Sovereignty and Debt in Nineteenth-Century Latin America

Abstract

After their independence from Spain and Portugal, Latin American governments became frequent borrowers in international capital markets. However, the region’s political and economic instability also led to recurrent episodes of sovereign defaults. During the particular historical context of the nineteenth century, remedies to debt defaults were not limited to bilateral negotiations between creditors and governments. They also encompassed military interventions or control commissions formed by foreign governments, bondholders, or merchant bankers. In North Africa and the Middle East, debt defaults could even trigger military interventions from creditor states ending in the establishment of colonial regimes. This paper shows that such interventions were rare in Latin America, as creditors only enlisted their governments’ military intervention in the most extreme cases. In most cases, external control was exerted privately by bondholders and merchant banks through the imposition of economic policies promoting trade openness and fiscal management. Additionally, bondholders turned to legal methods of contractual enforcement to obtain debt settlements that limited the sovereignty of debtor states over their land, infrastructure, and resources. By the end of the century, Latin American jurists began to respond to the increasing use of legal techniques to settle sovereign debts by developing counter-legal discourses aimed at limiting foreign intrusion in sovereign affairs.