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Foreign Capital, Local Interests and Railway Development in Argentina: French Investments in Railways, 1900–1914*

  • Andres M. Regalsky (a1)
Extract

Between 1900 and 1914, Argentina experienced the period of greatest growth of its railway network (see Fig. 1). During this time its total length was increased by about 12,000 miles, thus improving on the increase achieved during the railway boom of the 1880s. As before, the new peak was associated with a massive inflow of foreign capital which reached record levels: about 2,000 million gold pesos, against 800 millions during the 1880s. Furthermore, the new railway constructions were mainly made after 1907 and located in the pampas (see Tables 1 and 2). This rapid growth has been explained by many authors mainly as a global consequence of the so-called Mitre law (national law 5315), sanctioned in 1907, which standardised railway legislation in a way that favoured foreign investors, giving rise to an investment boom, especially among the British groups settled in the pampas.1

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A preliminary version of this paper was presented at the VIII Jornadas de Historia Económica held in Tandil (Buenos Aires) in September 1986. I am indebted to Samuel Amaral and Colin Lewis for their valuable comments and to my mother Raquel Mallar for the translation of the article. The Argentine Council for Scientific and Technological Research (CONICET) supported me while researching and writing this paper.

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1 Duncan, J. S., ‘British Railways in Argentina’, Political Science Quarterly, vol. 52, no. 4 (12. 1937), pp. 559–82; Goodwin, Paul B., Los ferrocarriles británicos y la UCR, 1916–1930 (Buenos Aires, 1974); Wright, Winthrop R., Los ferrocarriles ingleses en la Argentina (Buenos Aires, 1980). Among the Argentines, Ortiz, Ricardo M., Historia Económica de la Argentina (Buenos Aires, 1974). A variation of this statement is found in Lewis, Colin, British Railways in Argentina 1857–1914 (London, 1983), pp. 193–5, who says that it was the spirit of the law, in particular, that contributed to the expansion by being favourable to investors. See also Jenks, Leland, ‘Britain and American Railway Development’, Journal of Economic History, vol. 2, no. 24 (1951), pp. 375–86.

2 See Lewis, , British Railways, p. 198, where he states that the expansion of the cultivated area was one of the stimulating factors for new capital inflows.

3 Some of these elements have been mentioned by other authors. Ortiz, Raúl Scalabrini, Historia de los ferrocarriles argentinos (Buenos Aires, 1975), pp. 356–9, refers to the state construction projects at the beginning of the century as a way to restrain tariffs. Marichal, Carlos, ‘Los ferrocarriles franceses en la Argentina’, Todo es Historia, no. 105 (Buenos Aires, 1976), pp. 4054, refers to the introduction of French groups into the zones of influence of British companies. However, neither author considers the relation between events and the existing conflicting situations in the railway sector, as well as their subsequent development.

4 Ortiz, , Historia Económica, p. 559, partly coincides with this statement when he suggests that the Mitre law helped the settled companies to start building ‘defensive’ branches, but he imagines it to be a preventive action in the face of the fortuitous intervention by North American capital. This was an illusory prospect in 1907 with regard to the railway sector, and represents a retrogression of what later on happened to the Farquhar syndicate.

5 Buenos Aires Handels Zeitung (Buenos Aires, 24 Sept., 8 and 15 Oct., and 31 Dec. 1898); The Review of The River Plate – hereafter RRP (Buenos Aires, 26 05 1900), p. 10; Dirección General de Vías de Comunicación, Leyes, decretos, contratos y resoluciones referentes a ferrocarriles y tranvías a tracción mecánica (Buenos Aires, 1903–1913), vol. 5, pp. 778–93. After the Ferrocarril Oeste was sold by the Buenos Aires provincial government, the Buenos Aires Western Railway (BAW) was created. This company had a close community of interests with the BAGS group.

6 Públicas, Ministerio de Obras, Fusión de los ferrocarriles Central Argentino y Buenos Aires y Rosario (Buenos Aires, 1903), passim; Aires, Buenos and Rosario Railway Company, Reports (London, 27 04 1902), pp. 711; RRP (1902), vol. 1, p. 356 and (1902), vol. 2, pp. 233, 489 and 843. The best description of the behind-the-scene events of the amalgamation is in Lewis, , British Railways pp. 146–63. However, this author does not mention the subject of custom-house franchises and the implications this merger had on railway tariffs.

