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.
