The Journal of Economic History


Guano, Credible Commitments, and Sovereign Debt Repayment in Nineteenth-Century Peru

Catalina Vizcarraa1

a1 Assistant Professor, Department of Economics, University of Vermont, 332 Old Mill, 94 University Place, Burlington, VT 05405. E-mail:


Peru's experience with sovereign debt during the guano boom is one of the most remarkable in the nineteenth century. Despite the country's ongoing political instability and poor capital market reputation, the price of Peruvian bonds soared shortly after settlement in 1849, and the country enjoyed relatively low credit risk until the 1870s. This article discusses the incentives Peru and its creditors faced, and explains how Peru's extraordinary performance in financial markets was founded on its credible commitment to service its debt with the guano proceeds.


I thank participants at the 2007 Economic History Association Meetings, the States and Capital Markets conference at the UCLA Center for Economic History, the 2006 International Society for the New Institutional Economics conference, the Yale University Economic History Workshop, the UCLA Von Gremp Economic History Workshop, and the Green Mountain Economic History Workshop at the University of Vermont for valuable discussions of previous versions of this article. I am especially thankful to Alan Dye, Andres Gallo, Noel Johnson, William Summerhill, Gail Triner, and two anonymous referees for their helpful comments. I am particularly indebted to Richard Sicotte for his valuable insights and help with the statistical methodology employed in the article. All errors are my own.