Download THE FIRST DOMINO FAILED: THE FOREIGN BORROWING

THE FIRST DOMINO FAILED: THE FOREIGN BORROWING PROCESS OF
OTTOMAN EMPIRE STARTING WITH THE CRIMEAN WAR (1854-1914)
Mehmet Burak BULUTTEKİN1
ABSTRACT
The Ottoman Empire first entered into loan contracts after the Crimean War (1854). From this
date, a quick borrowing process that continued for about 20 years and the resources provided were
mostly directed to military spendings was entered. However, the state borrowed externally 15 times in
the 1854-1874 period, whereas it exactly borrowed 41 times in the 60 years including 1854-1914
period. The Empire that could not transform borrowings into investment was obliged to announce that
it would not pay (moratorium) its debts in 1876.
Almost two-thirds amount of debt (64.78%) was caught as net income, but one-third of this
(35.22%) was cut in advance for the emissions and commission expense at the beginning of borrowing
process. Moreover, the net income of debt was reduced to 35-40% during the financial downturn. The
vast majority amount of the debt (44.56%) was used as repayment of aged debts. According to these
situation, only the two-thirds amount of debt (20.22%) could be allocated to real needs.
The debt was often paid by a new debt. Even the debt certainly could not be used efficiently.
So, throughout the 1854-1914 period, the Empire could not get rid of the large amount of foreign debt
and the surplus interest payments of these.
Keywords: Ottoman Economic System, The Crimean War (1854), The Foreign Borrowing Process of
Ottoman Empire.
1. INTRODUCTION
The domino line-up play starts by lining up dominos to a smooth flat periodically,
with a great attention, calculating the impact intensity that at which point and angle they
become, the height that they activate the other dominos. Then, the first domino is activated
and all of the interdependent dominos are affected negatively, because of this first fall and fail
consecutively.
The Ottoman Empire economy took form in the 19th century with four basic variables
at the macro and micro level. The economy showed a change with the first defeat (territorial
loss) experienced with the Küçük Kaynarca Treaty (the Peace of Kuchuk Kainardja, July 17,
1774) and the desperate straits appearing, besides global capital savings that the Industrial
Revolution (18th and 19th centuries) experienced at the macro level caused, extension of
socio- economic markets by the foundation of the USA (1776) and change of the political
management philosophy caused by the French Revolution (1789) in the 19th century. The
state entered into the process of being revised for the foreign states’ interests losing its edge to
be determinative about the fiscal and monetary system.
The first foreign borrowing (external dept) of the Ottoman Empire was for the
financing of the Crimean War in 1854. A range of debt agreements followed this borrowing.
Due to (i) the economic and social deformation caused by wars, (ii) the borrowing on high
credit, (iii) non- use of the financing obtained productively, (iv) meeting the borrowing with a
borrowing and (v) being affected of the centralized management by the internal- external
1
Research Assistant Doctor, Dicle University Faculty of Law, Financial Law Department, Turkey,
[email protected].
1
stokeholders for their own economic interests, Ottoman economy was on the edge of the
financial bankruptcy and it is obliged to announce the moratorium in 1876.
With the aspect of beginning of this new worsening economy at the micro level, the
Crimean War could be described as the first falling domino of the 19th century Ottoman
economy with its economic problems that it caused consecutively.
From this viewpoint, this study aims to investigate the foreign borrowing process of
Ottoman Empire. For this purpose, the first foreign debt initiative of Ottoman Empire after the
Crimean War (1854), the borrowings between the years of 1854-1874, moratorium, The
Decree of Ramadan, Rusumu Sitte Administration, The Decree of Muharram, and The
Ottoman Public Debt Administration will be examined.
II. FIRST FOREIGN DEBT INITIATIVE OF OTTOMAN EMPIRE: THE CRIMEAN
WAR (1854)
The economic structure of the Ottoman Empire and the financial provisions that it was
in extremely got worse in 1854. The deficits occurring in the balance of trade and the budget
increased. The state being under the influence of the negative external economic relations
caused by the 1838 Treaty of Balta Limani2 was financially under the high inflationary
pressure3, because of the internal borrowing provided from the Galata bankers4 in Istanbul
and moneychangers (sarrafs)5 and whose total reached to 15 million pound (16.1 million
Ottoman golden liras) and new banknote put in circulation6. In addition, because of (i) again
the heavy interest burden reaching virtually to 20% of the internal borrowings paid to the
Galata bankers, (ii) the difficulties had in the current payments, (iii) insufficiency of the
internal debt amount that could be contracted and (iv) especially the fact that the budget
estimated as 7,5 million liras could not meet the expenditures estimated around 18,7 million
liras (17 million pound) of the Crimean War arisen suddenly, a serious liquidity difficulty was
2
The Treaty of Balta Limani (the Anglo-Ottoman Treaty) was a formal trade agreement signed on August 06,
1838, between the Ottoman Empire and The United Kingdom of Great Britain and Ireland, regulating
international trade. As a result of this agreement, it was abolished the export-ban for the UK and the soon after
all the other foreigners (Mübahat S. KÜTÜKOĞLU, Osmanlı-İngiliz İktisadi Münasebetleri I (1580-1838),
Turkish Culture Research Institute Publications, Ankara, 1974, p. 86).
3
For detailed information, see Rıfat ÖNSOY, Tanzimat Dönemi Osmanlı Sanayii ve Sanayileşme Politikası,
Türkiye İş Bankası Kültür Publishing, Ankara, 1988, p. 15-25.
