Bankers Versus Diplomats: The Debate Over Mexican Insolvency

Abstract

The question of state insolvency has been a recurring problem in modern history. Defaults have plagued investors and damaged many nations' credit on international money markets. Other nations have suffered due to investor anxieties resulting from defaults by their neighbors. Politicians, diplomats, financiers, and investors have differed greatly in their proposed solutions to the problems of national fiscal failure. The experience of Mexico in its postrevolutionary era is a classic example of the myriad problems faced by those who assist in the financial rehabilitation of the distressed nation, as well as by those who seek to protect investors.The first half-century after Mexico won its independence was characterized by almost constant domestic strife, frequently humiliating international relations, and a tendency toward fiscal irresponsibility. It was not until Porfirio Díaz seized the presidency from Sebastián Lerdo de Tejada in 1876 that Mexico experienced a degree of domestic tranquility which earned it the tolerance begrudgingly granted by powerful states to their weaker but stable brethren.