8. The Loans of the Revolution: Mexico, 1911–1914

The Revolution that deposed Porfirio Díaz in 1911 escalated into a civil war. Yet the governments of Madero (1911–1913) and Huerta (1913–1914) managed to borrow abroad to fight the insurgents. The debt went on default, and the state collapsed in the following year. This chapter shows that inside information and conflict of interest explain why Paribas, the main underwriter, launched a loan in 1913. The bank’s managers had access to first-hand information on Mexican politics that was more accurate than the over-optimistic press. Paribas forced the government to issue bonds at terms that were substantially worse than those on the market and subsequently sold the debt at a margin on the secondary market. The loan enabled the government to continue servicing its debt for a few months, which was enough time for Paribas to sell its entire Mexican portfolio without realising losses. Paribas was not significantly exposed and the government was too weak to negotiate borrowing terms. That outcome could have been different had Mexico granted a monopoly over its debt to a patron bank during the Porfiriato.