4
For detailed information about the Galata bankers, see Haydar KAZGAN, Galata Bankerleri, Türk Ekonomi
Bankası A.Ş. Publications, İstanbul, 1991, p. XII vd; Bedriye TUNÇSİPER, Arzu TAY and Fatih M.
BAYRAMOGLU, “The Ottoman Empire’s Debt Management in 19th Century and Role of The Galata Bankers
(1838-1881)”, The Balkan Countries 1st International Conference on Accounting and Auditing, pp. 1-20,
Turkey, Edirne 2007, p. 4 et al.
5
For detailed information about the sarrafs, see Yavuz CEZAR, “18. ve 19. Yüzyılda Osmanlı Devleti’nde
Sarraflar”, In memory of Gülten Kazgan: Turkish Economy (Prepared for publication by: L. Hilal AKGÜL
and Fahri ARAL), İstanbul Bilgi University Publishing, İstanbul, pp. 179-207, 2004; Maurits H.van den
BOOGERT, The Capitulations and the Ottoman Legal System: Qadis, Consuls and Beratlis in the 18th
Century, Brill Leiden Press, Boston, 2005, p. 72-76.
6
The milestones of financial integration of Ottoman economy, the purpose in foreign trade treaty signed in
1838, foreign independent process initiated in 1854 and concessions given for the construction of railways
initiated in 1850s were all considered as short-term financial supports (M. Burak BULUTTEKİN, “A City Right
At The Core Of Global, Political, Economical And Social Changes Of The 19th-century: Istanbul”, Dicle
Üniversitesi Hukuk Fakültesi Dergisi, Vol: 19, No: 31, pp. 149-182, Diyarbakir, 2014, p. 154).
2
being experienced. For this reason, the War had been the directly initiator and the cause of
foreign borrowing in the history of the Ottoman finances7.
On the other hand, the powerful countries of the period made an effort to find a new
market in order to use their existing economic resources. The Ottoman Empire being raw
materials market in the financial crisis for this powerful countries of the period was forming a
cheap and attractive market. So, for these countries, meeting the debt need of the Ottoman
Empire seemed profitable.
The European creditors also showed an interest in the 1849- 1850 depression. The
brochures published in Paris were trying to increase the confidence of the European creditors
and other savers praising the reform movements fulfilled in the Ottoman Empire, on the other
hand to persuade the Ottoman Empire about borrowing explaining the reform opportunities of
the Ottoman Finance through the aid and debts that will be received from Europe.8
Sultan Abdülmecit gave permission to make debt agreement by enacting on August
04, 1854. So, the first external debt agreement was signed between the London banker Dent
Palmer and Paris branch of the “Goldmith and Company” 9 with the administration on August
24, 1854.10
The borrowing (istikraz) in 1854 was 3 million pound. After taking out the
commission expense, solely 2.286.285 British pounds were earned by the central
administration. The payment period of the 6% loan of interest was 33 years and the Egypt tax
was corresponded to the debt.11 This debt was held assigned to pay the war expenditures,
because of the 700 thousand British pounds commissions given to banks anyway and the 80%
export price. 200 thousand British pounds was also used to pay the aged debts. The amount
set aside for the war expenditures could be 2.061.000 British pounds.12 This first borrowing
was not sufficient to overcome the desperate straits together with the increasing necessary
costs.
III. THE BORROWINGS BETWEEN THE YEARS OF 1854-1874
This external borrowing starting in 1854 continued time and again until the end of the
19th-century moreover with higher interest rates and terms of agreement.13 The central
Biltekin ÖZDEMİR, Osmanlı Devleti Dış Borçları: 1854-1954 Döneminde Yüzyıl Süren Boyunduruk,
Ankara Chamber of Commerce Publishing, Ankara, September 2009, p. 48; A.Du VELAY, Türkiye Mali
Tarihi, The Inspection Board of the Ministry of Finance Publication, No: 178, Ankara, 1978, p. 79).
8
Stefanos YERASIMOS, Az Gelişmişlik Sürecinde Türkiye, (Translated by: Babür KUZUCU), Gözlem
Publishing: Science Research Series, İstanbul, 1980, p. 671.
9
The analysis of the foreign capital in the 19th century borrowings, see Şevket PAMUK, Osmanlı
Ekonomisinde Bağımlılık ve Büyüme 1820-1913, Tarih Vakfı Yurt Publishing, İstanbul, August 1994, p. 8192.
10
Bülent ARİ, “Osmanlı Maliyesinin İflası ve 1854 İstikrazı”, Doğu Batı, Y: 4, No: 17, pp. 45-55, NovemberJanuary 2001-02, p. 47; Sait AÇBA, Osmanlı Devleti’nin Dış Borçlanması, Vadi Publishing, No: 191, Ankara,
2004, p. 52-53.
11
Coşkun ÇAKIR, Tanzimat Dönemi Osmanlı Maliyesi, Küre Publishing, İstanbul, October 2001, p. 67; İ.
Hakkı YENİAY, Yeni Osmanlı Borçları Tarihi, İstanbul University Publishing, No: 1074, İstanbul, 1964, p.
20.
12
YERASİMOS, p. 94.
