5. 1941, the aftermath of the Mexican Revolution

Under the Roosevelt-Ávila Camacho Agreement, Mexico reduced its debt by $460 million (about $10 billion today), facing private creditors who claimed $510 million. This agreement took place in the context of World War II and allowed Mexican workers to support the labor shortage in the United States.

(Summarized from Eric Toussaint)

To understand the significance of Mexico’s debt cancellation in 1941, we must go back in time to Mexico’s Revolution against the dictatorship of Porfirio Díaz, between 1910 and 1920. Exactly at the same time as the Bolsheviks overthrowing the tsar in Russia, Emiliano Zapata and Pancho Villa were leading an insurrection against a minority of colonial landlords supported by the Presidency, who had seized the indigenous communal land to install vast farming domains. The project of the colonial power was to turn the country into an export-centric economy, selling goods like coffee, rubber and sugar to the United States and Europe. Extensive monoculture replaced ancestral farming techniques. Those who weren’t part of the minority of landowners were reduced to the role of “peones”, landless peasants who made a living with short term contracts. Indigenous inhabitants were dispossessed of their land, forced into labour and their culture was repressed in the name of so-called progress. 

Debt was central to the colonial economy. Agricultural workers were indebted to privately owned farms, which in turn were indebted to US and European investors. The state itself was indebted to private bankers who didn’t hesitate to sponsor dictators as long as business was maintained. The railways, connecting the farmed land to the ports, were supported by national debt while the profits were sent to foreign investors.

The indigenous movement led by Zapata was united around the idea of land reform and debt repudiation. Zapata himself didn’t seek to hold power but rather to return the lands to indigenous communities. The result was a power vacuum after the Revolution successfully seized the capital. Other revolutionary factions betrayed him and ordered his assassination in 1919. 

The ideas of land redistribution and debt repudiation remained deeply infused in  governments that followed the revolution. The Mexican parliament intermittently refused to pay the debts inherited from the pre-revolution government until the second World War. During Lázaro Cárdenas presidency (1934-1940), he refused to resume debt payments or even resume negotiations with the International Bankers Committee. In 1941, Cárdenas, as Defence Minister during the presidency of Manuel Ávila Camacho, was able to obtain a large debt cancellation in exchange for Mexico's support of the US war effort with workers, armies and raw materials. While it was a great victory against US and European financiers, it wasn’t a surprise at the time. After the 1929 stock market crash in the USA and the 1934 collective debt default in Europe (see previous article in the series), the political atmosphere was favorable to debt cancellations. 

The takeaway could be that in times of global crisis, the interest of the many outweigh the interest of the few.

Dianx created the illustration and gave corrections related to Mexico's political history.

This article is the fifth in a series dedicated to the timeline of debt cancellations in history.