Carlos asked for an explanation of the squiggles in my last post, “America's Dream of EMPIRE!!!!” Well, they’re from a working paper by Laura Álfaro, Noel Maurer, and Faisal Ahmed, the findings of which will in turn form part of a book tentatively entitled Imperial Experiments.
So, the graphs. The question behind the first graph is pretty simple: did Leonard Wood succeed? The colored lines measure the premium on Latin American sovereign debt over British consols. The higher their value, the riskier investors believe Latin American bonds to be. The vertical lines represent American interventions, starting with the bombardment of Dominican ports in February 1904.
These interventions were all about insuring that governments continued to “pay their obligations,” e.g., their debts. Gunboat-style debt enforcement went out of style for many reasons, but mostly because the Depression hit Latin economies so badly that Washington decided that sanctioning these governments would be a bit like kneecapping a paraplegic.
Today a kinder and gentler way of enforcing sovereign debt has emerged. “Vulture funds” go around buying up the debt of countries in default. They then sue those countries in European and American courts. The courts proceed to enforce their decisions by attaching any payments that clear through the developed world. The vultures go after VAT and landing fees paid to Nicaragua by U.S. airlines, or privatization revenues from the sale of Panama’s telecoms, or Congo’s oil sales.
Deny the government revenue or otherwise muck up its economy. Same effect, in theory, as a gunboat in the harbor. Call it a virtual blockade.
And as you can imagine, the vultures have triggered a huge debate (bigger in Europe than in the U.S., unsurprisingly) over whether their activities are good or bad for poor countries. One thing is absent in that debate, though: does vulturing work?