13
At this point, it needs attention to the fact that the funding sources of foreign borrowing in the years between
1854-1870 changed depending on the European creditors' own foreign policies. For example, in the 1854-1865
period, it had The UK's priority for funding source. At that times, the most productive regions in Africa and
7
3
administartion in Istanbul applied to the borrowing for 15 times in the 20 year period between
1854- 1874 years period.14
The 1854 borrowing could not meet the expenditures of the continuing Crimean War.
The total war expenditures of the Ottoman Empire from May 27, 1853 until September 27,
1855 were 11.200.000 British pounds. The budget deficits were 5.800.000 British pounds
from 1853 until 1855.15 Therefore, the central administration made an attempt to make a
second debt agreement. Concerning this issue, a new borrowing was applied by the
“Rothschild Brothers (London)” company with also the sponsorship of the 5.644.345 liras (5
million British pounds) consistent English and French governments in order to spend in the
war financing with English and French governments on June 27, 1855. With this 4% interest
rate 1855 borrowing, the incoming net amount became 3.664.375 liras.16 With this agreement,
besides the former conditions, it was accepted that two supervisory commissioner consisting
of the English and French was assigned to examine (i) whether the expenditures were spent
appropriately or not (ii) the treasury accounts. By this way, the financial control of foreigners
started fort he first time in the Ottoman Empire.17
At the end of 1855, internal borrowings reached to great amounts. Sultan Abdülmecit see Tablo 1- reduced the incomes of the Private Treasury of the Ottoman Sultan to calm down
the concerns of the creditors and adopted a resolution ordering to establish a commission to
make proper budgets. So, with the “Book Regulations (Muvazene Defteri Nizamnamesi)”,
how the state budget will be prepared, how it will be examined and certified, how it will be
performed and controlled were decided clearly and certainly.18
Table 1. The Distribution of the Foreign Borrowing According to the Sultans
Reference: Hüseyin Perviz Pur, Osmanlı’dan Cumhuriyet’e Türkiye’nin Borç Prangası, Otopsdi Yayınları,
İstanbul, Mart 2006, s. 258.
India had become a British colony. So, during this period, the main elements that had shaped British foreign
policy were its India strategy. With the opening of the Suez Canal, it had become more important for the UK to
supported Egypt where was directly on the route to India. Parallel to the weakening of military forces in India,
the UK withdrew from the Ottomans debt market in the mid-1860s (Ali Kemal MERAM, Belgelerle Türkİngiliz İlişkileri Tarihi, Kitaş Publishing, İstanbul, May 1969, p. 148). After that, in 1866-1870 period, France
had been the most important funding source of Ottoman depts.
14
ÖZDEMİR, p. 51.
15
YERASİMOS, p. 694.
16
ÇAKIR, p. 67.
17
Kirkor KÖMÜRCAN, Türkiye İmparatorluk Devri Dış Borçlar Tarihçesi, Istanbul High School of
Economy and Trade Publications, No: 32, İstanbul, 1948, p. 15; YENİAY, p. 32.
18
AÇBA, p. 56.
4
The banknotes issued by the treasury lost value again in 1855.19 Having a borrowing
was considered necessary in order to make the foreign exchange better.20 Therefore, a debt
agreement was signed showing equivalent the customs revenues of Istanbul and head
(okturya) revenue21 for 5 million British pound (5,5 million golden liras) borrowing via “Dent
Palmer and its partners” in London.22 This new borrowing called as “1858 Borrowing” could
not provide sufficiently the intention for banknote that was put in circulation in 1830 and
whose values deducted to 30% to be abolished.23
The borrowings in 1858 did not provide the necessary monetary relief. However, the
interest of the external debts also reached to 1 million pound by gradually increasing. 24 The
decrees that the strict savings measures were anticipated were issued. But, Abdülmecit started
the construction of the Dolmabahçe Palace in Istanbul. Istanbul Dolmabahçe Palace whose
construction was started in 1859 costed 5 million Ottoman liras.25
The Ottoman Empire was exactly pressed for money finacially in 1860. It became
incapable to meet even the daily wants of the military units in Istanbul.26 The treasury
expenditures went 736 million kuruş beyond the incomes in June and 500 million of this
deficit consisted of the floating debts needed to be paid in that year.27
It went into the effort of a rapid internal borrowing again. Ultimately, while these
developments were occurring in Istanbul, the Ottoman representatives being in Paris to be in
touch in order to find debt applied to the banker M. Mires.28 They signed a debt agreement
called as “Mires Borrowing” on October 29, 1860.29
It was seemed that the Mires borrowing that 1.400.586 liras net income30 was earned
totally failed. Moreover, remitting by the Galata bankers to Europe abundantly, circulation of
the banknote again caused the increase in the prices, the economic and financial condition to
get worse.31 344.446 purse deficit was shown by the state expenditures in the public revenues
in the same year. A shiner increased to 350 kurus banknote on December 12, 1861.32
The budget deficit reached to 344.446 bag in 1862. It was necessary to reduce
spendings and to increase taxes in order to meet this worsening budget deficit. For this
purpose, Grand Vizier Fuat Pasha gave a fetwa regarding the collection all of the golden,
Donald BLAISDELL, Osmanlı İmparatorluğu’nda Avrupa Mali Denetimi, (Translated by: Ali İhsan
DALGIÇ), Istanbul Publications, İstanbul, 1979, p. 33.
20
ÇAKIR, p. 67.
21
ÖZDEMİR, p. 51.
