazilianandPortugueseriskpremiapermanentlyreversedinmid-1828,
whentheBrazilianbondsroutinelyrequiredlowerpremiathanthePortuguese,whichrelied
uponBrazilianpayment.33RiskpremiaofLatinAmericanbondsshowednodistinctclustering
duringthesedefaultsanddisruptions.
30BetweenSeptember1826andSeptember1827,Colombia,BuenosAiresandChilealsostoppedhonoringtheirdebtserviceobligations.31Salvucci,101.TheTimes[ofLondon]17February1826.32NewsofthePortugueseking’sdeathinLisbonarrivedinLondonon21March,andalsoprobablycontributedtotheBrazilianshort,sharpimprovement(whichdidnotoccurforthePortuguesebonds),supportinganexpectationthatPedrowouldaccedetothePortuguesethrone.ThegeneralexpectationwasthatPedrowouldassumeboththrones.Immediatelyon21March1826,TheTimes[ofLondon]publishedaneditorialanalyzingPedro’soptionsforclaimingsovereigntyoverBraziland/orPortugalthatanticipatedthatPedrowouldabandonclaimsonPortugal.33Inresponsetoadrawn-outsuccessiondisputebetweentheemperorofBrazilandhisbrotherforthethroneofPortugal(whichescalatedtoaPortuguesecivilwar),in1828,theBrazilianTreasurysuspendedtheredemptionandloanpaymentsithadacceptedaspartofthetermsfordiplomaticrecognition.ThePortugueseenvoyinLondonattributeda20%declineonthepriceofPortuguesebondstouncertainty
16
TheLondonfinancialpressstronglyopinedthattheobligationsshouldhavebeenwell
withinthecapacityofborrowers.34Storiesofweakgovernance,fiscalrelianceonunreliable
customsrevenues,andretaininginitialreservesinLondonwithoutprovisionsforfuture
obligationswerecommoncharacteristicsthattheMexicandebtsharedwithotherSpanish
Americanrepublics.35Theywerepoliticallyfragileandfiscallyweak;butitisunclearthatspecific
eventsintheborrowingstatesprovidedtheproximateeventstotheirdefaults.36
Agroupofactorsdistinctfromborrowersandinvestors(thoughoftenoverlappingwith
investors)wereinstrumentalinthetrajectoriesoftheSpanishAmericandefaults.Thesewere
thebankers–ormoreaccurately,theintermediariesresponsibleforsellingbondstoinvestors.
FlandreauandFloresfindthatthesovereigndefaultsfollowed,ratherthanpreceded,thebank
failuresthatwerethehallmarksofthe1825/26crisis.37Duringthisperiod,weaksovereign
borrowersrelied–ortriedtorely–ontheirbankersforshort-termhelpinmakingdividend
payments.38TheTimespublishedon15and16February1826,“rumoursthatahouseconnected
withNorthandSouthAmericawasindifficulty,therewasageneralrushtosellthesecuritiesof
thenewly-formedstatesinthatquarteroftheworld.ColombianbondsandMexicanbonds
abouttheirstatus.(ANTTPT/TT/MFELivro483:12May1828(Palmellatounidentifiedrecipient.)Short-termreversalsoftheBrazilianadvantagereflectedperiodsofBrazilianpoliticalunrest.34“TheMoneyMarket”columnofTheTimesreferredtothePeruvianobligationas“atriflingsum,indeed,foracountrythewealthofwhichisproverbial”andforthewholeofLatinAmerica,theobligationswere“averysmallsumforthoserichcountries,ifanythinglikeprudenceorcommonhonestyistobefoundinthem.”"TheMoney-Market."Times[ofLondon]14April1826and20April1826,respectively.35OnPeruseeAlfonsoW.Quiroz,DomesticandForeignFinanceinModernPeru,1850-1950:FinancingVisionsofDevelopment,PittLatinAmericanSeries(Pittsburgh:UniversityofPittsburghPress,1993).OnArgentinaseeSamuelAmaral,"ElEmpréstitoDeLondresDe1824,"DesarrolloEconómico(1984);DCMPlatt,"ForeignFinanceinArgentinafortheFirstHalf-CenturyofIndependence,"JournalofLatinAmericanStudies15,no.01(1983).36Further,theonenaturalexperimentatthetime,suggestedthepossibilityofavoidingcompletedefault.37FlandreauandFlores,659.DawsonandMarichalbothobservethesametiming.ThecontributionofFlandreauandFloresistodrawthelargerimplicationsofthesequenceofevents.38Salvucci,101-05;MichaelPCosteloe,BondsandBondholders:BritishInvestorsandMexico'sForeignDebt,1824-1888(PraegerPublishers,2003).CosteloestatesthatmostofthebankersissuingSpanishAmericanbondswerenotamongtheprominentLondonfirms.WiththeexceptionsofN.M.RothschildandBaringBrothers,theyhadshortlives(p.xix)
17
wereofferedforsaleatpricesfarbelowthoseofthemarketatthetime.”Thefollowingday’s
newsannouncedthefailureof“theeminenthouseofMessrs.B.A.Goldschmidt&Co.”39Barclay
Herring&Richardson,thebankissuingMexico’ssecondloanin1825(andGuatemala’s
attemptedloan)alsofailedin1826.Incontrast,Rothschild,Brazil’sbankers,continuedto
supportitsdividendpaymentobligationswithshort-termloanstomeetdividendpayments.40
RothschildandThomasWilson&Co.(thesuccessortothefailedissuersoftheBrazilian1824
loan)laterconvertedthesebridgeloansintoanequivalentamountoflong-termbonds–the
loanof1829.Doingsotransferredthebankers’individualshort-termrisktoalargerpoolof
lendersforthirtyyears.
Bythefirsthalfof1830,allofthesovereignbondshadrealizedstrongrecovery,as
demonstratedbythetroughsoftheirriskpremiaandconsolyield(Table3andFigure1.)Within
weeksaftertheconsolreacheditslowestyield,thehealthyEuropeanborrowersfollowedin
JanuaryandFebruaryof1830.TheLatinAmerican(andPortuguese)bondriskassessments
realizedtheirmaximumimprovementdidnotoccuruntillateApril/earlyMay,andthey
clusteredwithinashortertimeframethantheEuropeanimprovement(Table3.)Thearrivalof
transatlanticpoliticalnewsdoesnotseemtoexplainthenearlysimultaneoustimingoftheend
ofimprovingtrends;rather,marketimprovementwastheclosestproximateeventtothis
change.
