The Introduction of the Ottoman Empire to International Financial Markets

The introduction of the Ottoman Empire to international financial markets in the second half of the nineteenth century was followed by a rapid expansion in their outstanding foreign debt levels, (resulting in eventual default in..) eventually defaulting on the loans in 1881. The solution was to introduce international financial control (IFC) over the finances of the debtor state to compensate the losses of foreign creditors through regular transfer of revenues, largely through the establishment of the Ottoman Public Debt Administration (OPDA) and the Caisse de la Dette Publique (The Caisse) in Egypt.

However, the main focus will be on the OPDA. It has been argued that the partial loss of fiscal sovereignty also undermined the political sovereignty of the Ottoman and Egyptian governments and thus is often labeled as ‘colonization through lending”. Conversely, Revisionist historians have rather stressed the positive implications of IFC, such as the increase in credit worthiness. This essay analyzes whether public indebtedness was detrimental politically and fiscally.

It also explores how IFC contributed to peripheralization of the Ottoman and Egyptian economies and discusses some of the wider implications of the debate.

It concludes that indebtedness, although increasing efficiency in line with Westphalian financial models, was catastrophic for the Ottoman and Egyptian state apparatus.

Don’t like the structure here Imperialist or nationalist analyses of public indebtedness focus on the political effects of the OPDA, arguing that it was detrimental because it undermined the sovereignty of the government. Firstly, it is necessary to outline the key dynamics of the OPDA to assess this claim.

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The Ottoman Empire, under Sultan Abdülmecid I, took out their first foreign loan in 1854; the debts eventually mounted to 209 million pounds sterling (LS) or 230 million nominal Turkish pounds (LT), with default occurring between 1875-6 – their bankruptcy was distinct due to its scale.

This resulted in the Decree of Muharram (1881), which managed to secure a significant “haircut” on its outstanding debt and interest payments in return for transferring part of its fiscal sovereignty to foreign creditors, in the form of the OPDA. The decree dictated that the revenues from salt and tobacco monopolies, the stamps and spirits tax, the fish tax, the silk tithe, the Bulgaria tribute and revenue of Eastern Rumelia and surplus of the Cyprus revenue were irrevocably ceded to this OPDA until debt liquidation. But, this extended past the assignments of the decree as the Ottomans continued to borrow.

Murat Birdal has gone as far to argue that the OPDA was a ‘state within a state’, which perfectly demonstrates the level of autonomy that the OPDA exercised. For example, the decree of Muharram stated that foreign members of the OPDA ‘shall be considered as State officials’, which immediately nullifies Ottoman sovereignty.

Explain more With this autonomy, the administration managed hypothecated revenues, implemented both short and long-term solutions, and moreover, these measures included establishing trade links, training the local population, encouraging railway construction, and fighting against contraband and smuggling. What is astonishing here is the level of control over much more than just the fiscal revenues, which the decree proclaimed to be focused on, and the potential of creditors to control most aspects of Ottoman life. Here we see a perfect demonstration of the fact that the public indebtedness led to the undermining of Ottoman political autonomy and sovereignty.

It is also necessary to consider that this surrendering of fiscal autonomy happened amongst a period of heavy financial burden and declining Ottoman power over their territories, suffering defeats unlike before and having to make concessions, due to this and the financial cost of the seemingly perpetual military action. Long Essay- contextually explain more The OPDA was a severe blow to Ottoman pride and for the first time in its history it was forced to surrender a considerable portion of the state’s most liquid revenues, which had a profoundly detrimental effect for their sovereignty; a weaker Ottoman state apparatus, which helped to gradually dissolve and peripheralization the empire within the growing capitalist world economy.

The undermining of political sovereignty is more acute than anywhere in the case of Egypt. The defaulting on their loans in 1876 led the Khedival decree that established the Caisse, the OPDA equivalent, under the direction of foreign commissioners nominated by their respective governments who were authorized to receive the revenues intended to service the debt direct from the local authorities, to an amount of 91 million LS. After the initial establishment of Dual-Control, soul authority over the entire fiscal administration of the country was seized after the British invasion of Egypt in 1882.

The proportion of revenue diverted through the Caisse was immense, starting from its foundation in 1876 until 1904; the Caisse controlled more than forty-five per cent of government revenues. In addition, the Caisse operated independently with great authority: ‘all revenues assigned to the service of the debt were to be paid by the collection officials directly to the Caisse agents, and not through the treasury. The receipt of the Commissioners for such sums was alone valid’, secondly, ‘the Caisse could sue the government before the Mixed Courts, in the event of any breach of the agreements’, and lastly, ‘the government without the consent of the Caisse could not change the taxes nor raise a loan.’

Here we see that the sovereignty of the Egyptian government has been completely undermined, both fiscally and politically. Additionally, Britain saw Egypt’s difficulties as a result of ‘an arbitrary tax system, the lack of a proper budget system, the unequal distribution of lands and water for irrigation, and forced labour used in the Khedive’s personal estates.’ Implicitly, fiscal reform was directly linked to the reform of the state and the political consequence was essential exclusion of the Khedive from fiscal administration with all foreign members(Key dynamic to expore – forefront more).

Moreover, British control left Egypt with limited economic development in certain areas and deepened dependence on cash crops and structural underdevelopment – develop more. Although this is an extreme case, often called an ‘exception’, public indebtedness directly caused the loss of fiscal sovereignty and was unimaginably detrimental to the power of the Egyptian government because it led directly to the loss of political sovereignty and, even more shockingly, a British colonial exploit.