22
Mehmet Hakan SAĞLAM, Osmanlı Devleti’nde Moratoryum 1875-1881: Rüsum-ı Sitte’den Düyun-ı
Umumiyye’ye, Tarih Vakfı Yurt Publishing, İstanbul, February 2007, p. 12.
23
BLAISDELL, p. 33.
24
ARİ, p. 50.
25
AÇBA, p. 61.
26
ÖZDEMİR, p. 51; YENİAY, p. 32.
27
SAĞLAM, Osmanlı Devleti’nde Moratoryum 1875-1881: Rüsum-ı Sitte’den Düyun-ı Umumiyye’ye, p.
13; YERASİMOS, p. 760.
28
VELAY, p. 90, ÖNSOY, Tanzimat Dönemi Osmanlı Sanayii ve Sanayileşme Politikası, p. 66-67.
29
For the terms of the Agreement, see KAZGAN, Galata Bankerleri, p. 42.
30
ÇAKIR, p. 67.
31
Nihad S. SAYAR, Türkiye İmparatorluk Dönemi Mali Olayları, Istanbul Academy of Economics and
Commercial Sciences: Nihad S. Sayar Broadcast and Relief Foundation Publications, İstanbul, 1977, p. 211.
32
AÇBA, p. 67; Enver Ziya KARAL, Osmanlı Tarihi: Islahat Fermanı (1861-1876), Vol: VI, The Turkish
Historical Society, Ankara, 2011, p. 212.
19
5
silver and copper things that everyone had to have coin cut on January 19, 1862.33 On the
other hand, discounts were made in the expenditures of the public offices. 5000 bag was
reduced from the yearly appropriation of the sultan. Discounts were made in the salaries of
the civilian and military officers. However, it was not possible to meet this budget deficit that
occurred. It was necessary to find new income resources. The tobacco monopoly was the
main thing among these taxes. The 75% customs duty was levied over the tobacco coming
from abroad.34
The continuing financial deficit made essential to sign two different debt agreement in
1865: “cattle borrowing (ağnam istikrazı)” and “Public Stocks Borrowing (Esham-ı Umumiye
İstikrazı)”.
According to the agreement called as “1865 Borrowing”, the debt amount lended
would be 150 million frank (6.600.000 Ottoman liras) with the 6% interest. In return, the
official cattle incomes and mine revenue of Ergani (Diyarbakir) were shown. Since the cattle
borrowing was only to pay the accumulated amortisation of external debt and to meet the
budget deficit differently from the former borrowings, it showed that the Ottoman Empire was
going through a real external debt crisis.35 With this borrowing, the net 4.356.000 lira revenue
provided with 6% interest and 23 year maturity36 was used only to pay the external debts
due.37
The privilege was enhanced giving the “State Treasury Bank” status to the Ottoman
Bank in May 1874 and a debt agreement being 1 billion frank with 5% interest was signed
with the bank in August 1874. In this borrowing, all kinds of the incomes of the state were
shown in return, rather than a special income item and so, this borrowing was described as the
general debt. According to the contract, the 375 million frank bond of the money would be
bought by the bank with the 43.5% export price, 175 million frank bond of the money would
be kept in the current account and the remaining of it also would be sold in various prices in
1875.38 This borrowing did not also meet the needs and it became the last borrowing before
the financial bankruptcy (moratorium).39
IV. MORATORIUM
At the beginning of 1875, the internal and external debt amount of the central
administration was accounted as 233.097.776 liras (5.297.676.500 frank), the net incoming
revenue was accounted as 132.830.927 liras (3.018.884.714 frank), because of the low
amotisation percentages, the annual interest and the amortisation price were also calculated as
one-tenth of the net incoming revenue 13.159.013 liras (299.068.487 frank).40
This heavy borrowing period brought about many problems. Firstly, since the
borrowing conditions were heavy and the export prices of debts were low, it was seemed that
ÖZDEMİR, p. 55.
AÇBA, p. 70.
35
AÇBA, p. 75; ÇAKIR, p. 68. And for details see ÖNSOY, Tanzimat Dönemi Osmanlı Sanayii ve
Sanayileşme Politikası, p. 89; VELAY, p. 165-167; YENİAY, p. 36.
36
ÇAKIR, p. 68.
37
AÇBA, p. 74-75.
38
AÇBA, p. 86; YENİAY, p. 49.
39
YENİAY, p. 50.
40
YERASİMOS, p. 442; VELAY, p. 206; ÖZDEMİR, p. 68.
33
34
6
the net income entering into the Ottoman treasury was average around 50%.41 Moreover,
considering that the total of the annual capital and interest was actually 300 million frank
(13,2 million liras), it was understood that 78.8% of the budget was set aside for the debt
service.42
The borrowings were used for the current expenditures,43 to meet the debt deficits and
to demonetise again. On the other hand, political troubles were also increasing; however,
especially the rebellion in Herzegovina strongly extended in April 1875. This vicious cycle
brought the central administration in Istanbul to the verge of the financial bankruptcy quickly.
