Annual EBHS Conference, 39th Annual Economic and Business History Society Conference

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From Chaos to Order: National Consolidation and Sovereign Bonds in Uruguay 1890-1914
Peter Keir Brinsmead Sims

Last modified: 2014-03-10


This paper investigates the impact of state consolidation on bond prices. It uses the case of Uruguay, 1889-1914, to do this. In theory, the price at which states can borrow funds on international markets is directly linked to the credibility of their commitment to repay their debts. This credibility is, in turn, determined by the ability of the state to raise revenue, and to ensure legal continuity of obligations between successive governments. During the 19th century, as in most Latin American countries, Uruguay went through a long series of coups and civil wars, crises and defaults, all of which undermined investor confidence in repayment and induced a risk premium. It was only in the early 20th century, with the defeat of the last rural insurgency and the consolidation of the territorial state under President José Batlle y Ordoñez, that lasting stability was achieved. We construct an original and unique series of Uruguayan bond prices, traded in London markets, from 1889 until 1914. Using this new data set, we examine events in the last Uruguayan civil war, culminating in the decisive Battle of Masoller, to identify and quantify the impact of these shocks in state consolidation on investor perceptions, as measured by the risk premium associated with Uruguayan sovereign debt.