Geopolitics and diplomacy: México's 1942 foreign debt settlement

This research explains the relevance of geopolitical factors and debt diplomacy 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 25 years of unsuccessful negotiations. The agreement, that included a haircut of 90%, 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, in particular the effective strategy and negotiations by Eduardo Suárez, then the Mexican minister of finance. This paper studies the process of negotiations since 1922 and the conditions that allowed Mexico to reach un unusually advantageous settlement. This is a preliminary draft of a chapter to be published in the book Sovereign Debt Diplomacies (Juan Flores Zendejas and Pierre Penet, editors, Oxford University Press).