As an ultimate result of this situation, the moratorium was announced with the “The Decree
(or Firman) of Ramadan (Ramazan Kararnamesi)” published on October 06, 1875.44
V. THE DECREE OF RAMADAN (RAZAMAN KARARNAMESİ)
The Decree of Ramadan was anticipating reforming the debts of the centralized
management. According to this, a renewal whose annual interest and capital installments were
totally about 14 million liras was made over the debts up to that date.45 Considering the 5
million Ottoman liras amounted debt deficit, it was stated that only half of the amount of the
debt interest was decided to be paid as money, the remaining debt was decided to be paid with
5% stocks that will be newly printed and distributed.46
On the other hand, strong reactions to the moratorium announced- the decision of
reduction the interest and capital installments by half came from the inland and abroad. The
first reaction came up abroad, in England and France, because most of the bonds were sold in
London an Paris stock market.47 Also in Istanbul, reactions came from the “Ottoman Bank”,
the Galata bankers and high-ranking bureaucracy. The fact that any famous bankers were not
informed before this decision caused the bankers to lost confidence against their European
partners. Again, the “Credit Generale Ottomane” and “Societe Ottomane de Change et de
SAĞLAM, Osmanlı Devleti’nde Moratoryum 1875-1881: Rüsum-ı Sitte’den Düyun-ı Umumiyye’ye, p.
25; AÇBA, p. 90
42
YERASİMOS, p. 441
43
This domestic and foreign debts were especially used for current expenditures. The lack of investment was
caused the problems of taxation and agriculture system. Tax payers were prevented to invest. Thus, the taxesdebts ratio was dramatically dropped (Haydar KAZGAN, “Düyûn-ı Umûmiye”, Encyclopedia of Cumhuriyet
Dönemi Türkiye, Vol: 3, İletişim Publishing, İstanbul, 1985, p. 691).
44
Towards the 1875 July, when the installment payment of debts, the negative effects of the moratorium process
had increased. It was thought that there was no other choice to pay the installment with other dept. And than on
June 1875, 800 thousand pounds was borrowed from Ottoman Bank. This debt was not enough. After this, in
order to pay the October debt installment, 2.784 million pounds (1.5% interest rate) was borrowed from Galata
bankers as the floating debt (SAĞLAM, Osmanlı Devleti’nde Moratoryum 1875-1881: Rüsum-ı Sitte’den
Düyun-ı Umumiyye’ye, p. 33; AÇBA, p. 90-91). But these depts also were not enough to fill the deficit.
45
According to the Decree of Ramadan;
“-From the day October 6, 1875, The balance due installment of Ottoman Empire was reduced to half for 5
years. So, the half of the debt would be paid in cash and the remaining half would be deleted.
-Also starting from October 6, 1875, after the discount, the remaining dept would be paid in cash (the first half
entirely), and by the new bonds (the other half, 5% interest rate).
-The interest of the bonds also would be paid in cash (the first half payment terms).
-Customs revenues, the salt and tobacco proceeds, the tax of Egypt, cattle tax revenues were allocated as
collateral for the payments” (VELAY, p. 209; ÖZDEMİR, p. 70).
46
Emine KIRAY, Osmanlı’da Ekonomik Yapı ve Dış Borçlar, İletişim Publishing, No: 256, 3rd edition,
İstanbul, 2008, p. 148.
47
SAĞLAM, Osmanlı Devleti’nde Moratoryum 1875-1881: Rüsum-ı Sitte’den Düyun-ı Umumiyye’ye, p.
33; AÇBA, p. 92.
41
7
Valeurs” banks being active in Galata could not pay dividend to their partners for more than
two years as a result of this moratorium.48
On the other hand, the political instability was gradually increasing. Appearing the
1877-1878 Russo-Ottoman War (93 Harbi)49 led to new expenses and financial difficulty.50 In
order to meet these, the centralized management decided that it was necessary “for their bonds
to be changed (the conversion, tahvil-i düyun)” in 1854 and 187151 and it applied to a new
borrowing in 1877.52
VI. RUSUMU SITTE ADMINISTRATION (RÜSUM-I SİTTE, THE SIX INDIRECT
TAXES)
The Russian War resulting in defeat and unfavorable environment caused by it
activated the local- foreign financiers having a purpose of providing their debts. However, the
English started to hold demonstrations with their navies in Istanbul in October 1879 in order
to threaten the Ottoman Empire to maintain its reforms.53
Again, Galata Bankers, particularly the Ottoman Bank, providing short term advance
payments submitted a range of projects to the central administration in Istanbul to base their
receivables on a sound basis.54 As a result of these pressures, the administration accepted the
opinion suggested for a long time to form a joint commission and to make payments via this
commission. So, the contract called as “Rüsum-u Sitte (The Six Indirect Taxes)” was signed
on November 10, 1879 and “Rusumu Sitte Administration (Rüsum-u Sitte İdaresi)” was
established.
In accordance with the contract coming into effect on January 13, 1880, for the
receivable amounted 8.720.000 liras, the management of net incomes received from salt and
tobacco monopoly among the income resources, stamp duties, alcohol tax, fishing tax in
certain regions and four different indirect taxes received from the silk worm were handed over
the creditor financial group for 10 years.55
AÇBA, p. 95; Haydar KAZGAN, “Mahmut Nedim Paşa Olayı-2”, Para Dergisi, Vol: 14, pp. 40-49, July
1982, p. 14.
49
The 1877-1878 Russian War resulted in the defeat and than the Treaty of Ayastafanos (Yeşilköy) was signed.
