The Fortune of Geopolitical Conditions in Debt Diplomacy

Abstract

This chapter revisits the relevance of geopolitical factors during sovereign debt negotiations. We explain how the Mexican government reached an agreement with international creditors for the repayment of its foreign debt in 1942, after more than twenty-five years of unsuccessful negotiations. The agreement, that included a haircut of 90 per cent, was the result of a change in the geopolitical situation of Mexico, when the United States entered the Second World War and considered that country a strategic ally. The agreement, we argue, also derived from Mexico’s proactive stance in debt negotiations and bond repurchasing. This chapter studies the process of negotiations since 1922 and the conditions that allowed Mexico to reach an unusually advantageous settlement.