Ottoman Empire: Debt

OTTOMAN EMPIRE: DEBT

borrowing in the ottoman empire by the government and within the private sector.

Throughout most of its history, from 1300 to 1922, the government of the Ottoman Empire relied on short-term loans from individual lenders as well as currency debasement and short-term notes to resolve fiscal shortfalls. On occasion, the Ottoman government just confiscated the monies needed, either from the lenders or from state officials. In the private sector, individuals, who only sometimes were professional moneylenders, lent their surplus to others. Both public and private borrowers commonly paid interest for the privilege. Both public and private borrowing persisted until the end of the empire—although confiscation became rare after about 1825. Very important changes occurred in the forms of borrowing, within and outside the government, beginning about 1850, when foreign capital became available and assumed an unprecedented role.

In many ways, the international borrowing experiences of the Ottoman Empire during the nineteenth century anticipated those of today's third-world nations. The Ottoman economy was competing in a world dominated by the industrialized nations of the West, which possessed superior military technologies and political and economic power. Ottoman survival strategy required large, modern military forces and state structures. As both were exceedingly expensive, government expenditures mounted accordingly. Unlike the economies of many of the countries with which it was competing—notably Britain and France—the Ottoman economy remained essentially agrarian and incapable of generating the funds needed for increasingly complex and costly military and civilian structures. Thus, the government borrowed to modernize and survive.

Acutely aware of the dangers, Ottoman statesmen resisted international borrowing until the crisis provoked by Ottoman participation in the Crimean War, 1854–1856. International loans then quickly succeeded one another, on decreasingly favorable terms. These loans were private, the creditors being European bankers and financiers who were usually given diplomatic assistance by their own governments. By the early 1870s, Ottoman state borrowing too easily substituted for financial planning; between 1869 and 1875, the government borrowed more than its tax collectors took in. The Ottoman state suspended payments on its accumulated debt in 1875, after crop failures cut revenues between 1873 and 1875 and the global depression of 1873 dried up capital imports.

Perhaps fearing occupation by the European governments of its creditors, the Ottoman government eventually honored its obligations. Prolonged negotiations resulted in a reduction and consolidation of the total Ottoman debt and the formation, in 1881, of the Ottoman Public Debt Administration; this body took control of portions of the economy. The Ottoman Public Debt Administration supervised the collections of various tax revenues, turning the proceeds over to the European creditors—an international consortium representing bond-holders of Ottoman obligations. Residents of France, Great Britain, and Germany held most of the bonds. The ceded revenues came from the richest and most lucrative in the empire—taxes imposed on tobacco, salt, silk, timber, alcohol, and postage stamps.

Although nominally a branch of the Ottoman government, the Debt Administration actually was independent and answerable only to the bondholders. Many scholars consider its founding as the beginning of Ottoman semicolonial status—when the state lost control over parts of its economy. Still worse, perhaps, the state's legitimacy and relevancy also declined in the eyes of subjects who had to pay their taxes to a foreign group rather than their own state. The Debt Administration represented a true loss of Ottoman sovereignty, but, as the government may have hoped, the consortium reassured foreign investors, who provided still more loans to the state, which needed still more cash to finance modernization.

Foreign capital invested in the Ottoman private sector became significant only after 1890. A part of the more general diffusion of European capital into the global economy, these investments also derived from the comforting presence of the Debt Administration, which was involved in many of them. Industrial or agricultural investment was nearly completely absent. Railroads, port facilities, and municipal services absorbed most of these monies, more firmly linking the Ottoman and international economies by facilitating the outward flow of raw materials and the import of finished goods. French financiers were the most important single source of funds, while the British and Germans also were significant providers. Almost all these new loans were administered by the Debt Administration.

By 1914, Ottoman public and private debts to foreign financiers consumed, in roughly equal shares, more than 30 percent of total tax revenues. In one way or another, the Debt Administration administered virtually the entire amount. This pattern of indebtedness makes clear the ongoing subordination of the late Ottoman economy to the European until the demise of the empire after World War I.

Bibliography

Blaisdell, Donald. European Financial Control in the Ottoman Empire. New York: Columbia University Press, 1929.

Issawi, Charles. An Economic History of the Middle East and North Africa. New York: Columbia University Press, 1982.

donald quataert