In accordance with the Treaty, Serbia, Montenegro, Romania gained their independence and Bulgaria expanded
its territory and had become a great principality. It was agreed that Ottoman Empire paid 164 million gold as the
reparations. These regions, which were the biggest source of income of Rumelia, were allocated from the
Ottoman Empire and so the state had suffered the huge economic losses. As a result of intensive negotiations, it
was decided to hold the Congress of Berlin (13 June-13 July 1878). At the Congress, the reparations which were
paid to Russia were reduced to less than 60 million (AÇBA, p. 96-98; YENİAY p. 60; BLAISDELL, p. 82).
50
Johann Wilhelm ZINKEISEN, Osmanlı İmparatorluğu Tarihi, (Translated by: Nilüfer EPÇELİ), Yeditepe
Press, İstanbul, September 2011, p. 452.
51
Refii Şükrü SUVLA, “Tanzimat Devrinde İstikrazlar”, Tanzimat I, Ministry of Education Publications:
Science and Cultural Arts Series, No: 1184, pp. 263-288, İstanbul, 1999, p. 275.
52
The dept bonds were put into circulation by Ottoman Bank, Glayn Mills, Currie, and partners. But the bonds
could not find buyers in the stock exchange of Paris and London. And thereupon, the Ottoman Bank bought all
these bonds with the 52% export prices (AÇBA, p. 96; YENİAY, p. 59).
53
AÇBA, p. 98.
54
The most important submitted-projects were Hammond Project and Tocqueville Project (SAĞLAM, Osmanlı
Devleti’nde Moratoryum 1875-1881: Rüsum-ı Sitte’den Düyun-ı Umumiyye’ye, p. 43-46).
55
ÖZDEMİR, p. 74.
48
8
VII. THE DECREE OF MUHARRAM (MUHARREM KARARNAMESİ)
The English and French stokeholders being a debt resource for the Ottoman Empire
recommended to their own governments to undertake an enterprise with Istanbul government
to collect their delayed repayments so that a system similar to the Rüsum-u Sitte could be
implemented also for themselves. As a result of the intensive lobby activity, English and
French governments sent M. Beurke as the representative of the English creditors and M.
Valfrey as the representative of the French creditors to Istanbul to meet with the Ottoman
government.56
As a result of the delegation and alternative project negotiations starting from the end
of 1880, a decree called as “The Decree (or Firman) of Muharram (Muharrem Kararnamesi)”
was certified on December 28, 1881.57 With this decree whose effects would be seen later, a
new period was opened that the centralized administration would be placed under
guardianship and that foreign- financed business management would intensify.58
The Decree of Muharram primarily aimed at reducing debts by half. 239,5 million
liras, total debt amount at the date that the decree was published, was reduced to 125,3 million
liras. 13,2 millon liras, annual capital and interest amount, also reduced to 7,6 millon liras.
So, the 66% debt service of the Ottoman Empire incomes (20 million liras) was reduced to
33%.59
However, this new period revealed itself in the 15th Article of the The Decree of
Muharram. According to this, it was being decided to establish a new commission called as
“The Ottoman Public Debt Administration (Düyun-u Umumiye-i Osmaniye Varidat-ı
Muhassasa İdaresi, or simply Düyun-u Umumiye as it was popularly known)” with also the
participation of the representatives of the relevant foreign states for the administration of
debts of the Ottoman Empire.60 So, Administration of the Six Duties was being abolished and
the income resources61 was also being transferred to this administration newly established.62
VIII. THE OTTOMAN PUBLIC DEBT ADMINISTRATION (DÜYUN-U UMUMİYE-İ
OSMANİYE VARİDAT-I MUHASSASA İDARESİ, DÜYUN-U UMUMİYE)
The Ottoman Public Debt Administration established in order to represent the
debenture holders and to secure their benefits was competent to control the important
AÇBA, p. 100-101. The parties made 24 meetings (For details see SAĞLAM, Osmanlı Devleti’nde
Moratoryum 1875-1881: Rüsum-ı Sitte’den Düyun-ı Umumiyye’ye, p. 66-99).
57
Christopher CLAY, Gold for the Sultan: Western Bankers and Ottoman Finance, 1856–1881,
International Library of Historical Studies, I. B. Tauris, London, 2000, p. 382.
58
KÖMÜRCAN, p. 53; AÇBA, p. 102; YERASİMOS, p. 483-485.
59
AÇBA, p. 104; YENİAY, p. 64.
60
SAĞLAM, Osmanlı Devleti’nde Moratoryum 1875-1881: Rüsum-ı Sitte’den Düyun-ı Umumiyye’ye, p.
111.
61
According to the Decree, the bonds payments of the Administration took place within a specific plan.
Hereunder, the bonds were divided into various groups. The first group consisted of the bonds of 1858 and 1862
debts, the second group consisted of the bonds of 1860,1863, 1864, and 1872 debts, the third one consisted of
the bonds of 1865, 1860, and 1873 depts and the last one consisted of the bonds of the administration and the
prize bonds. These bonds payments would be held twice a year (AÇBA, p. 108).
62
SAĞLAM, Osmanlı Devleti’nde Moratoryum 1875-1881: Rüsum-ı Sitte’den Düyun-ı Umumiyye’ye, p.
101.
56
9
incomes- expenditures of the state fort he payment of the consolidated debts of the central
administration in Istanbul.63
The administrative council consisted of seven members representing the holders of the
England, France, Netherlands, Italy, Austria-Hungary and Ottoman bonds. The English and
French representatives representing many of the creditors were in charge in the council. 64
The Administration carrying on the debt discharging activity had a large variety of income
resources. The income resources left directly to the Ottoman Public Debt Administration
consisted of (i) salt charge, (ii) stamp duty, (iii) the alcoholic beverages charge, (iv) silk tithe,
(v) “saydı mahi charge”.65
It was important for the administration to bear the management of especially the salt
fields in the Mediterranean an the Black Sea, because the salt income in the annual budget
was predicted as 625. 000 liras in 1863 and as 825. 000 liras in the 1874- 75 budget.
