Contract Dreyfus

Contract Dreyfus, was a trade agreement signedduring the government of Colonel EP José Balta, when Nicolas de Pierola Villena was finance minister.

Marshal Ramón Castilla and Marquez, Tiviliche dies in the desert on May 30, 1866, in the meantime, Maj. Gen. Mariano Ignacio Prado EP elections fraudulent, and were conducted only in Lima and Callao, was elected president of Peru .Given this fact, there was a revolution in Arequipa, "calling on the observance of the Constitution of 1860."

Prado, in command of his army, came to crush, but was rejected by the rebel troops. He returned to Lima and resigned on January 7, 1868.
Major General Pedro Diez-Canseco who had led the revolution in Arequipa, came with his army to Lima, seized political power and called on Congress. It called for national elections and was elected as the new President, Colonel José Balta, on August 2, 1868.
During the administration of the railroads were built Balta Chancay, Moquegua, Puno, Pisco and Pacasmayo. It ended Mollendo-Arequipa. He began work on the railroad Lima-La Oroya and the Chimbote-Huallanca.
The exorbitant spending on railway construction began to dent the weak economy of Peru. To try to increase revenue and save the country's economic stagnation, it took the following actions:
a) reached for the exploitation and sale of nitrate of Tarapaca. That product had good market because, for example, compared to that produced in Chile, was of better quality.
b) reactivated the borrowing policy, that is, he turned to go to the easy expedient of bringing foreign capital, debt, and meet internal commitments with other people's money.
The policy of indebtedness, throughout history, has been a windfall for banks and creditor countries.Instead, the money to debtor countries has always been a financial stress, because it has two components:
1) The senior debt, which must be amortized by a schedule, and
2) The interest, which is a percentage of principal and payable also by a schedule.
It also generates a dependency of the debtor to the creditor, so the most indebted countries are most dependent.
As the sale of Peruvian guano began to decline, first, by predation, second, substitutes were appearing in use in European rural market and third, by poor management, the budget of the Republic, based primarily on revenue from the sale of this natural fertilizer, always ended with negative balances.
He compounded the problem because the default on their commitments Peru to foreign creditors, the government in power began to use another mechanism. They came to the same consignees to lend money to the treasury. The more bad debt was decreasing Peruvian abroad, most money paid consignees to that of buyers of guano also became the largest creditor of the Peruvian economy.
So strong was the economic crisis that the government had no cash to pay its internal and external commitments, which is why most often used the debt to the consignees. They took advantage of the situation and as a condition for lending money, used the ruse of asking for extensions of their contracts, earning as many years as consignees. Thus Peru entered the orbit of the countries that began to live in expensive borrowing.
[Edit] Attempts Piérola Balta and out of the crisis: the Contract Dreyfus & Hnos

Balta out of the crisis, appointed as minister Nicolas de Pierola, politically conservative Democrat, barely 30 years old. Half had studied education, theology and law at the Seminary of Santo Toribio de Mogrovejo Arequipa. Seminar was separated in 1860 and graduated from the Faculty of Law, Lima.
Pierola as Finance Minister, requested authorization from Congress to negotiate directly (without consignees) the sale of guano abroad, in a volume that bordered the two million metric tons.Launched the proposal, the French Jewish home "Dreyfus & Brothers" accepted.
The contract between the Peruvian government and Dreyfus & Brothers was signed on August 17, 1869 and was approved by Congress on November 11, 1870. The contract was carried out despite protests from the Peruvian capitalists or consignees.
The agreement between Dreyfus & Brothers and the state provided:
1, "Dreyfus & Brothers" agrees to purchase the goods set at the conclusion of contracts with shippers.
2 º In the meantime, the Government would advance the sum of 2 million soles in two month (this amount was then raised to 3 million).
3 In the following months, give 700 000 soles per month until the year 1871.
4 º responsible for all payments of foreign debt to 5 million soles were needed each year.
5 ° for all cases of payments and investment interests and set out the premiums of the case.
6 º "Dreyfus & Brothers" would have the guano trade for the markets of Mauritius, Europe and its colonies (except Cuba and Puerto Rico).
[Edit] Contract Dreyfus was a relief for the Peruvian economy?