ThisexplorationofthenewlyindependentLatinAmericanstatesintheirfirstyearsas
internationalborrowerssuggeststhatlargeanddetrimentalconsequencestotheseborrowers
39TheTimes[ofLondon]15and16February1826.Foritspart,TheTimesopinedthat“itisremarkablehowextremelyslighttheinfluenceonlatepoliticaleventsonthevalueofforeignsecurities,”citingPortugal,BrazilandBuenosAiresasspecificexamples.(22March1826.)Salvucci(103)referstorumorsthatBaringBros.(whichhadtakenuptheroleofagentfortheMexicanloan)wouldhonorthepaymentonwhichMexicodefaulted.40EvidencesuggeststhatRothschildlendingtosupportBraziliandividendpaymentsmayhavebegunasearlyasJanuary1826.(RALXI65/0B,6January1826.Itisalsointerestingthat,immediatelypriortoBraziliansuspensionofpaymentsonthePortugueseobligation,theTreasuryrepresentativeinLondoncommissionedRothschildtopurchasePortuguesebonds.(RALXI65/1B27February1828.)
18
fromrelativelysmalldisruptionsintheglobalcapitalmarketcompoundedtheeffectsof
domesticinstability.Thestresseddebtorsdidwhattheycouldtoavoiddefault–borrowingfrom
theirbankersandpiecingtogetherminimalpayments.Thesemethodswerenotnew.The
SpanishAmericansovereignsbegantodefaultwhen,followingtheLondoncrisisof1825,their
bankersfailedandthecostsofcompliancebecameveryhigh,asdemonstratedbytherisk
premiaofthefollowingmonths.ThedifferencesbetweenBrazilandtheSpanishAmericansmay
haveincludedthatN.M.Rothschild&Co.,Brazil’sbanker,survivedandthecosttotheBrazilian
stateofconsolidatinglegitimacywaslowerthanforitsneighbors.
WhilealloftheLatinAmericanstatessufferedfrompoliticalinstabilityandveryweak
fiscalbasesthatdependedoverwhelminglyoncustomsrevenues,thetimingofthedefaults
reflectedthestateoffinancialmarketsinLondon.InvestorsdeemedBrazilianbondstobemore
stablethantheSpanishAmericans,asmeasuredbythestandarddeviationofriskpremium
change.Further,changingriskassessmentofallborrowers,exceptBuenosAiresandAustria,
wascloselyassociatedwithmarketrisk(measuredbythebivariatecorrelationofchange.)
RatherthanLatinAmericanstatescreatingafinancialcrisis,inthisinstance,effectsfromthe
domesticLondonmarketstronglydeterminedtheresultsfortheLatinAmericanstates.Evenin
default,theirbondscontinuedtotradewithincreasesofpremiathatreflectedtheirnewlyrisky
assessments.
INTERIMYEARS:JULY1830-1844
Forthelonginterimfrommid-1830through1844,theglobalfinancialbenchmark
remainedrelativelystable.Thelongdurationofthisperiod,relativetotheothersinthispaper,
renderitinappropriatefordetailedempiricalanalysisofthebondseries’fluctuations.In
summary,thelevelandrelativestability(standarddeviationofweeklychange)ofBrazilianrisk
premiumremainednotablylowerandmorestablethanfortheSpanishAmericanbonds(Table
19
2A.)Allofthedefaultedborrowers,aswellasnon-compliantBrazil,engagedineffortsto
stabilizetheirfinancialpositions,andresolvetheirinternationaldebtsituations.41Therisk
premiaattachedtoLatinAmericanbondsfollowedmajorpoliticaleventsandrenegotiation
effortsofeachnationanddemonstratedwidediversity.42
TheBrazilianstateexperiencedtwodisruptionsduringtheseyears,whichappearedin
itsriskpremiumtrend.In1831,theemperorofBrazilreturnedtoPortugal,exertinghisclaimon
thePortuguesecrown.Thisepisodeoccurredimmediatelyaftertheonlypoliticaldebatewithin
theBrazilianlegislaturewithrespecttopossibledefaultontheLondonloan.43Brazilianbonds
requiredasignificantlyincreasedriskpremiumsimultaneouslywiththenewsoftheemperor’s
abdication,followedbyaslow2-yearimprovingtrendthatreturnedtoapproximatelythelevel
priortotheepisode.Subsequently,privatecreditorswhohadsupportedbonddividend
paymentscapitalizedtheirprivateloansintolong-termbondsin1839,withonlyamodest
disruption(about30basispoints)tothetrendoftheriskpremiumonthe1824/25loan.44Non-
compliancewithitssinkingfundobligationscontinuedthroughouttheseyears.In1841,the
BrazilianTreasuryministrypubliclyandexplicitlystatedthatitdidnotbelievethatcoming
41Stabilizinginternationalfinancialpositionsproceededintandemwithawidearrayofotherstate-buildingeffortsineachnewlyindependentterritory.Theseeffortshaveformedthebulkofnineteenthcenturypoliticalhistoriography.42Totracespecificefforts,seeCharlesFenn,Fenn'sCompendiumoftheEnglishandForeignFunds,DebtsandRevenuesofAllNations:Banks,Railways,Mines,andthePrincipalJointStockCompanies:ForminganEpitomeoftheVariousObjectsofInvestmentandSpeculationWhichAreNegotiableinLondon(London:E.Wilson,1855),138-43,90-210,91.43TheTimesof2June1831reportedontheabdication;butnewsofthedebateoverapotentialdefaultseemstohavenotreachedLondon,atleastthroughthenewspapers.WhilethefailureofthisdebatemayhavecontributedtothedecisiontoreturntoLisbon(Summerhill.,Chapter4,)theEmperorhadplentyofmotivationinthedesiretokeepwholetheBragançaempireandtoquellanti-foreignrebellionsbyremovinghimselfinfavorofhisBrazilian-bornson.(RoderickJ.Barman,Brazil:TheForgingofaNation,1798-1852(Stanford,Calif.:StanfordUniversityPress,1988).44Inanindirectsense,capitalizingtheprivateloansdemonstratedareputationalstrengththattheBrazilianshad,andothersdidnot.PrivatelenderswerewillingtoadvancefundstotheBrazilianTreasurytomeetthedividendobligations,andtheywerealsoabletoconverttheloanstolong-termbonds.NoneoftheSpanishAmericanborrowerswereabletofindsimilarsupporttokeepthemafloat.