7 In 1905 and 1906 negotiations between the directors and the government of the province of Buenos Aires failed because of the tariffquestion. See RRP (3 March 1905), p. 423 and (16 June 1905), p. 1216, and deputy Pera's retrospective references in Nacional, Congreso, Diario de Sesiones de la Cámara de Diputados – hereafter DSCD– (Buenos Aires, 1908), pp. 295–6. Regarding the local sectors opposed to the merger, see La Prensa and La Nación (Buenos Aires, 17 September 1902); Buenos Aires Handels-Zeitung (23 May 1902); RRP (20 Sept. 1902), p. 489 and DSCD (7 Sept. 1903).

8 In 1901, the two most outstanding men of the political system, Roca and Pellegrini, broke away from each other and a series of internal conflicts started then, which after some years led to an opening-up of the political and electoral system. See Botana, Natalio, ‘La reforma política de 1912’, in Zapiola, M. Giménez (ed.), El régimen oligárquico (Buenos Aires, 1975).

9 Roca's change of position could be attributed to the end of a series of financial negotiations in London, which had obliged him to be very cautious, and to his attempt to keep the support of provincial groups at a time when he was showing little capacity to control the presidential succession. The most remarkable changes took place under the rule of Quintana (1904–6), who at first imposed his veto on the construction plans, and at the end of 1905 finished by having it approved by Congress. This president had been personally involved in the merger of BAR and CA as legal consultant and this very notoriety obliged him to stay outside the dispute leaving a larger field of action to those opposed to the merger. The successive proposals can be seen in DSCD (27 July 1903), p. 403; Públicas, Ministerio de Obras, Memoria correspondiente a los años 1901–1904 (Buenos Aires), pp. 312 and 68–80; Argentina, Sociedad Rural, Anales (Buenos Aires, 1904), p. 302; Públicas, Ministerio de Obras, Memoria 1905–06, pp. 38–9 and 166–8. From all this activity, the only project that remained was that of the provincial government for the railway from La Plata to Meridiano V, only implemented in 1909. See Vías, Dirección General de, Leyes…referentes a ferrocarriles, vol. 7, pp. 333–44.

10 The very success of this alternative strengthened the interests opposed to state constructions; the latter could not only affect the great British companies, but also cause damage among the other competitor groups. Such fears were expressed by Benito Villanueva, in the name of the Cordoba Central, in Nacional, Congreso, Diario de Sesiones de la Cåmara de Senadores – hereafter DSCS – (Buenos Aires, 29 and 30 Sept. 1905), pp. 1254 ff.

11 The failure of the Midland debenture issue of 1907, attributed to a boycott by the main Argentine railway companies, is very illustrative. It is also significant that the last attempt to refloat the business before its transfer to the BAGS and BAW groups consisted in placing securities in Paris. See RRP (5 and 12 April 1907) and L'Economiste Français (Paris, 1 02. 1908). Even such a settled company as the Cordoba Central had to create a branch for its extension from Rosario to Buenos Aires, in order to win additional partners.

12 For the first position: Aupetit, Albert, Les grands marchés financiers (Paris, 1912), pp. 5861; and for the second: Girault, Réné, ‘Place et rôle des échanges extérieurs. La France dans les rélations internationales’, in Braudel, F. and Labrousse, E. (eds.), Histoire Economique et Sociale de la France (Paris, 1979), vol. 4–1, pp. 213–5 and also Hilferding, Rudolph, El capital financiero (Madrid, 1963), p. 91.

13 Cottrell, P. L., British Overseas Investment in the Nineteenth Century (London, 1975); Bouvier, Jean, ‘Recherches sur l'histoire des mécanismes bancaires en France dans le dernier tiers du XIXe. siècle: sources et problèmes’, in Histoire économique et histoire sociale. (Geneva, 1968); Bouvier, Jean, ‘L'extension des réseaux de circulation de la monnaie et de l'épargne. Système bancaire et marchés de l'argent’, in Labrousse, Braudel et, Histoire Economique et Sociale, vol. 4–1, pp. 161–98.

14 These banks, whose main feature was that they operated with their own resources and for long terms, had been created by private houses of the haute banque (equivalent to merchant banks) as a means to enlarge their scope of influence. Besides, many of these continued acting on their own account and associated in syndicates. On the other hand there were also banques de dépots (equivalent to the pure banks) that operated deposits for a large number of customers and avoided risky or long-term placement. See Baldy, Edmond, Les Banques d'Affaires depuis 1900 (Paris, 1922); Bouvier, ‘L'extension des réseaux de circulation’, and for the analogies with English banks, Landes, David S., ‘The Old Bank and the New: The Financial Revolution of the Nineteenth Century’, in Crouzet, F. (ed.), Essays in European Economic History 1789–1914 (London, 1969), pp. 112–28.

