2008) “The Baring Crisis and the Great Latin American Meltdown of the 1890s

The Baring Crisis is the nineteenth century’s most famous sovereign debt crisis. Few studies, however, have attempted to understand the extent to which the crisis mattered for countries other than Argentina and England. Using a new database consisting of more than 15,000 observations of weekly sovereign debt prices, we first assess the extent to which the Barings Crisis affected other emerging-market borrowers. Using event studies, we find empirical evidence of a regional crisis. Following the onset of the crisis in 1890, sovereign yield spreads for Central and South American borrowers increased by nearly 800 basis points in the year following the crisis and by nearly 1,400 basis points in the five years after the crisis, while interest-rate spreads in other emerging-market borrowers were generally flat. We next consider whether the regional crisis in Central and South American identified with time series data can be explained by country-specific information that was available to investors in the nineteenth century. Using a panel data set of 28 countries for the period 1886-96, we find Latin American countries saw their yield spreads during the crisis rise by over 330 basis points even after controlling for macroeconomic, trade, political-institutional factors, or other country-specific effects. We speculate that European investors may have experienced a wake-up call and sold or reduced their holdings of Latin American securitie