20
currentonthesepaymentswouldaffectitsabilitytoaccessloansinLondon;45inotherwords,
thecostofre-negotiatingthedebtwouldnotbenefitBrazil.Nevertheless,afterthe1842
agreementwithPortugaltosettlepoliticalandfinancialclaims(whichincludedanewdebtissue
of£0.6millionin1843tocompletethepersonalindemnificationagreementof1825)andthe
beginningofcomprehensivefiscalreformsin1844,46thecostofsovereignriskdeclinedona
sustainedtrajectory.
ThestrongestassociationbetweenbondseriesoccurredbetweenBrazilandPortugal.
Bothsetsofbondsexperiencedlargeswingsinprices(andhence,premia)fromthelate1820s
throughthe1840s.However,fluctuationwasstrongerforthePortuguesebonds.47Notably
abruptspikesforPortugalin1836and1842reflecteduncertaintiesabouttheresolutionofthe
PortuguesecivilwarandBrazilianresumptionofPortuguesedebt.Theydemonstratedinvestors’
recognitionthatredemptionofthePortugueseobligationrestedwithBraziliancompliance.Even
so,asearlyas1833Braziliansalsoseemedtobelievethattheyalsopaidapriceforthe
uncertaintyofthePortuguesesituation,withtheTreasuryMinistercitingitasonereasonthat
pricesforBrazilianbondsremainedlow.48
RiskassessmentsfortheSpanishAmericanborrowersweresimilarlyresponsivetotheir
circumstancesfrom1830through1844.Agreementbetweeninvestorsandrepresentativesof
45MFR1843:14.46Fiscalreformsfrom1844to1846includedrestructuringcustomslevelsandcollectionwiththeexpirationofthefirstAnglo-BrazilianCommercialtreaty,providingfordebtpayments,consolidatingdomesticpublicdebt,legislatingnewtaxesandattemptingmonetaryreform.(LiberatoCastroCarreira,HistóriaFinanceiraEOrçamentáriaDoImpérioDoBrasil,2vols.(BrasíliaandRiodeJaneiro:SenadoFederal;FundaçãoCasadeRuiBarbosa,MEC,1980[1889]).-1847;ThiagoFontelasRosadoGambi,OBancoDaOrdem:PolíTicaEFinançasNoImpéRioBrasileiro(1853-1866)(SãoPaulo,SP:AlamedaCasaEditorial,2015);Brasil.MinistériodaFazenda,"RelatórioApresentadoAoPresidenteDaRepúblicaDosEstadosUnidosDoBrasilPeloMinistroDeEstadoDosNegóciosDaFazenda,"(RiodeJaneiro:ImprensaNacional,variousyears).47OneresultofthesesharpanomaliesisthehigherstandarddeviationofriskpremiumchangeforPortuguesebonds(AppendixTable.)AhypothesisfortheseanomaliesisthattheycorrespondtothePortugueseCivilWarandsuccessionstrugglethattookplaceduringtheseyears.However,thathypothesisrequiresadeeperdiveintoPortuguesepoliticalhistorythanthispaperallows.48MFR1833:9;MFR1834:8-9
21
theMexicantreasuryinlate1836occurredsimultaneouslywiththesecessionofTexas.
ControversywithinMexicodelayedthebondexchangethatsignifiedtheagreementuntillate
1839.Defaultwasimmediate;investorswerenotsurprisedanddisruptiontotheriskpremium
wasshort-lived.Mexicanbondscontinuedtofollowthetrajectoryofitscivilwars.49InPeru,the
slowconsolidationofanationalgovernmentandthecommercializationofguanodeposits
contributedtoimprovingexpectationsafter1840.50Twoadditionalrestructuringswerenotable,
evenwithevenwithlittledataorinformation.ThedebtofGranColombiadevolvedin1834to
itssuccessorstatesofNewGrenada,EcuadorandVenezuela,withoutanyofthemresolving
theirfinancialandfiscalproblems.AnotableexceptiontothedriftofotherSpanishAmerican
experiencewasChile’ssuccessfulrenegotiationin1842.WithearlyresolutionoftheChilean
default,itsbondshadbeguntotradeinthesamerange(levelandfluctuation)astheBrazilian.
Althoughotherborrowerswereunabletoresolvetheirproblems,theycontinuedto
demonstrateareadinesstoworktowardsresolutionandinvestorsremainedwillingtotradein
thebonds.51
Onereflectionoftheincreasedweightofindividualcircumstanceindetermining
sovereignbondriskduringtheseyearswastheoccurrenceofonlyoneeventofclusteringof
peakpremiaamongtheLatinAmericanbonds.InlateOctober/earlyNovember1831,Mexico,
49FormoredetailsonthiscontroversyseeSalvucci,Chapter3.50Debtre-negotiationsthatspecifiedone-halfofguanoearningsasthesecurityforPeruviandebtoccurredasearlyas1842.(Mathew,83.TheTimes(London)12February1848)51By1830,CommitteesofBondholdersbegantoformasameanstorepresentbondholderinterestsinre-negotiatingdefaulteddebt.TheCommitteeofMexicanBondholderslaterconsolidatedwithinvestors’committeesattemptingtorestructureSpanishAmericansovereigndefaults.Thesecommittees,withstrongerpersuasivethanstatutorypowers,tookincreasinglystrongrolesinrenegotiations.Asinfluentialbankers,merchantsandlarge-scalebondholders,,themembers’purposestorepresenttheinterestsofallbondholders,ascomparedtotheinterestsofcommitteememberswasoftenchallenged.Butbythelate1840stheygainedeffectivenessinboththeMexicanandPeruviannegotiations.(Costeloe,Chapter4;AlfonsoW.Quiroz,"PublicDebtandtheDomesticFinancialStructureinPeru,1850-1914,"inLaDeudaPúBlicaEnAméRicaLatinaEnPerspectivaHistóRica:ThePublicDebtinLatinAmericainHistoricalPerspective,ed.ReinhardLiehr(Madrid;Vervuert:Iberoamericana,1995);Flandreau,AnthropologistsintheStockExchange:AFinancialHistoryofVictorianScience.
22
ArgentinaandBrazilsharedalocalizedpeak(Table3.)Nopoliticalorfinancialmarketnewsat
thistimeseemedtoexplainthistiming.
Bythemiddleofthe1840s,LatinAmericanborrowersfacedageneralenvironmentof
decliningriskassessment.Withmuchunevenness,ageneraltrendofdecliningriskattachedto
LatinAmericandebtwasdiscerniblebythemid-1840s(Figure1.)
