Monday, February 07, 2005

Sovereign Borrowing in Latin America: A Lesson from the 1820s

The 1820s witnessed the first large wave of sovereign lending to Latin America. The lending went to many different countries in Latin America that found themselves newly independent and in need of infrastructure. As Alan Taylor notes,
This was a time of potentially fortuitous coincidence of wants. The borrower was capital scarce, with funds needed for nation-building and economic development. The lenders were increasingly capital abundant, as modern economic growth generated increasing savings, accumulation, and diminishing returns at home.
Investors were very excited about these "emerging markets" that would grow very fast because they were capital-scarce. The lending was indiscriminate, and investors didn't care if the name of the country was Colombia or Brazil or Poyais.

Poyais? Yes. This was a country that was invented by Sir Gregor MacGregor in an amazing fraud. MacGregor actually convinced investors to buy bonds in his mythical country! You can find a copy of the actual document here, and a book about it here.

From the former link:
Gregor MacGregor (he was not a general in any recognised army, nor had he been knighted in Britain) sold similar stock certificates and other Poyaisian material in both Britain and France during the 1820s and 1830s. Despite the clearly fraudulent nature of his promises, Mac Gregor was never convicted of any crime - although he served a short jail term in France awaiting a trial that never came about - and eventually retired to Venezuela where he wrote his autobiography (handwritten notes for which are also in the National Archives of Scotland, reference GD50/112).


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