The Turks and Europe

by Gaston Gaillard

The financial activity of the French companies was only interrupted by the 1870 war. The only competition met with was that of a few English banks, which no doubt intended to second the views of the British Government in Egypt, and of an Austrian syndicate for the building of the Balkan railways which, later on, furthered the penetration of Austria-Hungary in Eastern Europe.

In 1875 the nominal capital of the Ottoman debt rose to 5,297,676,500 francs. The Ottoman Government, finding it impossible to pay the interest on the Government stocks, announced its decision on October 6, 1875, to give only one-half in cash in the future. The Imperial Ottoman Bank, which was practically under French control owing to the importance of the French capital invested in it, raised a protest on behalf of the bondholders.

The Porte then agreed to make arrangements with the French, the Italians, the Austrians, the Germans, and the Belgians. The claims of the bondholders were laid before the plenipotentiaries who had met at Berlin to revise the preliminaries of San Stefano, and were sanctioned by the Berlin treaty signed on July 13, 1878. They had three chief objects: First, to secure the right of first mortgage which the creditors of the Empire held from the loans secured on the Russian war indemnity; secondly, to appoint the contributive share of the Ottoman debt incumbent on the provinces detached from the Empire; thirdly, to decide what was to be done to restore Turkish finance.

After the conversations with the plenipotentiaries assembled at Berlin, and chiefly owing to the intervention of the French representative, M. Waddington, the Congress embodied the following clauses in the treaty in order to protect the interests of the bond-holders: Bulgaria was to pay the Sultan a tribute; part of the revenue of Eastern Rumelia was to be assigned to the payment of the Ottoman Public Debt; Bulgaria, Serbia, and Montenegro were to assume a part of the Ottoman debt proportionately to the Turkish territories annexed by each of them; all the rights and duties of the Porte relating to the railways of Eastern Rumelia were to be wholly maintained; finally, the Powers advised the Sublime Porte to establish an international financial commission in Constantinople.

In this way the Berlin treaty laid down the principles on which every financial reorganisation was to be based whenever a province should be detached from the Ottoman Empire.

Then the mandatories of the bondholders began to negotiate directly with the Ottoman Empire, but as the various schemes that were proferred failed, the Imperial Ottoman Bank, supported by the Galata bankers, proposed an arrangement that was sanctioned by the Convention of November 10 to 22, 1879. In this way the administration of the Six Contributions was created, to which were farmed out for a period of ten years the revenues derived from stamp duties, spirits in some provinces, the fisheries of Constantinople and the suburbs, and the silk tax within the same area and in the suburbs of Adrianople, Brusa, and Samsun; it was also entrusted with the collection and administration of the revenues proceeding from the monopolies in salt and tobacco.

At the request of the Imperial Ottoman Bank the revenues of this administration, first allocated to the Priority Bonds, of which she owned the greater part, were divided later on between all the bondholders.

In this way the important agreement known as the decree of Muharrem, in which the French played a paramount part, was made possible (December 8 to 20, 1881), according to which the original capital of the foreign Turkish loans was brought down to the average price of issue, plus 10 per cent. of this new capital as a compensation for the interest that had not been paid since 1876. The old bonds were stamped, converted, and exchanged for new bonds called Bonds of the Unified Converted Debt, except the “Lots Turcs,” which, being premium bonds, were treated separately.

The interest of the Converted Debt was fixed at from 1 to 4 per cent. of the new capital.

As to the amortisation, the decree divided the various foreign loans into several series according to the value of the mortgage; this classification stated in what order they would be subject to amortisation.