Fall from Grace
Fall from Grace
In 1889 the Republic fundamentally altered the principal characteristics of the political institutions—as well as the commitment to repay debt—established under the constitutional monarchy. This chapter summarizes the key discontinuities, which were evident in the political institutional changes wrought by the overthrow of the constitutional monarchy and also in the evolution of Brazil's capital markets. Following the replacement of the monarchy by a military government (which then segued to the oligarchic Republic), sovereign creditworthiness in the 1890s, along with fiscal and monetary policy, more generally began to founder. Bankers in London and Paris cut off existing lines of credit. The new regime quickly ran into great difficulty in securing new long-term loans in London. By 1898, faced with ongoing deficits, a milréis in free fall, and rapidly rising costs of external debt service, Brazil defaulted on its foreign debt, turning to its London creditors to reschedule its obligations. Over the same period, private finance in Brazil lurched along, supporting both the expansion of industry and the growth of the two main stock exchanges in Rio de Janeiro and São Paulo.
Keywords: constitutional monarchy, Brazil, political institutions, capital markets, sovereign creditworthiness, Republic, London, foreign debt
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