Tropical Credibility on Lombard Street
Tropical Credibility on Lombard Street
This chapter focuses on Brazil's foreign borrowing and describes the rise of its external borrowing—almost all of which was British in origin—after independence. For the first three decades after independence, the bonds that Brazil issued in London were the largest component of the Imperial government's funded debt. The chapter describes how the London borrowing was done and examines the contribution of external borrowing to Brazil's fiscal resources. To make the argument that the state attained the credibility required to convince foreign lenders that it would abide by its contractual obligation to repay, the chapter presents estimates of the amounts owed as well as original estimates of the ex ante cost of borrowing implied by its loan contracts with London bankers. It concludes with some of the broader implications of the Empire's experience with external borrowing.
Keywords: external borrowing, Brazil, London, foreign lenders
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