page_title: Auguste Dreyfus
section_title: Dreyfus contract
hierarchical_section_title: Auguste Dreyfus / Financier / Dreyfus contract
context_page_description: Auguste Dreyfus was a French businessman who made his fortune by financing the Peruvian trade in guano. Dreyfus joined a small textile trading firm set up by three of his elder brothers and moved to Lima, Peru to act as their local representative. He became involved in the guano trade, and in 1869 signed a major contract with the Peruvian government that gave him a monopoly over exports of Peruvian guano to Europe.
  With this he controlled the largest source of Peruvian national income.
  The Peruvian government let Dreyfus act as their agent in managing their existing debt and floating new loans used for railway construction. The government ran into increasing financial difficulties. These were compounded by a war with Chile between 1879 and 1883 in which they lost their key guano-producing province. A lengthy series of lawsuits followed between the creditors whose loans were secured by guano deposits and the governments of Peru and Chile. The Dreyfus trading enterprise came to an end. He retired to France, where he owned a chateau in the country and a mansion in Paris that he filled with a major collection of art.
context_section_description: The government of Peru had been exploiting their guano reserves on a consignment system, in which the state paid contractors to extract, transport and sell it on a cost-plus basis. This encouraged corruption and inefficiency. Contractors were motivated to overstate costs and sell at low prices in order to drive up volumes. By 1868 Peru had large and growing debts. In response to growing public criticism, the government chose a new approach. 
  On 5 July 1869 the government cancelled all consignment arrangements and granted Dreyfus Frères the exclusive right to sell up to two million tons of guano in Europe. 
  Dreyfus was to pay 50 soles per ton for the guano, a considerably higher price than the government had been receiving up to then.
  Auguste Dreyfus was backed by the Société Générale of Paris.
  Dreyfus arranged for a partnership in which shares were issued with a nominal value of 60 million francs.  
  Société Générale and the international trading house Leiden, Premsel & Cie. both took 22.5 million francs while Dreyfus took 15 million.
  Each of the major partners in turn distributed shares to subordinate partners.
  A private addendum to the contract stipulated that Dreyfus's choice of banker would handle Peruvian financial affairs in London.
  He chose J. Henry Schroder & Co., a bank of the City of London.
  Schroders would handle the bond issues of 1870 to 1872.
  The royalty payments were to start in the early 1870s as the other contracts expired.
  In the meantime, Dreyfus would advance the government 2.4 million soles per year and 700,000 soles monthly for the first twenty months.
  The contract also included clauses through which his company would assume government debts to former guano contractors and foreign bondholders, 
  charging the government 5% interest on this debt until it was paid off.
  The total debt was 21 million soles. The agreement was ratified on 17 August 1869.
  The Minister of Finance, who arranged the deal, was Nicolás de Piérola.
  The former contractors did not have popular support but fought the contract, which had not been open to competition.
  In November 1869 the Supreme Court said the contract should be cancelled since it had stripped Peruvian citizens of their rights.
  The government rejected this ruling, saying it was for the legislature to decide.
  In November 1870 the Chamber of Deputies approved the contract by 63 votes to 33, 
  and the Senate ratified the decision soon after.
caption: Nicolás de Piérola, the finance minister who arranged the Dreyfus contract and subsequent loans
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