However, the salt income reached to 1.075.880 liras.66
This administration, being in existence until the end of 19th century, could not redress
the income- expenditure balance of the state borrowing 63.006.880 liras67 in the period.68
Table 2. The Foreign Borrowing of Ottoman Empire (1854-1914)
BORROWING YEAR
AMOUNT OF THE
BORROWING
EXPORT PRICE (%)
THE NET INCOME OF
BORROWING
1. 1854
2. 1855
3. 1858
4. 1860
5. 1862
6. 1863
7. 1865
8. 1865
9 1869
10. 1870
11. 1871
12. 1872
13. 1873
14. 1873
15. 1874
16. 1877
3.300.000
5.500.000
5.500.000
2.240.942
8.800.000
8.800.000
6.600.000
40.000.000
24.444.442
34.848.000
6.270.000
5.302.220
6.936.600
30.555.558
44.000.000
5.500.000
80
100
76
62.5
68
68 and 72
66
50
54
32.125
73
98.5
98.5
42
43.5
52
2.640.000
5.500.000
4.180.000
1.400.588
5.984.000
6.248.000
4.356.000
20.000.000
13.200.000
11.194.920
4.577.100
5.222.686
6.832.551
16.500.000
19.140.000
2.860.000
For more information, see Faruk YILMAZ, Hukuki-İktisadi-Mali Yönleriyle Osmanlı Borçlarının (Duyunu Umumiye-i Osmaniye’nin) Tasfiyesi Meselesi, (Unpublished doctoral dissertation), Istanbul University
Institute of Social Sciences, İstanbul, 1995, p. 25.
64
Faruk YILMAZ, Devlet Borçlanması ve Osmanlı’dan Cumhuriyet’e Dış Borçlar(Düyun-u Umumiye),
Birleşik Press, İstanbul, Mach 1996, p. 53; Donald QUATAERT, Workers, Peasants and Economic Change in
the Ottoman Empire 1730-1914, Analecta Isisiana: Ottoman and Turkish Studies 6, The Isis Press, İstanbul,
1993, p. 137.
65
AÇBA, p. 108-109; SAĞLAM, Osmanlı Devleti’nde Moratoryum 1875-1881: Rüsum-ı Sitte’den Düyun-ı
Umumiyye’ye, p. 111; ÖZDEMİR, p. 76-77; BLAISDELL, p. 94-95; Edward Mead EARLE, Turkey, The
Great Powers and The Bagdad Railway, A Study in Imperialism, The MacMillan Company, New York,
1923, p. 18.
66
AÇBA, p. 113-114; BLAISDELL, p. 105; YERASİMOS, p. 979-980.
67
ÖZDEMİR, p. 96.
68
The law, regulations, instructions, and general correspondence of Düyun-u Umumiye, see Mehmet Hakan
SAĞLAM, Osmanlı Borç Yönetimi: Düyun-ı Umumiyye 1879-1891, Tarih Vakfı Yurt Publishing, Part: 1,
Vol: 1-4, İstanbul, 2007.
63
10
Subtotal of until The
Decree of Muharram
(1854-1881)
17. 1886
18. 1888
19. 1890
20. 1890
21. 1891
22. 1893
23. 1894
24. 1894
25. 1896
26. 1902
27. 1903
28. 1903
29. 1904
30. 1905
31. 1905
32. 1906
33. 1908
Subtotal of First
Constitutionalist Period
(1886-1908)
34. 1908
35. 1909
36. 1910
37. 1911
38. 1911
39. 1913
40. 1913
41. 1914
Subtotal of after First
Constitutionalist Period
(1908-1914)
The total foreign
borrowings of Ottoman
Empire (1854-1914)
238.597.762
54.47
129.980.220
6.500.000
1.650.000
8.609.996
4.999.500
2.663.000
1.000.000
1.762.000
631.000
3.272.720
3.467.000
2.376.000
2.640.000
2.750.000
5.306.664
2.640.000
2.751.000
9.988.000
63.006.880
100
70
75
88
90
70
73.5
91
85
80
100
81.5
80
80
81
87.5
100
84.35
6.500.000
1.155.000
6.457.497
4.300.000
2.397.000
680.000
1.260.000
580.000
2.717.000
2.713.000
2.376.000
2.151.600
2.159.000
4.248.932
2.098.000
1.368.000
9.988.000
53.149.029
4.711.124
7.000.000
1.712.304
1.000.000
7.040.000
818.970
1.485.000
22.000.000
45.767.398
85
86
86
82
84
100
100
88.7
86.58
3.910.000
5.845.000
1.489.000
820.000
5.737.000
818.970
1.485.000
19.520.000
39.624.970
347.372.040
64.12
222.754.219
Reference: ÖZDEMİR, s. 95.
To sum up, -as can be seen in Table 2- the borrowings of Ottoman administration were
always made with an aggravated circumstances. Even at the beginning of the borrowing,
because of the low export price, namely the emission and commission expense, fundamentally
33% the debts received were cut in advance and the incoming amount was solely around 67%.