DISRUPTION:1845-1848
FollowingtheperiodofmarkettranquilityduringwhichLatinAmericanbonds
respondedtotheirownsovereignfortunes,thebroadermarketsinLondonpassedthrougha
periodofupheavalinthelate1840s.Economicandpoliticalconditionsdisruptedthecoreofthe
globalfinancialmarket.WithinBritain,anearlierboomincapitalformationtofinancerailroads
combinedwiththepressuresofcropfailurestoproduceamarketcrisis,includingBankof
EnglandinterventioninSeptemberthroughOctober1847.52Subsequently,“politicalconditions
onthecontinent,”beginningwithaFrenchRevolutioninFebruary1848,53riledthemarket.The
financialpressattributedtheshortperiodofincreasingriskassessmentsacrossallborrowers
andheavytradinginLondontothesepoliticalcrises.54Thestandarddeviationoftheweekly
changefortheconsolwassignificantlyhigherthanthepreviousandsubsequentperiods(Table
2A.)Thesharpdeterioration(increaseyield)ofthebenchmarkclusteredwithallofthe
sovereignbondsfrommid-Octobertomid-November(Table3.)
Therapidcorrectionprovedtobeofshortduration.Themarketyieldpeakedagainon7
52RudigerDornbuschandJacobA.Frenkel,"TheGoldStandardandtheBankofEnglandintheCrisisof1847,"inARetrospectiveontheClassicalGoldStandard,1821-1931,ed.MichaelD.BordoandAnnaJ.Schwartz(Chicago:UniversityofChicagoPress,1984);C.N.Ward-Perkins,"TheCommercialCrisisof1847,"OxfordEconomicPapers2,no.1(1950).53MilesTaylor,"The1848RevolutionsandtheBritishEmpire,"Past&Present,no.166(2000).On19February1848,TheTimesreferredtoa“glutonthemoneymarket”resultingfromuncertaintyonthecontinent.SuchaglutcouldhavebeencausedbyLondon-basedinvestorsliquidatingtheircontinentalinvestmentsorbycontinentalcapitalflowingtotherelativesafetyofLondon.Thistopicisbeyondscopeofthecurrentstudy.54TheTimes[ofLondon]3February,15February,anddailyfrom15February.
23
April1848(3.73percent);55butmarketreturnsthendeclinedatleastuntiltheendof1852.
BrazilandMexicoalsopeakedonthesamedate(5.53percentand31.99percent,respectively.)
Peru’speakoccurredafewweeksearlieron17March,at30.00percent.Bytheendof1848,the
LatinAmericandebtresumedthetrendofimprovingriskpremiathathadbegunintheearly
1840s.Thereturntotheearliertrendcontinuedatleastforthenextfour-and-a-halfyears,
through1852.Withpoliticalimprovementandseriousrenegotiations,especiallyincomparison
tothe“revolutions”plaguingcontinentalEuropein1848,theprospectforSpanishAmerican
sovereigndebtturnedbrighter.
PoliticalandfinancialcircumstanceswithinLatinAmericadidnotcloselytrack
fluctuationsintheirbonds’riskpremia.Perhapsmostnotably,amajorfinancialdisruptionfor
MexicoresultedfromtheMexican-AmericanWar(1846to1848)explainstherun-upinthecost
ofrisk.But,thewar’sresolutiondidnotgeneratecomparableimprovement(Figure1.)56Newsof
thetreatyendingtheMexican-AmericanWararrivedinLondonon7April1848;andsuddenly
Mexicanbondswere“theonlysecurityintheforeignmarketthatmaintain[ed]anydegreeof
steadiness”inthefaceofgeneralmarketuncertainty.57Evenso,theMexicanriskpremium
reachedalocalhighatthattime,alongwiththeotherLatinAmerican(andPortuguese)bonds.
IncomparisonwithMexico,theeffectsoffinancialdisruptioninLondonwereattenuatedin
Brazil.JustasthepoliticalnarrativeassociatedwithMexicodidnotcorrespondwiththe
trajectoryofitsLondonbonds,neitherdidBraziliancircumstancesexplainthetiming
fluctuation.Astableconservativegovernmentthatfocusedonfiscalreformgainedpowerand
55On22October1847theconsolyieldreachedaslightlyhigherlevel(3.77percent.)56TheTimes[London]14March1848.Theoriginalloansof1824and1825hadbeenguaranteedbyMexicanterritory.TheCommitteeofSpanishAmericanBondholderstookthepositionthatcedingterritorytotheU.S.carriedtheobligationtohonoritsmortgagebyrepayingtheloans.(Costeloe,72.)Notwithstandingtheoptimisticenvironmenttheseeventsprojected,theMexicandebtre-negotiationwasnotresurrecteduntil1849.Thecollapseofre-negotiateddebtagreementin1847hadlittleeffectonMexicanyields.(Anearlierattempttorenegotiate,in1836,hadsimilarlybeeninterruptedbyTexas’sdeclarationofindependencefromMexico.(ibid.,65-75;Salvucci.))57TheTimes[ofLondon]7April1848.
24
longevityinBrazilinMay1848.58AlthoughtheBraziliangovernmentwasabletoimplement
significanteconomicandfiscalreform,itsoutcomewasveryuncertaininitsfirstyears,andone
lastmajorlocalpoliticaluprisingoccurredinNovember1848.Brazilianriskpremium
improvementanticipateddomesticcircumstances.ThePeruvianloanofwasre-negotiatedto
includecontractualguaranteesofpaymentfromguanorevenuesduring1847and1848;butit
wasnotsigneduntilJanuary1849.59KnowledgeoftheseeventsdidnotarriveinLondonintime
tothetimingoftheclusteredpeaksorthesubsequentsustaineddecliningtrend.
RESOLUTION:1849-1852
After1848,theLondonmarketforsovereignbondsreturnedtostabilityquickly,as
denotedbylowerriskassessmentsandimprovedstability(standarddeviationsofweekly
change,Table2A.)Duringtheseyears,themajorLatinAmericansovereigndebtdefaultswere
resolved.60Mexico,PeruandBrazilinvokedverydifferentstrategiestoaccomplishthisoutcome,
andeachrequiredsustainedeffortsthatbeganinthemid1840s.From1842,thePeruvian
governmentattemptedtorenegotiateitsdebt,basedonguanorevenues,butdidnotfindthe
willtodosoforanothersixyears.DespiteMexicaneffortstorenegotiateasearlyas1830and
1837,successfulrestructuringofthedebtoccurredin1850andreliedheavilyonthe
commitmentofproceedsfromthesettlementoftheMexican-AmericanWarin1849.61Brazil
didnotbenefitfromasimilarlyexogenouswindfall.SlowfiscalrestructuringalloweditsTreasury
tobecomecurrentonthedelayedsinkingfundobligationsandtoresumepaymentsthat
reorganizedthePortugueseobligationswithloansin1843and1852.