Moreover, public indebtedness was also detrimental economically and politically because it consolidated the peripheralization of the Ottoman economy. To demonstrate, it is necessary to consider Immanuel Wallerstein’s World Systems Theory/ Dependency analysis, which is rooted in the Imperialism theories of the early twentieth century. Wallerstein’s well- known core-periphery framework argues that worldwide capital accumulation widens inequality amongst nations, as the periphery state is dependent upon the core-periphery relationship.

Thus, the core state establishes hegemony. This dynamic became prevalent within the relationship between the Ottoman Empire and its foreign lenders, before the establishment of the OPDA. However, as Eldem argues, both the intensity and the nature of capital flows into the Ottoman Empire changed radically after the establishment of the OPDA. Just one example is trade; the OPDA increased the power of foreign lenders, who
contributed to the development of Ottoman railways, this opened up the Ottoman interior to European trade, which made it difficult for local traders to compete.

Moreover, the Ottoman Empire began to trade in raw materials and not manufactured goods, whilst the core states, such as Britain, churned out high profit consumer goods to resell to the periphery state. 19 The establishment of the OPDA directly cemented Ottoman peripheralization. Empirical studies in the world systems theory indicate that the debt settlements served to consolidate, and sometimes exacerbate the hegemony of the core over the periphery states, which further helped to restructure the world economy in accordance with the growing needs of the core economics.20 Explain more?

Consequently, foreign debt was severely detrimental to the Empire’s long-term economic development in terms of capital accumulation and thus economic power on a global stage.

Conversely, revisionists argue that fiscally the Ottoman Empire benefitted from public indebtedness, centered on the idea that prior to the OPDA the Ottoman economy was weak and inefficient in comparison to after the IFC. For years the Ottomans tried extensively to reform the tax system, but to no avail, they also frequently debased the coinage and thus were both fiscally and monetarily weak.

The OPDA completely overhauled financial institutions; their strategy not only consisted of internal reforms to make the Council’s administrative mechanism more efficient, but they also increased the yield of ceded revenues. The state structure transformed and became more centralized with reforms in administration, education, law and justice, as well as in economic, fiscal and monetary affairs. Hence, revisionists stress that the IFC modernized the Ottoman Empire and made it, across the board, more efficient.

Secondly, the relative financial underdevelopment meant that internal credit was more expensive because the financial institutions were weak, thus IFC was a way to regain access to foreign capital markets with lower-risk premiums, which allowed to the continuation of borrowing to fund the Empire.24 Thirdly, Birdal argues (don’t like the set this up, it needs to be a critical anaylsis – not using Birdal as evidence) that the administrative system set up by the OPDA contributed to the development of state entrepreneurship in the Empire and laid the foundations of the early republican economy based on state enterprises.

Thus, it is essential that we reassess the conventional perception that the OPDA was merely an imperial sanction imposed upon the Ottomans as it transformed into an instrument of the Ottoman government to reinforce fiscal centralization. However, these analyses alone neglect to consider the extent of control this exerted over the Ottomans in stripping their autonomy. It is also hard to conceive that these developments would have been praised, or even implemented, if they had not also positively impacted upon the creditor states.

Briefly, let us consider the wider detrimental implications of external control and peripheralization. Needs to be a topic sentence not a suggestion Firstly, much of the discourse surrounding this topic is patronizing and paternalistic; it focuses on how the West ‘assisted’ the Ottomans to develop their fiscal practices and industry which justifies their own involvement, much alike the rhetoric associated with the ‘white man’s burden.’

Secondly, this has much wider implications about IFC being able to determine fiscal capacity and growth. For example, revisionist arguments hold that economic growth, a sustained rise in per capita national income, to be a sufficient indicator of economic development, the sole criterion by which the economic achievements of civilizations can be judged.

Additionally, the revisionist, positivist tendency to focus on ‘underdevelopment’ and ‘inefficiency’, only measures society in what they lacked in comparison to the ‘West’ and lead to some suppositions that the defeat of the Ottomans was due to their ‘underdevelopment.’ These combined have led to discourse such as: ‘the East is far from the West’ and ‘occidental institutions, forms of government and administration are alien to the oriental minds.’

Despite the fact this was written in 1908 it is interesting to consider how Said’s ‘oriental despotism’ has extended to the application of similar terms and theories in regards to the financial sector, and how revisionism carries some of these arguably neo-oriental suppositions about the underdeveloped model.

In summation, the OPDA and the Caisse did somewhat benefit their respective governments; the administrations improved their credit worthiness and increased their fiscal efficiency, particularly overcoming the long-standing tax problems. However, imperialist analyses present a more convincing argument because public indebtedness may have been beneficial for the European governments, but it put the Ottoman Empire firmly on the road to destruction.

However, we need to move away from this dichotomy and look for a more constructive discourse with more nuanced conclusions that consider both the invalidity of the revisionist focus Westphalian financial model is in every way superior, whilst also recognizing that there are limitations to simply stressing the aggressive ‘colonization through lending’ argument. – Key and make it central to long essay.

This essay has also stressed that we must consider the obvious power imbalances in the discourse that arose surrounding the ‘underdeveloped’ and ‘inefficient’ Ottoman fiscal model, paralleling Said’s concept of ‘oriental despotism’, which alone was hugely detrimental to the Ottoman Empire. Public indebtedness may have made the Ottoman Empire more efficient fiscally, but it ultimately undermined them politically, cemented the empire as a periphery state, weakened the state apparatus, and paved the way for the eventual disillusion of empire.

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The Introduction of the Ottoman Empire to International Financial Markets. (2023, May 16). Retrieved from

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