15 The subject of the experiences of the 1880s has been dealt with by Regalsky, Andrés, ‘Las inversiones francesas en los ferrocarriles argentinos’, Siglo XIX, Revista de Historia, vol. 3, no. 5 (Monterrey, Mexico, 1988), pp. 125–66.

16 In the French case the relationship between banks and industry has been discussed by Bouvier, Jean, ‘Les traits majeurs de l'impérialisme français avant 1914’, Le Mouvement Social, no. 86 (Paris, 1974), pp. 324. For the origins and evolution of the railway material industry in France see Crouzet, François, ‘Essor, déclin et rénaissance de l'industrie française des locomotives, 1838–1914’, Revue d'Histoire Economique et Sociale, vol. 55, no. 1/2 (Paris, 1977), pp. 112–77.

17 While loans were only isolated operations, the stock company issues represented a greater continuity and were entwined with other treasury operations reserved for the same banks. The commissions, for example, obtained from Russian loans oscillated between 1.5 and 3%. The most profitable Argentine national loans had been those of 1881 6% Railways and of 1887 5% Public Works both with higher than 7% margins. See Regalsky, Andrés, ‘Exportaciones de capital hacia los países nuevos: los bancos franceses y las finanzas públicas argentinas, 1881–1887’, Revista de Historia Económica, vol. 5, no. 1 (Madrid, 1987), pp. 7397.

18 This process has been described by Regalsky, ‘Las inversiones francesas en los ferrocarriles…’. On Portalis's separation and de Bruyn's antecedents, see RRP, 2 June 1894, p. 12 and Delpech, Emile, Una vida en la gran Argentina (Buenos Aires, 1944), pp. 135–6.

19 Commerce, Chambre Française de, Bulletin (Buenos Aires, 08. 1901); The South American Journal (1900), vol. 1, p. 685; RRP, 22 June 1901, p. 17.

20 Senator Doncel said that ‘there is an advantage for a different line to enter this area, so that tariffs can be determined through competition to respond to agricultural and industrial interests’. DSCS, 12 Nov. 1901, p. 444.

21 On the group's antecedents, see The South American Journal (17 12. 1898), p. 697 and L'Economiste Européen (3 Feb. 1899). On the formation of the Union Parisienne, see L'Economiste Européen (25 Sept. 1903), p. 394 and (26 Feb. 1904), pp. 268–9. 1904), pp. 268–9.

22 El Diario (Buenos Aires, 15 April 1903), p. 1; The South American journal (1903), pp. 484 and 565; DSCS (1903), p. 503.

23 Civit's report in DSCD (17 Aug. 1903), p. 697 and Doncel's exposition in DSCS (23 Aug. 1904), p. 371. Also see The South American Journal (30 July and 13 Aug. 1904).

24 Chambre Française de Commerce, Bulletin (Buenos Aires, 06 1905); Argentine Year Book (Buenos Aires, 1902), pp. 306–7 and (1907), p. 128; Compagnie Générale de Chemins de Fer dans la Province de Buenos Ayres, Rapport à l'Assemblée du 24 Janvier 1906; Paribas, Banque, Paribas 1872–1972 (Paris, 1972); Paribas and its group owned 23% of the shares, the Argentine-Belgian group of Bunge, de Bruyn and Otamendi, 14%. See Archives Nationales (Paris), Archives d' Entreprises – hereafter AE – Compagnie Générale de Chemins de Fer dans la Province de Buenos Ayres, 103 AQ – carton 252.

25 DSCD (23 June 1902), p. 316; (14 Aug. 1903), p. 669; and (2 Sept. 1903), p. 834.

26 The engineer Bustos Morón joined in as a local representative; he was associated to Hersent and other French and Belgian industrial firms after his involvement as assistant secretary in the Argentine Board of Public Works and as works inspector of the port of Rosario. AE, Compagnie du Chemin de Fer de Rosario à Puerto Belgrano, 103 AQ 409 and 412; DSCS (22 Sept. 1906); Monitor de Sociedades Anónimas (Buenos Aires, 1907), p. 112; RRP (12 Jan. 1906), p. 64 and (15 March 1907), p. 661; L'Economiste Français, 2; April 1908.