58TheConservativegovernmentledbyEusébioQueiróslasteduntil1853,incontrasttothequicksuccessionofsixLiberalCabinetsfromFebruary1844toSeptember1848.JeffreyD.Needell,ThePartyofOrder:TheConservatives,theState,andSlaveryintheBrazilianMonarchy,1831-1871(Stanford,Calif.:StanfordUniversityPress,2006),108.59Mathew;Vizcarra.60InArgentina,thedefeatofManualRosasin1852preparedthewayforconfederatingtheArgentineRepublicin1853andsettlingthedebtin1857(Marichal,Table2.)61Thisrestructuringonlylasteduntil1856.ThebestEnglish-languagesummaryoftherestructuringininMarichal(61-67.)
25
Resolutionofthesethreeimportantsovereigndebtdelinquenciesoccurredwithinthe
1849-1852period.Decliningandrelativelystableriskpremiacharacterizedtheirinternational
debtexperiencefrom1849through1852.62PeruandChile,thestatesthatmoststrongly
improvedtheirpoliticalandfinancialstabilityatleastforafewyears,63sawtheirsovereignrisk
declinetoapproximatelythelevelsoftheBrazilianbonds.Theydidnotimprovebeyondthat
level.Further,incrementallending,beyondrestructuringtheoriginalloans,didnotoccur.
Decreasedcorrelationbetweennationalriskpremiafluctuationsandthemarket
coincidedwithbothrapidlydeclining(improving)LatinAmericanpremiaandtheresolutionof
debtservicingirregularities.64RiskpremiaforalloftheLatinAmericanbondsbecamemore
independentofthemarket;thetimingofyieldimprovementandeffectsofmarketstresscaused
littledisruption.Further,by1849-1852,theriskpremiafluctuationwasindependentofthe
marketyield(Table2B,)suggestingthatinvestorshad“learned”howtoassesssovereignriskin
anincreasinglysophisticatedmanner.
CONCLUSION
Thispapergeneratesthreeconclusionswithrespecttothefirstmodernglobalsovereign
debtcycle.First,thetimingofdefaultandresolutionmorestronglyreflectedmarketdynamics
thantheydidcountry-specificevents.Detailedchronologyofthefluctuatingcostofsovereign
riskforLatinAmericaborrowersoverthetwenty-eightyearsoftheirfirstborrowingcycle
demonstratesthatperiodsofmarketdeteriorationeasilyovercametheindividualcircumstances
62Marichal,59-60andChapter3.OnPeru,seealsoMathew,93;Quiroz,"PublicDebtandtheDomesticFinancialStructureinPeru,1850-1914."QuirozattributestheinfluenceofdomesticcreditorsinmotivatingthePeruviansettlementinLondon.63TheArgentineyieldstabilizedatanotablyhigherlevel,andtheMexicanyieldremainedlowerthanpreviouslywithsignificantperiodsoffluctuations.64Asintheperiodfrom1825to1829,BrazilianyieldfluctuationrespondedmorestronglytomarketshocksthandidtheMexicanorPeruvianseries.Thisremainsafindinglookingforanexplanation.
26
ofindividualborrowers.Marketimprovementhadlessimpactontheweaker,newly
independentsovereignsthandidmarketdeterioration.
Second,fallingintoirremediableproblemsoccurredwithinaveryshortperiod;coming
outofthemrequiredalmostthreedecades.Whilethefailuresofthebankinghousesthatwere
responsibleforthetransactionstoservicethebondsmayhavecontributedtothetimingof
SpanishAmericandefaults,theydonotexplaintheprolongedperiodthatthedefaulting
sovereignsrequiredtoresolvethedefaults.AlloftheLatinAmericanstatesre-negotiatedtheir
internationaldebt.Overthelong-term,andinnon-linearfashion,doingsocouldbeinterpreted
asasignofhavingestablishedcredibilityandlegitimacy.Bythelate1850s,averyactiveglobal
capitalmarketwasnewlyreceptivetoLatinAmericansovereignborrowingforpurposesofboth
refinancingandinfrastructureconstruction.65Returntocreditworthiness(howeverfleetingfor
someborrowers)requiredexpandedglobaltrade,withactiveparticipationbyLatinAmericans,
anddomesticconsolidationofgovernanceandfiscalsystems.Butnothingmotivatedareturnto
creditworthinesswithoutrenewedexpansionofLondoncapitalmarkets,beginninginthemid-
1840s;i.e.,acomingtogetheroftheglobalandthelocalwasnecessary.Whilethisconclusion
soundsstraightforward,italsocarriestheimplicationthatfiscalrectitudeandwillingnessare
notsufficientforsovereignaccesstoglobalcapitalmarkets.
Thetrajectoryandclusteringofriskpremiumfluctuations,combinedwiththegeneral
trendofdecliningbi-variatecorrelationbetweenyieldandriskpremiumchange,acrossall
bonds,suggeststhatimportantlearningtookplacetoallowincreasinglyindependentand
65Marichal,AppendixA.
27
rigoroussovereignriskanalysis.Thisrelationshipimposesmethodologicalstrictures66also
highlightsdifferenttreatmentfor“emerging”and“healthy”borrowers.
Thepaper’sthirdconclusionisthatoneofthemostimportantfeaturesoftheglobal
financialmarketswasinoperationfromitsbeginning:afteroptimisticassessmentsthat
underpinnedtheextensionofcredit,creditorspunishedweakdebtorsinlargerdosesthanthey
didhealthyborrowers.ThehealthyEuropeanswerenotbuffetedbythevicissitudesofmarket
variation.ThepapercannotaddressthequestionofwhethertheSpanishAmericanstatescould
haveavoideddefaultintheabsenceoftheLondoncrisisof1825/26andthefailureoftheir
bankers.Brazilofferedametricof“success”forSpanishAmericandebt,intermsofitslevel,
stabilityandresponsetomarketforces,andresolveddefaultsdidnotlowerriskpremiabelow
thelevelofBrazilianbonds.However,theBraziliantrajectorydifferedinmagnitude,notin
nature.Moregenerally,thedynamicsthathavecometodefinetheglobalsovereignfinancial
marketforemergingeconomiesinthetwentiethandtwenty-firstcenturieswereoperativeat
thebeginningofthenineteenthcentury.
