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Published online by Cambridge University Press: 02 May 2022
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.
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.
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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17 Saiegh, ‘Political Institutions’.
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19 James Mahoney, The Legacies of Liberalism: Path Dependence and Political Regimes in Central America (Baltimore, MD: Johns Hopkins University Press, 2001), pp. 78–9, 148–59.
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22 Mahoney, Legacies of Liberalism, p. 157.
23 Iván Molina Jiménez, Demoperfectocracia: La democracia pre-reforma en Costa Rica (Heredia: Editora Campus Omar Dengo, 2005), pp. 109–11, 226.
24 Edgar Solano Muñoz, ‘La participación del clero costarricense en las campañas políticas de 1889 y 1894’, Diálogos: Revista Electrónica de Historia, 11: 2 (2010), pp. 1–21.
25 Quoted in Hermán G. Peralta, Don Rafael Yglesias, apuntes para su biografía (San José: Editorial Costa Rica, 1968), p. 40. All translations are my own, unless otherwise stated.
26 Rafael Obregón Loría, Hechos militares y políticos (Alajuela: Museo Histórico Cultural, 1981), pp. 242–9.
27 Quoted in José Luis Vega Carballo, Orden y progreso (San José: Instituto Centroamericano de Administración Pública (ICAP), 1981), p. 120.
28 The literature presents the early 1900s as the beginning of democratisation in Costa Rica. Hence, Mora's book is divided into the following chapters: ‘Dictatorship and Its Heroes’ (1870–88), ‘Liberal Authoritarianism’ (1889–1901) and ‘Liberal Democracy’ (1902–14). Mora, El apogeo de la República Liberal. This periodisation is in line with the coding prepared by Kirk Bowman et al., according to which Costa Rica was autocratic until 1901, halfway between autocracy and democracy (0.5 in a scale of 0 to 1) from 1902 to 1904, autocratic in 1905 and 1906, and again a 0.5 semi-democracy in the following decennial. Kirk Bowman, Fabrice Lehoucq and James Mahoney, ‘Measuring Political Democracy: Case Expertise, Data Adequacy, and Central America’, Comparative Political Studies, 38: 8 (2005), p. 965.
29 Lehoucq, Instituciones democráticas, pp. 43–4.
30 Ibid., pp. 44–5.
31 Bowman et al., ‘Measuring Political Democracy’, p. 947; Fabrice Lehoucq and Iván Molina, Stuffing the Ballot Box: Fraud, Electoral Reform, and Democratization in Costa Rica (Cambridge: Cambridge University Press, 2002), p. 4.
32 Molina, Stuffing the Ballot Box, pp. 51–3.
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35 Corporation of Foreign Bondholders (CFB), Annual Report of the Corporation of Foreign Bondholders (London: CFB), hereafter ARCFB, 1885, pp. 31–51.
36 See Table A.1 in Appendix for a detailed account of Costa Rica's fiscal data.
37 Ministerio de Hacienda y Comercio de Costa Rica, Memoria de Hacienda y Comercio (San José: Tipografía Nacional), hereafter Memoria de Hacienda, various years. I have not found details of this domestic debt in the secondary literature.
38 Jason M. Colby, The Business of Empire: United Fruit, Race, and U.S. Expansion in Central America (Ithaca, NY: Cornell University Press, 2011), p. 67.
39 John L. Williams, The Rise of the Banana Industry and Its Influence on Caribbean Countries (Worcester, MA: Clark University, 1925), p. 40.
40 Paul J. Dosal, Doing Business with the Dictators: A Political History of United Fruit in Guatemala, 1899–1944 (Wilmington, DE: Scholarly Resources, 1992), p. 55.
41 Watt Stewart, Keith and Costa Rica: A Biography of Minor Cooper Keith (Albuquerque, NM: University of New Mexico Press, 1964), p. 50.
42 ARCFB, 1885, pp. 35–54.
43 José R. Corrales, El Banco Anglo Costarricense y el desarrollo económico de Costa Rica, 1863–1914 (San José: Editora de la Universidad de Costa Rica, 2000), p. 43.
44 Manuel Chacón, Del real al colón: Historia de la moneda en Costa Rica (Fundación Museos Banco Central de Costa Rica, 2015), p. 84.
45 Memoria de Hacienda, 1886 to 1892.
46 ARCFB, 1893, pp. 94, 105.
47 See Table A.1, in the Appendix.
48 ‘Mensaje del Señor Presidente de la República Don Rafael Iglesias dirigido al Congreso Constitucional de 1895’, 1 May 1895, Archivo Nacional de Costa Rica (hereafter ANCR), Colección Congreso Nacional (hereafter Congreso), file 3305.
49 Corrales, Banco Anglo Costarricense, p. 44.
50 See Table A.2, in the Appendix, for data on coffee prices, Costa Rican trade, and exchange rate.
51 ARCFB, 1997, p. 93.
52 ARCFB, 1900, pp. 78–9.
53 Memoria de Hacienda, 1900, pp. XII–XV.
54 ARCFB, 1901, pp. 78–9.
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59 See Table A.1, in the Appendix.
60 ‘Ley n. 42’, 3 Oct. 1893, ANCR, Congreso, file 2427.
61 La República, 5 June 1894, vol. 8, no. 2320, p. 2, cols. 2, 3.
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64 Gutiérrez, ‘Sistemas de beneficiado del café’.
65 ‘Livro de Actas’, 18 May to 16 June 1898, ANCR, Congreso, file 2427. See Table A.3, in the Appendix, for the details of the voting.
