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

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.