27 Ferrocarriles, Dirección General de, Estadística de los Ferrocarriles en Explotación (Buenos Aires, 1914), pp. 326–7.

28 Girault, Réné, Emprunts russes et investissements français en Russie 1887–1914 (Paris, 1973), pp. 4762, can be consulted about control mechanisms and direct investment negotiations; about the new methods of introduction into the Stock Exchange, see L'Economiste Européen (1898), vol. 2, p. 844 and (1903), vol. 2, p. 331, and Le Marché Financier (Paris, 1906), p. 355.

29 L'Economiste Européen (19 July 1901, 25 April 1902, 22 July 1904, 4 March 1905, 3 Aug. 1906 and 1 March 1912); Paribas, Banque de, Livre de Séances du Conseil d'Administration, 22 04 1902/1906 08. 1912. The eighties' debentures had become variable-interest bonds after their service had been suspended during the Baring crisis. This became a disadvantage for shareholders when the company's profitability began to increase (bonds had been assigned 93% of the profits to be distributed).

30 L'Economiste Européen (6 April and 7 July 1906, and 6 Aug. and 24 Sept. 1909); L'Economiste Français (29 02. 1908); Générale, Compagnie, Rapports (1905–1914).

31 L'Economiste Européen (12 July and 15 Dec. 1907, 16 Dec. 1909 and 9 March 1910); L'Economiste Français (25 April 1908); Compagnie du Chemin de Fer de Rosario à Puerto Belgrano, Rapports (1907–14); AE, Compagnie de Rosario à Puerto Belgrano, 103 AQ 412 and 413 (livre de séances). Denunciations of profits made with the 1910 shares were made in L'Epargne, 28 April 1912. See Ministère de l'Economie et des Finances, , Archives Economiques et Financières (Paris), Direction du Trésor, série B 31. 329.

32 Regalsky, ‘Las inversiones francesas …’.

33 Previously, the state lines had a cost per kilometre of 28,000 pesos. By 1912 the French lines were the most ‘economical’, together with the narrow- and medium-gauge British ones in Mesopotamia and the interior. Some BAGS and BAW broad-gauge lines were not much more expensive, averaging 39,000 pesos. Among the costliest were the CA, at 48,537 pesos and, particularly, the CC Buenos Aires extension at 55,275 (according to the official evaluation) or 72,300 (according to the company). Paradoxically, this one had been the best-designed narrow-gauge line to compete with CA between Rosario and Buenos Aires.

34 The data have been taken from the companies' balance-sheets (Compagnie Générale, Rapports, 1907–14), the supply contracts (AE, Compagnie Générale, 103 AQ 296–9 and Compagnie de Rosario à Puerto Belgrano, 103 AQ 412–3) and the state of the invested capital according to law 5315 on 30 June 1912 (Ferrocarriles, Dirección de, Estadística, 1912).

35 Land lent itself most easily to capital appreciation. About this, see comments by the Midland contractor, in Museo Ferroviario (Buenos Aires), Archivo Scott Hume, portfolio 7. In 1906 the FCGBA bought 35 hectares in the south of the capital from Pereyra Iraola-Herrera Vegas at 3.5 pesos per square metre. It immediately transferred 8 hectares to the Compañía Inmobiliaria Franco-Argentina for $3/m2. In 1909–10 it bought back from C1FA those 8 hectares at $8/m2, and another 7 hectares from Pereyra at $23/m2. It must be pointed out that C1FA was formed by Paribas, Générale Belge, Union Parisienne and their local partners (Bunge y Born, Hirsch, Bidau, Paz). These transactions were equivalent to 40% of the FCGBA total land investment. In 1922, when the remaining land was intended to be sold, it was found that it would be impossible until the Pereyra group sold the rest of their possessions in that zone, and that the market values were much lower than those in the books. AE, Compagnie Générale, 103 AQ 288–90.

36 Estimated figures on the basis of materials purchase data. Alberto Schneidewind, Railways General Direction, estimated foreign expenditure to represent 50% of the total railway investment. To make them comparable, we should add to our figures managing and supervision expenses made in France. In a previous paper we have established that material imports represented 38% of the public investment on railways in 1881–5. Regalsky, , Exportaciones…, p. 91.

37 About this, see the dossier on German connections of De Bruyn and the Bunge y Born group, prepared by the Quai d'Orsay during the First World War (Archives Economiques et Financières, B 31. 329).

38 In February 1912 the weekly returns were not yet known, although the line had been open for over a year (RRP, 23 Dec. 1912, p. 467).

