PRIVATE CAPITAL, PUBLIC CREDIT: BRAZIL, ARGENTINA, AND THE PROBLEM OF CREDIBILITY IN INTERNATIONAL CAPITAL MARKETS, 1852—1914

Abstract

Private Capital, Public Credit examines how Brazilian and Argentine governments promoted their public credit at international capital markets from the 1850s to World War I. It focuses on the relationships that connected sovereign governments to contractors and issuers of foreign debt in London and Paris, and particularly on credibility brokers, a group of actors responsible for establishing and maintaining these connections. Credibility brokers were able to manage the flow of information between decision-makers in borrowing countries and bankers in international capital markets and promoted trusting relationships with actors on both sides of the Atlantic through repeated interactions and the development of affective bonds. Credibility brokers, therefore, shaped financial intermediaries’ capacity to assess sovereign risk and influenced debtors’ ability to make and sustain credible commitments. Their performance was dependent on the actors’ private capital, including the character of the ties that connected them to statesmen in Latin America and bankers in Europe, their ability to adopt the elements that constituted the culture of personal credibility, their capacity to operate independently in capital markets and control the nature of the information available to European investors, and the political capital they enjoyed amongst decision-making elites in borrowing countries.

This cosmopolitan model of credibility brokerage started to wane in the last decade of the nineteenth century when financial crises in Brazil and Argentina and the failure of one of the most reputable banking houses in London undermined investors’ trust on the capacity of financial intermediaries to correctly assess risk and monitor sovereign borrowers. The transition to a model of sovereign credibility based on economic indicators and credit-ratings occurred gradually in the first half of the twentieth century. The adoption of this model signaled a growing distrust towards the capacity of personal judgment and knowledge to regulate sovereign bond markets, while the expansion of the investing public and the erosion of actors’ capacity to control the flow of information enabled the change. Credibility brokers, however, have remained a feature of sovereign bond markets, called to perform their roles when the power of numbers has proved insufficient to broker credible commitments in times of heightened uncertainty.