The power of peripheral governments: coping with the 1891 financial crisis in Portugal*

Abstract

In 1891 a financial crisis led Portugal to abandon the gold standard and to partially default by cutting interest payments on domestic and foreign debt. As a consequence, the country was banned from borrowing in international financial markets, until an agreement with foreign bondhold ers was reached in 1902. That financial crisis was the result of large current account and government deficits. Yet the abandonment of the gold standard and default were not imposed by financial difficulties only. This paper shows that such options were taken because of the growing domestic consensus regarding the need for a change in monetary policies. The concern about the domestic economy was more important to the Portuguese governments than the fear of a negative reaction of foreign bondholders. Insufficient information about the sustainability of government debt and lack of cooperation between borrowers left the Portuguese governments with space to manoeuvre according to their domestic political interests. Forthcoming in Historical Research ABSTRACTIn 1891 a financial crisis led Portugal to abandon the gold standard and to partially default by cutting interest payments on domestic and foreign debt. As a consequence, the country was banned from borrowing in international financial markets, until an agreement with foreign bondholders was reached in 1902. That financial crisis was the result of large current account and government deficits. Yet the abandonment of the gold standard and default were not imposed by financial difficulties only. This paper shows that such options were taken because of the growing domestic consensus regarding the need for a change in monetary policies. The concern about the domestic economy was more important to the Portuguese governments than the fear of a negative reaction of foreign bondholders. Insufficient information about the sustainability of government debt and lack of cooperation between borrowers left the Portuguese governments with space to manoeuvre according to their domestic political interests.

Hunting the Braganza Diamond: Semiosis conveyed by splendor and secrecy

“…ere are news -for instance in the Daily National Republican, April 09, 1864 -mentioning that at the time of King Luís I of Portugal, enthroned after his brother passed away, great quantities of diamonds of the crown treasure were sold to the French government. Following the convoluted history of Portugal's external public debt 20 and abbreviating reasons, in 1891 a nancial crisis led Portugal to abandon the gold standard previously adopted in 1854 and the country went into partial default by cutting interest payments on domestic and foreign debt and, as a consequence, the country was banned from borrowing in international nancial markets until an agreement with foreign bondholders was reached in 1902 (Lains, 2008), making the previous loans being converted into a single loan, redeemable up to 2001 (Mata & Valério, 1998).…”

Foreign investment in Portugal and knowledge spillovers: From the Methuen Treaty to the 21st century

“…These investments were either seeking new resources, or new markets, or both (Dunning, 1993: 154). In Portugal, where according to Mata (2002: 186) (Lains, 2008).…”