6. From Defaults to Redemption: Mexico, 1821–1890

Mexico issued loans in London and defaulted in the 1820s. The debt remained unpaid for about six decades, during which the creditors imposed a financial embargo on the country. Mexico was a failed state, subject to foreign invasions, civil wars and territorial losses. Matters changed under Porfirio Díaz (1876–1880, 1884–1911), who built an autocratic and centralised regime that delivered political stability and economic growth. The government converted the old debt in 1885 and issued a new loan three years later. The underwriters of the first Porfirian loan controlled Banamex, a semi-official bank that provided domestic credit to the government. The syndicate used Banamex to force Díaz to accept poor borrowing condition, from which it profited substantially. Anticipating a series of other good deals, the German banker Bleichroeder, the main underwriter of the 1888 loan, intended to hold exclusivity over Mexico’s debt. Yet the government refused to have a patron bank and issued a second loan through different underwriters in the following year. That enabled Mexican negotiators to bargain for cheap credit.