66 Virginia S. de Fonseca, Manuel González Zeledón (San José: Ministerio de Cultura, 1974).
67 See sources and the detailed results of the vote in Table A.3, in the Appendix.
68 Roberto P. Cabrera, Tierra y ganadería en Guanacaste (Cartago: Editora Tecnológica de Costa Rica, 2007), p. 279.
69 La Gaceta (The Gazette): The Official Journal, 5 Nov. 1910, p. 435.
70 La Gaceta, 3 March 1905.
71 ‘Sección 61’, art. 3, p. 106, 26 July 1900, ANCR, Congreso, file 13677; Memoria de Hacienda, 1890, p. 4.
72 José Aurelio Sandí Morales, ‘Las leyes anticlericales de 1884 en Costa Rica: Una relectura desde otra perspectiva’, Revista de Teología, 3: 1 (2010), pp. 59–100.
73 ‘Livro de Actas’, 18 May to 12 June 1899, ANCR, Congreso, file 3626. The outcome of the 1898 project on coffee tax and the analysis of the coffee sector appear in a similar project presented in the following year.
74 See Tables A.1 and A.2, in the Appendix.
75 For instance, the newspaper praised Iglesias for taking office after the dissolution of the Catholic party, as well as for suspending individual civil rights and for re-establishing them in the following months. La República, 5 June 1894, p. 2, col. 2; 1 April 1898, p. 2, cols. 1, 2; 1 May 1898, p. 2, col. 1.
76 La República, 21 May 1898, p. 2, col. 1.
77 La Prensa Libre, 1 June 1898, p. 2, cols. 1, 2.
78 La Prensa Libre, 3 June 1898, p. 2, col. 1.
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80 ‘Livro de Actas’, 6 May to 19 June 1899, ANCR, Congreso, file 2680.
81 ‘Livro de Actas’, Sección 1, art. 5, p. 156, 2 May 1901, ANCR, Congreso, file 13677.
82 La República, 9 June 1894, vol. 8, no. 2,320, p. 2, cols. 2, 3.
83 ‘Livro de Actas’, 19 July 1901, ANCR, Congreso, file 2680.
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85 Loría, Hechos militares y políticos, pp. 248–9.
86 ‘Livro de Actas’, 6 May 1901, ANCR, Congreso, file 2680.
87 Memoria de Hacienda, 25 July 1901, p. XIX.
88 ARCFB, 1901, pp. 74–6.
89 Colby, The Business of Empire, p. 69.
90 ‘Livro de Actas’, 1900–1, Sección 61, 26 July 1900, art. 3, p. 106, ANCR, Congreso, file 13677.
91 Stewart, Keith and Costa Rica.
92 ‘Livro de Actas’, 6 May to 19 June 1901, ANCR, Congreso, file 2680.
93 Calculated from Memoria de Hacienda.
94 ARCFB, 1901, p. 79.
95 Several authors reach similar conclusions in cross-country and case studies. See Allan Drazen, ‘Towards a Political-Economic Theory of Domestic Debt’, NBER Working Paper 5890 (1997); Carmen Reinhart and Kenneth Rogoff, ‘The Forgotten History of Domestic Debt’, NBER Working Paper 13946 (2008); Summerhill, Inglorious Revolution.
96 Julie A. Charlip, Cultivating Coffee? The Farmers of Carazo, Nicaragua, 1880–1930 (Athens, OH: Ohio University Press, 2003), p. 13.
97 Mahoney, Legacies of Liberalism, pp. 43, 182.
98 See Tables A.1 and A.4, in the Appendix, for sources.
99 Sergio A. Zeledón, ‘Fighting Intervention in Nicaragua in the Age of British−American Conflict 1820–1920: Dr. and General Benjamin F. Zeledón, Supreme Chief of Government of Nicaragua in Rebellion, 1909–1912’, unpubl. PhD diss., University of California, Berkeley, 2010, pp. 39–44.
100 Mahoney, Legacies of Liberalism, pp. 99–100.
101 Benjamin Teplitz, ‘The Political and Economic Foundation of Modernization in Nicaragua: The Administration of José Santos Zelaya 1893–1909’, unpubl. PhD diss., Howard University, 1973, pp. 6–13.
102 Ibid., pp. 14–31.
103 Mahoney, Legacies of Liberalism, p. 183.
104 Teplitz, ‘Modernization in Nicaragua’, pp. 360–74.
105 Clemente G. Martínez, Oligarquía, autoritarismo e intervención norteamericana: 80 años en la vida del Poder Legislativo de Nicaragua, 1858–1938 (Managua: Alcaldía de Managua, 2013), p. 57.
106 Teplitz, ‘Modernization in Nicaragua’, pp. 42–3.
107 Consuelo Cruz, Political Culture and Institutional Development in Costa Rica and Nicaragua: World Making in the Tropics (Cambridge: Cambridge University Press, 2005), p. 194.
108 Mahoney, Legacies of Liberalism, p. 183.
109 Teplitz, ‘Modernization in Nicaragua’, pp. 30, 109.
110 Cruz, Political Culture, pp. 95–6.
111 Teplitz, ‘Modernization in Nicaragua’, p. 115.
112 Lehoucq, Politics of Modern Central America, p. 20.
113 US Department of State, ‘Paper Relating to the Foreign Relations of the United States, with the Annual Message of the President Transmitted to Congress’, 6 Dec. 1904, available at https://history.state.gov/historicaldocuments/frus1904/d540, last access 4 March 2022.
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.
116 Martínez, Intervención norteamericana, pp. 75–9; Mahoney, Legacies of Liberalism, pp. 188–90.
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.