66Theearlierversionofthispaper,attemptingtoseparatetheeffectsofmarketchangefromchangingriskassessment,didgiveglimmersofevidencethatmarketriskcouldeasilyoutweighemergingsovereignriskinadeterioratingmarket,butdidnotdosoinanimprovingmarket.
28
DATAAPPENDIX:CONSTRUCTIONOFBONDPRICETIMESERIES
Britishconsol: 3%consolentireperiod
Brazil:the1824&1825bonds,whichweretradedinterchangeably,asoneseries,throughouttheperiod1824-1852.Otherbonds(1829,1839and1843)werenotregularlytradedandwerenotreplacementsforthe1824/25bonds.BuenosAires:Reportedasacontinualseries1824-1852.Noadditionalbondsissuedpriorto1852;dividendpaymentsresumedin1857.Chile:Reportedasacontinualseries1822-52.Dividendpaymentsresumedin1842,withanewbondissuedtomeetdividendarrears.Colombia:Serieswassplicedtogethertoreflectinterimrenegotiations:asfollows
Colombia22_6 tradedfrom 10May22 to 15Oct24Columbia24-5 22Oct24 17Jul46 -thende-listed
Timeseriesreflectsthereapportionmentoforiginalbondsattheendof1834,transferring50%oftheprincipletoEcuadorandVenezuela(bothimmediatelyindefault,sotheyarenotincluded.–seeCommitteeofSpanishAmericanBondholdersAnnualReport,p17)Colombia’sremainingbondwasde-listed17July1846(&isremovedfromtheindex.)Mexico:Serieswassplicedtogether,reflectinginterimrenegotiations,asfollows
Mexico24_5 tradedfrom 30April24 to 11Nov25Mexico25_5 18Nov25 1Nov39Mexico37_5 8Nov39 10Jul46Mexico46_5 17Jul46 18Jun52Mexico46_3 25Jun52
NB:unsuccessfulrenegotiationsarenotincludedhere.Peru:Serieswassplicedtogether,reflectinginterimrenegotiations,asfollows:
Peru24&25_6 tradedfrom 9Apr24 to 8Jun49Peru49_4 15Jun49 29Mar50Peru49_4.5 5Apr50 28Mar51Peru49_5 4Apr51 26Mar52Peru_6 2Apr52
Austria: Lastdatelisted16Mar49Denmark:Serieswassplicedasfollows:
Denmark22_5 tradedfrom 8Mar22 to 18Nov25Denmark25_3 25Nov25 20Jul49Denmark49_5 27Jul49
Portugal:Acontinualseries1823-52Russia:Serieswassplicedasfollows
Russia22_5 tradedfrom 31May22 29Mar50Russia50_4.5 5Apr50
Sovereignbondissuesthatwerenotactivelytraded(orquicklyfailed)thereforenotincluded:Greece1824&1825;Guatemala1825&1836;Naples1824;Spain1823&1835.
29
ArchivalandSerialSources
Citedas
ANTTTT/PT/MNE ArquivoNacionalTorredeTombo,MinistériodeNegociosExteriores;Lisbon
MFR Brasil.MinistériodaFazenda;RelatórioapresentadoaoPresidentedaRepúblicadosEstadosUnidosdoBrasilpeloMinistrodeEstadodosnegóciosdafazenda
RothschildArchive–London(RAL)RALXI/650A-XI/65/3B CorrespondenceFilesRAL000/401A-000/401B LoanContracts(withsomecorrespondenceattached)RAL000/424Boxes4-6 GeneralLedgerBalances
TheTimes TheTimes[London,England]variousissues[12November1824-31December1853]TheTimesDigitalArchive.Web.Accessed12-29March2017.
QuantitativeDataCourseoftheExchange[London]1822-1852http://access.newspaperarchive.com(accessed
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tFigure 1 Latin American Borrowers - Risk Premium
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Figure 2 Consol Yield
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Figure 3 Brazil & Portugal - Risk Premium
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Figure 4 Brazil & "Healthy" Europe - Risk Premium
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Table1 LoansIssuedinLondonto"New"Borrowers,1820s
AmountofLoan(£million)
Borrower Contracted Issued Realized
CouponRate
IssuePrice Agent
1822 Chile 1.00 0.93 0.70 6 70 HullettBros
1822 Colombia 2.00 2.00 1.68 6 84 HerringGraham&Powles
1822 Denmark 3.00 2.00
5 77.5 AFHaldimand&Sons
1822 Peru 1.20 0.45 0.40 6 88 ThomKidder&Co
1822 Russia 6.45 3.55
5 82 Rothschild
1823 Austria 3.50 3.50
5 82 Rothschild
1823 Portugal 1.50 1.50
5 87 Thomas&W.King
1824 Brazil 1.69 1.69 0.90 5 75BaylettFarquhar&Co;Alexander&Co;WilsonShaw&Co
1824 BuenosAires 1.00 1.00 0.85 6 85 BaringBors
1824 Colombia 4.75 4.75 4.20 6 88.5 BAGoldschmidt
1824 Greece 0.80 0.80
5 59 ALaughman
1824 Mexico 3.20 3.20 1.86 5 58 BAGoldschmidt
1824 Naples 2.50 2.50
5 92.5 Rothschild
1824 Peru 0.75 0.75 0.62 6 82 ThomKidder&Co
1825 Brazil 2.00 2.00 1.70 5 85 Rothschild
1825 Denmark 5.50 3.50
3 75 ThomWilson&Co
1825 Greece 2.00 2.00
5 56.5 Ricardo&Co
1825 Guatemala 1.43 0.16 0.12 6 63 Barclay,Herring,Richardson&Co
1825 Mexico 3.20 3.20 2.87 6 86.75 Barclay,Herring,Richardson&Co
1825 Peru 0.62 0.62 0.48 6 78 ThomKidder&Co
1828 Spain 0.60 0.60
5 NA1829 Brazil 0.80 0.80 0.40 5 54 Rothschild;ThomWilson&Co
Sources: Castaing,John.CourseoftheExchange.London:1822-1843(various.)
Dawson(1990)AppendixTable.
Marichal(1989)Tables1&2.
