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Dictatorships, Coffee and Bananas: The Political Economy of Sovereign Debt in Costa Rica and Nicaragua, 1871−1911
Published online by Cambridge University Press: 02 May 2022
Abstract
Costa Rica suspended payments on its London debt in 1901, at the beginning of a democratisation process and during a crisis in the world coffee market. Meanwhile, autocratic Nicaragua, also a coffee exporter, continued paying its foreign creditors. This article assesses the causes of these distinct outcomes, which are at odds with the influential hypothesis that democracy makes for better borrowers. Strongly represented in Congress, Costa Rica's coffee elite pushed for the end of a tax on coffee as the legislative became more powerful. The executive had used that revenue to service the debt, which went on default as a consequence. Politics were radically different in Nicaragua: coffee growers were weaker and President Zelaya ruled without legislative tutelage. Hence, his government could raise a similar tax to honour the sovereign debt. With a clean record, the dictator borrowed abroad to build a modern army, the backbone of his autocratic regime.
Spanish abstract
Costa Rica suspendió los pagos de su deuda con Londres en 1901, durante los comienzos de un proceso de democratización y con una crisis en el mercado mundial de café. Mientras tanto, la autocrática Nicaragua, también exportadora de café, continuó pagando a sus acreedores extranjeros. Este artículo evalúa las causas de estas diferentes conductas, que están en contradicción con la influyente hipótesis de que los países democráticos son mejores deudores. Representada fuertemente en el Congreso, la élite cafetalera costarricense empujó por la cancelación de un impuesto sobre el café en la medida en que el legislativo se volvió más poderoso. El ejecutivo había usado ese ingreso para pagar la deuda, y como consecuencia incumplió con los pagos. La política fue radicalmente diferente en Nicaragua: los productores de café eran más débiles y el presidente Zelaya gobernó sin un tutelaje legislativo. Por lo tanto, su gobierno pudo recaudar un impuesto similar para cumplir con la deuda nacional. Con una trayectoria limpia en ese sentido, el dictador prestó más recursos al exterior para construir un ejército moderno, el eje de su régimen autocrático.
Portuguese abstract
A Costa Rica suspendeu os pagamentos de sua dívida com Londres em 1901, no início de um processo de democratização e durante uma crise no mercado cafeeiro mundial. Enquanto isso, a autocrática Nicarágua, também exportadora de café, continuou pagando seus credores estrangeiros. Este artigo avalia as causas desses resultados distintos, que estão em desacordo com a influente hipótese de que a democracia faz melhores tomadores de empréstimos. Fortemente representada no Congresso, a elite cafeeira da Costa Rica pressionou pelo fim de um imposto sobre o café à medida que o legislativo se tornava mais poderoso. O executivo usava essa receita para pagar a dívida, que ficou inadimplente como consequência. A política era radicalmente diferente na Nicarágua: os cafeicultores eram mais fracos e o presidente Zelaya governava sem tutela legislativa. Assim, seu governo poderia levantar um imposto semelhante para honrar a dívida soberana. Com a ficha limpa, o ditador fez empréstimos no exterior para construir um exército moderno, a espinha dorsal de seu regime autocrático.
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- Copyright © The Author(s), 2022. Published by Cambridge University Press
References
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114 Oscar Rene Vargas, Historia del siglo XX, tomo 1, Nicaragua 1893–1909 (Managua: Centro de Estudios de la Realidad Nacional de Nicaragua, 2001), p. 232.
115 Zeledón, ‘Fighting Intervention’, pp. 51–5.
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117 ARCFB, 1902, p. 276.
118 ARCFB, 1895, p. 233.
119 See Table A.4, in the Appendix, for Nicaraguan financial data.
120 ARCFB, several years. This is an approximated average, since the ARCFB does not report data for 1894–6, 1901, 1903 and 1904.
121 ARCFB, 1898, pp. 309–10.
122 ARCFB, 1902, p. 266.
123 ARCFB, 1901, p. 270.
124 ARCFB, 1903–4, pp. 288–90.
125 Cruz, Political Culture, pp. 94–6.
126 Teplitz, ‘Modernization in Nicaragua’, pp. 57, 118.
127 Mahoney, Legacies of Liberalism, pp. 103–6, 184–5.
128 Lehoucq, Politics of Modern Central America, p. 19.
129 ARCFB, 1911, p. 279.
130 Ibid., p. 270. That appears in the large fiscal deficit of these years shown in Table A.4, in the Appendix.
131 Barry Eichengreen, Asmaa El-Ganainy, Rui Esteves and Kris James Mitchener, ‘Public Debt through the Ages’, NBER Working Paper 25494 (2019), p. 14.
132 Mahoney, Legacies of Liberalism, pp. 39–40; Teplitz, ‘Modernization in Nicaragua’, p. 233.