The Peru would receive a total of almost 73 million soles in fresh money. Says Dr. César Antonio Ugarte:
"In our opinion, the contract represented a great progress Dreyfus in the management of income from guano. The survivors had difficulty origin, rather than the contract itself, the loans raised by mediation of that house and the excessive advances that it asked the Government to domestic expenditure, detracting from the idea that inspired the plan. "
But Pierola Balta and how those monies used fresh? In Europe at that time reigned the "boom" of the railroads. Balta as we said, without considering the consequences for Peru began an aggressive railroad in Peru. As the coffers were loss, went to easy foreign lending financial resource. And in Paris where he was the parent of the Dreyfus & Brothers house, gave the first loan for 76 million soles, which largely exceeded the financial performance of guano, then the main source of export route to raise capital.
All that money was used in railway construction, so the data: in 1861, Peru had a 90-km rail network. It was the year 1874, with 947 miles. Between 1861 and 1874 in 13 years, had built a railroad network that was 10 times as long. Unquestionably, an impressive achievement.
But the fever of construction continued. In 1879, Peru had 1.963 miles of track. Doubled in 5 years the railroad installed capacity.
The boom on borrowed money with which the railroads were built, as expected, was fleeting. As the government lacked money to pay contractors for the construction of railroads turned to ask for advances to Dreyfus & Brothers, causing the large public debt, now add the use in advance of the income produced by the contract Dreyfus.
This was the policy 'savior' who used both, José Balta, was designed by Nicolas de Pierola. While government officials were busy in the dance of guano, loans and railways, the Peruvian population was far more than unprotected, was abandoned on the entire population of the poorest. The lack of basic health services, health and education were significant.
The "political savior" of Balta and Pierola as minister made the poor man had to deal with serious problems of malnutrition, which became a breeding ground for various diseases and a deadly epidemic. Between the governments of Mariano Ignacio Prado and Jose Balta, is an epidemic of yellow fever. Was detected in March 1868 when Lima was approximately 100,000. Its effects were impressive, died there 86 days, in another 48 people (one of the victims was José Toribio Pacheco, 1828-1868, a distinguished jurist and diplomat). Only in June, the epidemic disappeared. Between March and June 1868 had died from yellow fever, 4222 people, had died of other diseases, 1522. Of the total deaths, 779 were of the same Lima 3170 elsewhere in the country and 1,134 "no definition of provenance."Died, also, 130 Italians, 89 French, 76 Chileans and 23 British.
[Edit] Changes to the contract

Changes were made to the contract during the government of Manuel Pardo y Lavalle.
[Edit] October 1872
The first change came in the contract in relation to the monthly 700 thousand suns had to give Dreyfus. In this installment, Dreyfus made advances discounts and commissions empresitos management, and ultimately, the liquid delivery was 300 to 400 thousand dollars.
Dreyfus was signed with a new agreement in which the latter provided an allowance for one year 500 000 soles (6 million per year) and then a monthly fee of 200 000 soles for the following year (2.4 million).
[Edit] March 1873
Another change to the contract was in relation to one million pounds, equivalent to 5 billion suns, that Dreyfus had to provide each year to repay bonds emprésito 1865.
In January 1872, the government made a contract with Balta Dreyfus for emissions covered bonds for 36.8 million pounds, equivalent to 184 million suns of silver, and that Dreyfus should redeem all the bonds in 1865 and charged with proceeds from this emprésito. But it turned out that the global economic crisis of that year, it was able to place 4 million pounds in bonuses.
In March 1873, the State reached an agreement with Dreyfus the suspension of delivery of a million pounds of debt because the bonds and all had been rescued by Dreyfus, delivering two million pounds this year to address public works (railways), delivery of a million pounds a year, and delaying the bond issue that would make emprésito Dreyfus, 1872 until Peru's bonds rise in its price.
[Edit] April 1874
In late 1873, Dreyfus had to export one million tons of guano had bought two. He could, while not sold, to prevent the government slogans or negotiate the payment of European markets. Is that the contract did not specify until Dreyfus had time to withdraw its two tons of guano, being monopoly indefinitely.Dreyfus had not complied with delivering a million pounds to fund public works, according to the amendment of March 1873. Also, going through a terrible Drefus lack of liquidity could lead to bankruptcy, exacerbated by the falling demand of guano in the European market.
On April 15, 1874 new amendments were agreed to the contract:
The government obtained the right to export guano from July 1, 1875 and selling in markets around the world since November 1, 1876, although Dreyfus has not been completed to export guano purchased.
Dreyfus soles deliver 7 million in monthly to meet public expenditure.
Dreyfus pay interest and amortize the debt in the six-month July 1, 1874, January 1 and July 1, 1875.
Dreyfus received the right to benefit the Procedure of guano by sulfuric acid to increase its proportion of fertilizer materials.
It reduced the selling price of 13 pounds to 12 pounds 10 shillings, as the government thought that the high price had led to falling demand.
At the end came in November 1876 and Dreyfus was far from having sold two tons of guano and has instituted a consignment contract between the state and the Peruvian Guano Company.

Source.wikipedia