The incoming amount decreased to the proportion of 35-40% in the conditions that the
desperate straits increased. The interest rates were also assumed between the range of 4.57.5% over the highest rates of that day and the effective interest rates also occurred at the
level of 12-13%.
The foreing debts were taken 15 times in 20 years, between 1854 and 1874 period and
41 times in 60 years, between 1854 and 1914 period.69
69
The distribution of this foreign borrowing according to the countries were as follows:
11
Table 3. What was the Foreign Borrowings Spent On?
Reference: Rıfat ÖNSOY, Osmanlı Borçları, Turhan Publishing, Ankara, 1999, p. 302-304.
As shown in Table 3 above, the debts were used in the unproductive fields. Totally,
more than 90% of the borrowings in the 1854-1914 period were spent fort he purposes of the
emission and commission expense, repayment of the aged debts, military spendings and
meeting the budget deficits.70
IX. CONCLUSION
Ottoman economic problems starting with the Küçük Kaynarca Treaty (1774)
continued in the form of a vicious cycle throughout 19th century.71 The financial resource
need increasing with the internal- external disturbances caused taxes and external borrowings
to increase. Not only increasing high interests of external borrowings, but also increasing
public expenditures brought about new borrowings and new searches in the monetary system.
The adulterations made in the monetary field provided short term and insufficient income.
The economy became bankrupt at the end of the century when the utilization ideals of the
foreign countries from Ottoman economy was also added to these financial difficulties.
The successive military defeats and territory losses in the second half of 18th century
forced Ottoman Empire to follow a range of centralist policy in military, administrative and
financial fields. New financial resources were needed to apply these policies. In this context,
firstly tax applications were increased. Even if taxincomes increased in a short time, the fact
Reference: Tevfik ÇAVDAR, Milli Mücadeleye Başlarken Sayılarla Durum ve Genel Görünüm,
Cumhuriyet Tarih-Kültür Series, İstanbul, 2001, p. 73-74, 76-78.
70
ÖZDEMİR, p. 137-138.
71
For details see M. Burak BULUTTEKİN, “How Did A Snowball Turn Into The Avalanche? The Ottoman
Empire Fiscal And Monetary Policy Changing After The Treaty Of Küçük Kaynarca (1774)”, Dicle Üniversitesi
Hukuk Fakültesi Dergisi, Vol: 20, No: 32, pp. 121-153, Diyarbakir, 2015, p. 123 et al.
12
that the expenses for the army gained importance caused the income not to meet the
expenditure. Increasing budget deficits brought about new finance need.
The first modern budget of Ottoman economy based on income- expenditure was
formed in 1864. The main goal relating to public revenues in the new financial system was to
increase tax incomes and to make easier the collection of taxes. In the 1846-47 budget in the
middle of 19th century, while a budget deficit occurred reaching not even to 1% of the public
expenditures, the budget incomes expenditure coverage ratio decreased to 43.4% in the 187778 fiscal year at the end of the century and a budget deficiency reaching to 1,3 times of public
revenues in this fiscal year occurred.
As a result of the trade agreements made with England in 1838 and then France an
Germany, Ottoman Empire became a profitable market that European goods were seold in a
short time. In this period, there were significant increases in the foreign capital inflows
preferring the profitable investments such as transportation, electricity, banking and mining.
A new stage was reached in the finance of budget deficits in the middle of 19th
century. The state borrowed with the floatation in the European financial markets fort he
finance of the Crimean War for the first time in 1854. From this date, a quick borrowing
process that continued for about 20 years and the resources provided were mostly directed to
military spendings was entered. However, the state borrowed externally 15 times in the 18541874 period, whereas it exactly borrowed 41 times in the 60 years including 1854-1914
period. As the general average, 34% of the borrowings were cut in advance as export/
commission expense and the incoming amount was only nearly 67%.
Borrowings were with quite interest rates. The interest rates of borrowings were
assumed as average 4.5-7.5% and it came true at a higher level that was as much as at least
one third of these rates together with low export prices %6-10.
The incomes earned as a result of borrowings were again used in non- productive
fields. (i) 44-45% of borrowings were used for the repayments of aged debts, (ii) 4.8-5% of
them were used for military spendings, (iii) 5-5.5% of them were used for the finances of
budget deficits, (iv) 2.5-3.5% of them were used for treasury expenses and (v) only 7.5% of
them were used for investment expenses.
While central administration was trying to weaken the power of mediators, on the
other hand, it also applied to internal borrowing and adulterations regulating money down
also in the war periods that financial depressions increased. The adulterations could provide
only short term and insufficient additional financial incomes. With the adulteration method
that reduction of silver content in the Ottoman kuruş/ lira made of silver, while a serious
additional financial income was provided to the state in a short time in the payments made
over the kuruş unit, it caused the inflation never encountered in the classical period causing to
increase in prices. Adulterations unbalanced financially and politically with a large inflation
wave at the end of 1830s.
The state that could not transform borrowings into investment was obliged to
announce that it would not pay (moratorium) its debts in 1876. After the bargainings lasting
long, the state accepted to leave a part of income resources of it to the Ottoman Public Debts
Administration that would be established representing foreign creditors in order to pay its
debts in 1881.
13
The Administration became an institution controlling 31.5% of public revenues
quickly in a short time and carried on its activities until the First World War (1914). So,
dominos was up when all of dominos fell.
14
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17