Table2 WeeklyChange;StandardizedMeasures
2A.StandardDeviationofChange
1825-1852 Jan.25-June30 July30-Dec.44 Jan.45-Dec.48 Jan.49-Dec.52
ConsolYield 0.0080 0.0089 0.0065 0.0122 0.0051RiskPremium:
Brazil 0.0426 0.0488 0.0396 0.0565 0.0258BA 0.0715 0.0737 0.0698 0.0430 0.0758Chile 0.0662 0.0851 0.0646 0.0341 0.0219Colombia 0.0517 0.0648 0.0471 0.0282
Mexico 0.0505 0.0672 0.0463 0.0425 0.0473Peru 0.0767 0.0784 0.0618 0.1097 0.0743Portugal 0.0469 0.0424 0.0526 0.0410 0.0321Austria 0.0328 0.0372 0.0295 0.0221 0.0057Denmark 0.1294 0.0506 0.1185 0.3668 0.0263Russia 0.0433 0.0402 0.0362 0.0709 0.0366
2B.BivariateCorrelationofChangebetweenRiskPremiumandConsol
1825-1852 Jan.25-June30 July30-Dec.44 Jan.45-Dec.48 Jan.49-Dec.52
ConsolYield 1.000 1.000 1.000 1.000 1.000RiskPremium:
Brazil 0.189 ** 0.347 ** 0.254 ** 0.013 0.063BA 0.147 ** 0.181 0.327 ** 0.156 0.021Chile 0.089 0.233 * 0.158 -0.451 ** -0.293Colombia 0.368 ** 0.368 ** 0.381 ** 0.113 NAMexico 0.255 ** 0.331 ** 0.263 ** 0.310 ** 0.056Peru 0.250 ** 0.228 ** 0.400 ** 0.423 ** -0.114Portugal 0.225 ** 0.278 ** 0.248 ** 0.135 -0.053Austria -0.106 -0.175 0.076 -0.535 0.277Denmark -0.255 ** 0.282 ** 0.067 -0.817 ** -0.349 **
Russia -0.018 0.281 ** 0.049 -0.292 ** -0.011
BivariateCorrelation:Pearsoncoefficient,twotail
**Correlationissignificantatthe0.01level(2-tailed).
*Correlationissignificantatthe0.05level(2-tailed).
NACannotbecomputedbecauseatleastoneofthevariablesisconstant.
Source:SeeDataAppendixandAppendixTable.
Table3 ClusteringofSharpChangesinDirectionofRiskPremia/Consol
Peaks
TroughsDate Primary Secondary Date Primary Secondary1826
Jul1829-Jun30
Feb.10 Braz
Nov27,1829
ConsolFeb.17 Consol
Jan15,1830 Consol
Mar.3 Den,Rus Consol Jan22,1830 RusApr.14 Peru
Feb12,1830 Den
May12 Aus
Feb26,1830 Aus RusJul7 Peru Mar19,1830
Den
Jul.14 BA.,Chil,Col,MexConsol,Braz,Peru,Portugal Apr23,1830 Brazil Consol
Jul28 Portugal Apr30,1830 Port 1831
May7,1830 BA,Col,Peru
Jan14 Port
May14,1830 Mex Mar4
Consol May21,1830 Chile
Mar18 Consol Aus July44-June45 Apr8 Den
Aug2,1844 Chile
Apr15 Rus
Aug23,1844 RusAug12 Aus
Dec20,1844 Consol
Aug26 Per
Mar14,1845 Peru Sep16 Chil,Col
Mar21,1845 Brazil
Oct28 Mex Mar28,1845 Den Nov4 BA Mex May16,1845 Port
Nov11 Braz Jun6,1845 Mex1847
Jun27,1845 BA,Col
Apr23 Den,Rus Jun25 Aus
Oct15 Braz Oct22 Consol
Oct29 Chile,Peru Mex Nov5
Braz,Port,Aus,Den
Nov12 Mex Dec3 Port
1848
Mar17 Peru
Mar31 Rus Apr7 Consol,Braz,Mex,Port Peru,Rus Apr14 Arg Jun23 Col
Sep1 BA Peaksandtroughsofriskpremiaandconsolyieldforselectedperiods.
Selectionbasedonparticularlysharpchangesofdirectioninriskpremiaandconsolchange.PrimaryPeak/Trough:Highest/lowestriskpremium(orconsolyield)forthetimeperiod.SecondaryPeak/Trough:secondhighest/lowestriskpremium(orconsolyield)forthetimeperiod."Clusters"aredefinedasapeakortroughoccurringwithinsequentialweeksamongborrowersandareoutlined.
AppendixTable DescriptiveStatisticsofConsolYieldandRiskPremia
DescriptiveStatistics BivariateCorrelation
Level Change Level
Change
N
Minimum Maximum Mean
Std.Deviation Minimum Maximum Mean
Std.Deviation
CorrelationCoefficient
CorrelationCoefficient
Level Change
1825-1852 ConsolYield 2.96 3.97 3.3078 0.20 -0.07 0.07 -0.0003 0.0080 1.000
1.000
1287 1245
RiskPremium: Brazil 1.83 8.53 3.5247 1.21 -0.23 0.35 -0.0008 0.0426 0.680 ** 0.189 ** 1136 974
BA 2.98 36.56 13.3827 7.24 -0.45 0.17 -0.0115 0.0715 0.137 ** 0.147 ** 563 334Chile 2.54 53.49 10.1860 8.42 -0.30 0.40 -0.0035 0.0662 0.495 ** 0.089
610 323
Colombia 3.04 55.07 22.8085 10.05 -0.18 0.28 0.0022 0.0517 -0.224 ** 0.368 ** 815 714Mexico 2.91 47.65 14.2468 5.57 -0.46 0.30 0.0006 0.0505 0.097 ** 0.255 ** 1158 1037Peru 1.68 63.29 18.4937 12.69 -0.52 0.45 -0.0051 0.0767 0.395 ** 0.250 ** 802 588Portugal 1.75 8.81 3.9549 1.55 -0.34 0.26 -0.0011 0.0469 0.372 ** 0.225 ** 702 439Austria 1.09 7.47 1.6746 0.55 -0.09 0.13 0.0022 0.0328 0.306 ** -0.106
310 93
Denmark 0.00 2.25 0.9740 0.52 -1.73 1.91 -0.0008 0.1294 0.088 ** -0.255 ** 893 654Russia 0.94 2.99 1.4738 0.33 -0.36 0.33 -0.0003 0.0433 0.603 ** -0.018 1050 851Jan25-Jun30