39 RRP, 22 March 1907, p. 715.

40 Melo's, Carlos review in Academia Nacional de la Historia, Historia Argentina Contemporánea 1860–1930 (Buenos Aires, 1965), vol. 1, section 2, ch. 12 and vol. 2, ch. 2, is perhaps the most detailed description of the confused events of that time. See the memories of Arce, José, Marcelino Ugarte 1855–1929 (Buenos Aires, 1959) and Mexía, Exequiel Ramos, Mis Memorias (Buenos Aires, 1936), and the analysis of the period made by Botana, ‘La reforma política’, and Conde, Cortés, ‘La crisis del régimen conservador’, in Conde, C. and Gallo, E., Argentina, La República Conservadora (Buenos Aires, 1972), pp. 187234.

41 To see antecedents of the law and the position of the most influential sectors, Buenos Aires Handels-Zeitung (10 Aug. 1907); RRP (16 Aug. 1907), p. 391; Argentina, Sociedad Rural, Anales (1906–1908); La Nación, 19 July, 8 Aug. and 7 Oct. 1907; La Prensa, 6 Aug. 1907. The merchants' and estancieros' petitions were sent to Congress when the companies stated the corresponding branch projects.

42 Law 5313 (1 Oct. 1907) in Secretaría del Senado de la Nación, Leyes Nacionales (Buenos Aires, 1908), pp. 210–12. French group's vision, in Compagnie Générale, Rapport 24 Juin 1908, pp. 6–7. The level of revenues required for the application of traffic control was never attained. However, by keeping the validity of law 2873, which established that tariffs should be ‘reasonable and fair’, the government maintained a certain margin for manoeuvring. See Senado, , Leyes (1908), 676–66.

43 It should also be added that, as Scalabrini pointed out, several companies were faced with the imminent expiry of their franchises. Scalabrini, , Historia de los ferrocarriles, p. 390. On the community of interest of BAGS and BAR, see The South American Journal (1894), pp. 344–5 and (1898), vol. 1, p. 555; The Stock Exchange Year Book (1896), pp. 145 ff.; Buenos Aires and Rosario, Reports (1891–9); Buenos Ayres Great Southern Railway Company, Reports (1891–9).

44 These implications about the ‘cordial and harmonious relationships’ with the authorities are emphasised in Central Argentine Railway Company, Reports (1908), pp. 88–91 and Buenos Aires Handels-Zeitung, 17 Aug. 1907, where the influence of these changes over the new public works policy is appreciated. See also DSCD (1908), vol. 2, pp. 180, 1295 and 1682; Ministerio de Obras Públicas, Memoria (1907–8).

45 The group representatives had asked for branches to be built from that line towards Córdoba, and towards Rosario, and , Santa. DSCS (1906), pp. 1244 and 1251; DSCD (1908), pp. 401–3 and 1501–2; DSCS (1908), pp. 881–3.

46 Dirección de Ferrocarriles, Estadística (1904 and 1912), Table 21; Compagnie Française de Chemins de Fer de la Province de , Santa, Rapports (Paris, 1914–1915); Ferrocarriles, Dirección de, Estadística (1914), pp. 361–2.

47 Ibid, pp. 362–3; and (1913), p. lxvii; Générale, Compagnie, Rapports (1908 14).

48 Ing. Soulages, Edmundo, ‘Ferrocarril de Rosario a Puerto Belgrano. Su zona de influencia. La verdad a ese respecto’, La Razón (Buenos Aires, 8 11. 1911), p. 7 and ‘La línea del ferrocarril Rosario a Puerto Belgrano. Causas de la extinción total de su zona de influencia’, La Ingeniería (Buenos Aires, 1912), vol. 3, pp. 42–5.

49 Compagnie de Rosario à Puerto Belgrano, Rapports (1912–13): ‘the solution … is far from being satisfactory due to the difficulties found for the establishment of adequate tariffs and traffic organisation’ (pp. 4–5).

50 RRP (21 June 1912, 15 Oct. 1912 and 6 Nov. 1914); Belgrano, Compagnie de Rosario a Puerto, Rapports (1912–1913), 1213 and (1913–1914), p. 10; on the Farquhar syndicate's intervention in other companies, Lewis, , see British Railways, pp. 189–91.

* A preliminary version of this paper was presented at the VIII Jornadas de Historia Económica held in Tandil (Buenos Aires) in September 1986. I am indebted to Samuel Amaral and Colin Lewis for their valuable comments and to my mother Raquel Mallar for the translation of the article. The Argentine Council for Scientific and Technological Research (CONICET) supported me while researching and writing this paper.

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