Journal Articles Summaries - Book Report/Review Example

The investors looked upon the bonds as low risk instruments and Peru accumulated huge foreign debt. What is the goal of the study? The goal of the study is to analyze how availability of natural resource has the capability to transform the entire economic scenario of a country. The case of Peru and the availability of Guano have been taken under consideration. The assignment will act as the real life example on how effective measures of the government coupled with natural factors can change the gloomy economic situation.

It cannot be argued that the generated revenue from the exports is a sufficient condition for economic development but is for certain that it was a necessary condition. The country channelized the revenues to service foreign debts which became credible for the investors. What is the time period analyzed? The time period taken under consideration is nineteenth century. To be more specific the period is 1849 to 1875. What is/are the data source(s)? The author presented the evidence from the financial markets on debt burden of Peru.

The report takes into consideration the bond prices in the period of 1830 to 1875. The government of Peru defaulted in the year 1826 and remained defaulted till 1849. During this phase the bonds were sold at low prices sometimes at less than 20% of par (Vizcarra, C. 2009). Data on all foreign bonds floated by the government of Peru in the nineteenth century has been provided. The experience of the country in the foreign capital market consisted of faithful debt service for twenty five years. The solvency period corresponds to the height of guano boom.

A comparative figure has been provided it takes into consideration the sovereign debts of Brazil, Chile and Peru against the British consol for the years of 1830 to 1875. What are the main findings? The governments of Peru contracted with a British management house to management the exports revenue and service the revenues for debt servicing. The engagement of the British house was important as it can be expected that the organization will not collude with Peruvian government for profits in the long run and defraud the investors.

Two reasons can be accounted for exceptional foreign debt service of Peru. The price of the bonds soared temporarily even when there was political instability in the country as well as poor capital market reputation. Till the later part of 1870s the country enjoyed the advantage of relatively lower risk of credit. The country emerged as the largest solvent debtor in Latin America after it accumulated a great deal of debt. The country had the highest debt service ratio of any solvent sector. The low risk premium of the securities of the country imposed a sense of confidence upon the investors on the ability of the country to service the debt.

The extraordinary performance of the country was paved by the credible commitment to service debt with the revenue gained from the exports of guano. Information learnt The evidence shows how successful intervention of the government in the economic decisions can transform an economy. The government of Peru made the right call by using the revenue generated from the exports of guano exports to finance the foreign debt. It can be found from the evidence that government received a net cash flow amounting to a huge sum.

A careful account of the flows served to be the source of funds for the country. The advances were conceded at lower interest rates and the low risk portfolio of the