ConsolYield 3.19 3.97 3.4857 0.19 -0.03 0.03 -0.0004 0.0089 1.000
1.000
231 220RiskPremium:
Brazil 2.41 6.19 4.2864 0.85 -0.23 0.26 0.0006 0.0488 0.493 ** 0.347 ** 216 193BA 2.98 26.62 9.4652 5.93 -0.41 0.17 -0.0031 0.0737 -0.144
0.181
153 100
Chile 3.38 33.54 14.2305 7.91 -0.25 0.40 0.0094 0.0851 -0.017
0.233 * 145 95Colombia 3.04 38.68 16.9064 9.45 -0.18 0.28 0.0078 0.0648 -0.154 * 0.368 ** 216 193Mexico 2.91 31.40 11.1354 7.90 -0.31 0.30 0.0029 0.0672 -0.290 ** 0.331 ** 221 201Peru 3.58 63.29 19.6162 12.64 -0.33 0.31 0.0035 0.0784 -0.071
0.228 ** 178 140
Portugal 2.16 8.42 4.2646 1.86 -0.13 0.26 0.0021 0.0424 -0.232 ** 0.278 ** 196 166Austria 1.48 2.05 1.7875 0.14 -0.09 0.13 0.0009 0.0372 0.212 * -0.175
109 47
Denmark 0.71 1.95 1.3090 0.28 -0.22 0.25 -0.0023 0.0506 0.437 ** 0.282 ** 213 189Russia 1.17 2.82 1.9108 0.33 -0.18 0.19 -0.0004 0.0402 0.770 ** 0.281 ** 224 207Jul30-Dec44
ConsolYield 2.97 3.97 3.3175 0.17 -0.04 0.03 -0.0004 0.0065 1.000
1.000
639 608RiskPremium:
Brazil 2.37 8.53 3.7536 1.32 -0.17 0.19 -0.0010 0.0396 0.683 ** 0.254 ** 579 502BA 3.73 36.56 20.0334 5.66 -0.34 0.15 -0.0161 0.0698 0.477 ** 0.327 ** 194 84Chile 2.65 53.49 12.3938 8.59 -0.30 0.31 -0.0123 0.0646 0.724 ** 0.158
293 154
Colombia 8.56 55.07 24.1015 9.31 -0.18 0.22 0.0006 0.0471 0.118 ** 0.381 ** 550 480Mexico 8.70 47.65 14.3424 3.69 -0.17 0.23 0.0003 0.0463 0.163 ** 0.263 ** 527 433Peru 12.03 56.44 28.0431 8.42 -0.22 0.20 -0.0061 0.0618 0.655 ** 0.400 ** 329 203Portugal 1.75 8.81 4.2015 1.46 -0.34 0.18 -0.0030 0.0526 0.688 ** 0.248 ** 360 212Austria 1.09 2.36 1.5329 0.27 -0.05 0.10 0.0028 0.0295 0.618 ** 0.076
167 39
Denmark 0.23 1.84 0.6935 0.25 -1.73 0.29 -0.0052 0.1185 0.651 ** 0.067
457 324Russia 0.94 1.88 1.3072 0.18 -0.21 0.22 0.0007 0.0362 0.649 ** 0.049 489 363
Appendix Table(cont.) DescriptiveStatisticsofConsolYieldandRiskPremia
DescriptiveStatistics BivariateCorrelation
Level Change Level
Change
N
Minimum Maximum Mean
Std.Deviation Minimum Maximum Mean
Std.Deviation
CorrelationCoefficient
CorrelationCoefficient
Level Change
Jan45-Dec48 ConsolYield 3.00 3.77 3.2773 0.21 -0.07 0.07 0.0006 0.0122 1.000
1.000
209 209
RiskPremium: Brazil 2.29 5.53 2.8983 0.49 -0.20 0.35 0.0030 0.0565 0.550 ** 0.013
167 133
BA 8.29 26.52 13.9317 5.30 -0.16 0.04 -0.0180 0.0430 0.819 ** 0.156
62 27Chile 2.80 4.00 3.1901 0.31 -0.07 0.08 0.0029 0.0341 0.737 ** -0.451 ** 87 43Colombia 29.40 39.85 34.3136 3.25 -0.08 0.03 -0.0051 0.0282 -0.184
0.113
49 41
Mexico 10.03 31.99 18.6424 6.08 -0.15 0.24 0.0014 0.0425 0.940 ** 0.310 ** 206 203Peru 7.12 26.30 14.1436 2.88 -0.52 0.31 -0.0198 0.1097 0.421 ** 0.423 ** 105 71Portugal 2.57 6.27 3.1137 0.62 -0.14 0.09 -0.0066 0.0410 0.484 ** 0.135
81 31
Austria 1.13 7.47 1.7695 1.53 -0.02 0.03 0.0007 0.0221 0.450 * -0.535
28 4Denmark 0.00 1.83 0.3590 0.32 -1.09 1.91 0.0387 0.3668 0.228 * -0.817 ** 89 44Russia 1.07 2.99 1.4118 0.34 -0.36 0.33 -0.0022 0.0709 0.478 ** -0.292 ** 153 113Jan49-Dec52
ConsolYield 2.96 3.36 3.1108 0.09 -0.02 0.02 -0.0006 0.0051 1.000
1.000
208 208RiskPremium:
Brazil 1.83 3.26 2.4188 0.33 -0.11 0.07 -0.0053 0.0258 0.867 ** 0.063
174 146BA 4.34 20.53 8.6755 3.50 -0.45 0.15 -0.0139 0.0758 0.805 ** 0.021
154 123
Chile 2.54 3.38 2.8364 0.21 -0.05 0.04 -0.0081 0.0219 0.753 ** -0.293
85 31Colombia
NA
NA
Mexico 7.94 18.02 12.9315 2.18 -0.46 0.08 -0.0021 0.0473 0.615 ** 0.056
204 200Peru 1.68 9.22 3.3105 1.59 -0.26 0.45 -0.0048 0.0743 0.694 ** -0.114
190 174
Portugal 1.92 3.71 2.7038 0.45 -0.06 0.07 0.0003 0.0321 0.846 ** -0.053
65 30Austria 3.01 3.31 3.1235 0.12 0.01 0.02 0.0181 0.0057 0.518
0.277
6 3
Denmark 1.22 2.25 1.8064 0.15 -0.09 0.11 -0.0009 0.0263 -0.094
-0.349 ** 134 97Russia 1.11 1.67 1.4360 0.11 -0.23 0.20 -0.0014 0.0366 0.498 ** -0.011 184 168
BivariateCorrelation:Pearsoncoefficient,twotail
**Correlationissignificantatthe0.01level(2-tailed).
*Correlationissignificantatthe0.05level(2-tailed).
NACannotbecomputedbecauseatleastoneofthevariablesisconstant.
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