230 CHAPTER 10 RACE, NATION, AND THE MEANING OF FREEDOM, 1821–1888
large infl ows of foreign capital. As a result, exports
of cotton and sugar increased sharply. The coastal
latifundia continued to expand at the expense of
indigenous communities, sharecroppers, and ten-
ants, all of whom were expelled from their lands.
This process was accompanied by the moderniza-
tion of coastal agriculture through the introduc-
tion of cotton gins, boilers, refi nery equipment for
sugar, and steam-driven tractors.
Although profi ts from the agricultural sector
enabled the commercial and landed aristocracy
of Lima to live in luxury, the Peruvian state sank
even deeper into debt. The guano deposits, Peru’s
collateral for its foreign borrowings, were being
depleted at an ever-accelerating rate, and the bulk
of the proceeds from these loans went to pay in-
terest on old and new debts. In 1868, during the
administration of the military caudillo José Balta,
his minister of the treasury, Nicolás de Piérola, de-
vised a plan for extricating Peru from its diffi culties
and providing funds for development. The project
eliminated the numerous consignees to whom
guano had been sold and awarded a monopoly of
guano sales in Europe to the French fi rm of Dreyfus
and Company. In return, the Dreyfus fi rm agreed
to service its foreign debt and to make Peru a loan
that would tide it over immediate diffi culties. The
contract initiated a new fl ow of loans that helped
create a boundless euphoria, an invincible opti-
mism, about the country’s future.
U.S. adventurer and entrepreneur Henry
Meiggs, who had made a reputation as a railway
builder in Chile, easily convinced Balta and Piérola
that they should support the construction of a rail-
way system to tap the mineral wealth of the sierra.
As a result, much of the money obtained under the
Dreyfus contract, and a large part of the proceeds
of the dwindling guano reserves, were poured into
railway projects that could not show a profi t in the
foreseeable future.
PARDO AND THE CIVILIANIST PARTY
The good fortune of Dreyfus and Company dis-
pleased the native commercial and banking bour-
geoisie that had arisen in Lima. A group of these
men—headed by the millionaire businessman
Manuel Pardo and including former guano con-
signees who had been eliminated by the Dreyfus
contracts—challenged the legality of the contract
be fore the Supreme Court. They argued that assign-
ment of guano sales to their corporation of native
consignees would be more benefi cial to Peru’s eco-
nomic development. This native bourgeoisie suf-
fered defeat, but in 1871 they organized the Civilista,
or Civilianist Party (in reference to their opposition
to military caudillos), which ran Pardo as its can-
didate for president. An amalgam of “an old aris-
tocracy and a newly emerging capitalist class,” the
Civilianist Party opposed clerical and military infl u-
ence in politics and advocated a large directing role
for the state in economic development. Pardo won
handily over two rivals and took offi ce in 1872.
Pardo presided over a continuing agricul-
tural boom, with exports reaching a peak in 1876.
Foreign capital poured into the country. In those
years, an Irish immigrant, W. R. Grace, began to
establish an industrial empire that included textile
mills, a shipping line, vast sugar estates, and Peru’s
fi rst large-scale sugar-refi ning plants. Whereas pri-
vate industry prospered, the government sank ever
deeper into a quagmire of debts and defi cits. The
guano cycle was nearing its end, with revenues
steadily declining as a result of falling prices, deple-
tion of guano beds, and competition from an im-
portant new source of fertilizer: nitrates exploited
by Anglo-Chilean capitalists in the southern Pe-
ruvian province of Tarapacá. In 1875, wishing
to control the nitrate industry and make it a de-
pendable source of government income, Pardo
expropriated the foreign companies in Tarapacá
and established a state monopoly over the produc-
tion and sale of nitrates. This measure angered the
Anglo-Chilean entrepreneurs, whose holdings had
been nationalized and who were indemnifi ed with
bonds of dubious value. Meanwhile, due to unsat-
isfactory market conditions in Europe, the nation-
alization measure failed to yield the anticipated
economic benefi ts.
In 1876, Peru felt the full force of a worldwide
economic storm. Within a few months, all the
banks of Lima were forced to close; by the following
year, the government had to suspend payments on
its foreign debt and issue worthless paper money.