europe invests in latin america -- 12/1/20

Today's selection -- from The Sixth Great Power: A History of One of the Greatest of All Banking Families, The House of Barings, 1762-1929 by Philip Ziegler. The Baring Brothers, England’s most prestigious and prominent banking firm in the early 1800s, came close to failing due to large investments in Argentina and Mexico in the 1820s:

"The investors’ skepticism [of investing in Argentina] was soon justified. Things went merrily for two or three years. [Baring agent] Robertson reporting from Buenos Aires in 1825: ‘Nothing can be more satisfying than to observe the rapid strides which the Country makes in every branch of public and domestic economy. But war with Brazil changed all that, draining the National Bank and making the currency worthless. Buenos Aires has been gradually sinking into a state of Poverty and Disorganization, from which it will require many years for her to emerge,' Robertson wrote gloomily at the end of 1827. The hero of the Liberation, San Martin himself, provided an ironic commentary on the prospects for his continent. He came to London with money to invest and called at Bishopsgate to seek advice. Barings offered him a tempting range of Latin American stocks, including the 1824 Argentine loan, which was now at so much of a discount as to be yielding a return of nearly 9 per cent. He rejected them all in favour of British 3 per cent Consols. He was proved right in January 1828 when the Argentine government defaulted on its interest payments. For Barings this was the most painful of the many shocks they had suffered in the previous two years.

"They had already had a nasty fright in Mexico. Apart from Brazil, Mexico, with its long-established and profitable export of silver, was economically the strongest country in Latin America. Barings were interested in the possibilities of increased trade and perhaps even some investment. In 1825 Francis Baring, Alexander's second son, was sent out on a fact-finding mission.

"His first reactions were of dismay. 'This country is a desert,' he told Humphrey Mildmay. He urgently requested six boxes of Seidlitz powders and 'a stoutish hunting crop with bronze handle, the dogs are wolves, and one's legs are always in danger'. The country could be prosperous if properly run, but 'I do not see any material in this country out of which they could form a good set of ministers, and even were such treasures to be found, there is not public spirit or intelligence sufficient to support them in their measures'. Mexico would go on borrowing so long as England would lend, 'and they will end up by a complete break up or bankruptcy'.

"What happened next is hard to establish with any exactness, but it effectively ended his career in banking. He found the climate oppressive, took to drink, and was still further borne down by a shooting accident, in which he contrived to kill an English friend, Augustus Waldegrave. Then he fell among thieves, in particular one Robert Staples who had previously been British Consul in Mex­ico City. Egged on by these new acquaintances, he concluded that Mexico was the country of the future -- 'When I was in Mexico,' he wrote long afterwards, 'I believed -- God help me! in Mexican stabil­ity.' He began to invest largely in mining shares and miscellaneous bonds. His crowning folly came when he bought for 800,000 pesos (about £160,000) 9 million acres of the Parral estate in northern Mexico from the creditors of the Marques de San Miguel de Aguallo. 'I mention for the information of the gentlemen of your house,' he wrote proudly to Le Roy Bayard in New York, ' ... that I have lately made an extensive purchase of land here in conjunction with Mr Staples's house, and that I have great confidence in the soundness of the operation.

"His confidence was not shared by his partners in London. He had committed Baring Brothers to pay 25 per cent of the purchase price immediately and this obligation was duly honoured, but enough was enough. Alexander Baring wrote in outrage to his errant son:

Our position with respect to your operation is the most per­plexing possible. After repeated readings of your letter I can­not make out what you have been doing .... If you have been buying a large tract of land, with herds of oxen, sheep and all the appendages of farming, I have only to say that however the world may consider your bargain, I have no doubt that it would prove ruinous to you if for your own account, and that for us it is totally unsuited. We are a house of trade, and have no business with any adventure of the kind, to say nothing of one out of all proportion to the extent of our capital. ... You may conceive the surprise and uneasi­ness which your letters and projects have created, and being quite unable to reconcile them to my opinion of your con­duct and judgment, I live in hope that I have not properly understood you, and that on further reflection you will have been able to back out, and remit your money home in safe bills before you leave Mexico ....

Mr Holland and I have work'd hard for our fortunes and do not wish to risk them. Humphrey, just beginning to get on his legs, cannot afford such risk, and I know pretty well what your position requires .... One of your bad qualities, my dear Francis, and I do not attribute many to you, is that you are a bad taker of advice, but if, on this occasion, I administer mine rather harshly, it is because I have no time for circumlocution and because you are entitled to have from me my unequivocal sentiments. At all events, what I must insist on is, that if you have made any landed or mining adventure for us to the extent of £40 or 50,000, you do not leave the country until you have placed it in good hands and that you in any case come straight to me.

"There was no escape for Barings from the portfolio of dubious investments with which Francis had endowed them, but from the contract to buy the Parral estate at least they were able to extricate themselves with no more than the loss of their original £40,000. Nationalist sentiment in Mexico had always been hostile to the own­ership of land by foreigners, and it did not take more than lobbying and a few small but judiciously apportioned bribes to contrive that the Chamber of Deputies passed a bill retrospectively forbidding foreigners to buy country property."



Philip Ziegler


The Sixth Great Power: A History of One of the Greatest of All Banking Families, The House of Barings, 1762-1929


Borzoi Boo published by Alfred A Knopf, Inc


Copyright 1988 by Barings Brothers & Co. Ltd and P.S. & M. C. Ziegler & Co.


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