Latin America: Its Rise and Progress

by Francisco García Calderón

Loans—Budgets—Paper money—The formation of national capital.

Unexploited wealth abounds in America. Forests of rubber, as in the African Congo; mines of gold and diamonds, which recall the treasures of the Transvaal and the Klondyke; rivers which flow over beds of auriferous sand, like the Pactolus of ancient legend; coffee, cocoa, and wheat, whose abundance is such that these products are enough to glut the markets of the world. But there is no national capital. This contrast between the wealth of the soil and the poverty of the State gives rise to serious economic problems.

By means of long-sustained efforts, an active race would have won financial independence. The Latin-Americans, idle, and accustomed to leave everything to the initiative of the State, have been unable to effect the conquest of the soil, and it is foreign capital that exploits the treasure of America.

Since the very beginnings of independence the Latin democracies, lacking financial reserves, have had need of European gold. The government of Spain used to seize upon the wealth of her colonies to satisfy the needs of a prodigal court, and to prevent its own bankruptcy. The independence of America was won with the aid of English money, hence the first of the necessary loans. Canning encouraged the South American revolutionaries, and the English bankers gave their support to their plans, in the shape of loans to the new governments. Colombian, Argentine, and Peruvian agents solicited heavy loans in the City of London, without which assistance the Spanish power could never have been defeated.

The republican régime thus commenced its career by assuming imperious financial responsibilities. Before commencing to practise a policy of fiscal economy, it was necessary to accept the conclusion of the most urgent loans, but once the European markets were open the financial orgy commenced. In 1820 Señor Zea concluded the first Colombian loan; in 1821 the government of that country declared that it could not ensure the service of the debt. The necessities of the war with Spain and the always difficult task of building up a new society demanded the assistance of foreign gold; loans accumulated, and very soon various States were obliged to solicit the simultaneous reduction of the capital borrowed and the rate of interest paid. The lamentable history of these bankrupt democracies dates from this period.

Little by little these financial contracts lost all semblance of serious business. In the impossibility of obtaining really solid guarantees the bankers imposed preposterous conditions, and issue at a discount became the rule with the new conventions. A series of interventions in Buenos-Ayres, Mexico, San Domingo, and Venezuela, diplomatic conflicts, and claims for indemnity resulted from this precarious procedure. Moreover, thanks to the protection accorded by their respective countries, foreigners acquired a privileged position. The Americans were subjected to the jurisdiction of the ordinary courts, before which they could demand the payment of their claims on the State; foreigners enjoyed exceptional treatment. A statute was enacted in their favour, and their governments supported them in the recovery of unjustifiable claims. Sir Charles Wyke, English minister to Mexico, wrote to the Foreign Office in 1862: "Nineteen out of twenty foreigners who reside in this unfortunate country have some claim against the government in one way or another. Many of these claims are really based on the denial of real justice, while others have been fabricated throughout, as a good speculation, which would enable the claimant to obtain money for some imaginary wrong; for example, three days' imprisonment which was intentionally provoked with the object of formulating a claim which might be pushed to an exorbitant figure."[[1]]

In face of the string of debts which arose from the loans themselves, or from claims for damages suffered during the civil wars, the governments could only succumb. The immorality of the fiscal agents and the greed of the foreigner will explain these continual bankruptcies, which constitute the financial history of America.

The descendants of the prodigal Spanish conquerors, who knew nothing of labour or thrift, have incessantly resorted to fresh loans in order to fill the gaps in their budgets. Politicians knew of only one solution of the economic disorder—to borrow, so that little by little the Latin-American countries became actually the financial colonies of Europe.

Economic dependence has a necessary corollary—political servitude. French intervention in Mexico was originally caused by the mass of unsatisfied financial claims; foreigners, the creditors of the State, were in favour of intervention. England and France, who began by seeking to ensure the recovery of certain debts, finally forced a monarch upon the debitor nation. The United States entertained the ambition of becoming the sole creditor of the American peoples: this remarkable privilege would have assured them of an incontestable hegemony over the whole continent.

In the history of Latin America loans symbolise political disorder, lack of foresight, and waste; it is thanks to loans that revolutions are carried out, and it is by loans that the caudillos have enriched themselves. Old debts are liquidated by means of new, and budgetary deficits are balanced by means of foreign gold. When the poverty caused by political disorder becomes too great the American governments clamour feverishly in the markets of Europe for the hypothecation of the public revenues, and the issue of fresh funds, offering to pay a high interest, and recognising the rights of suspended creditors.