The decline of the Ottoman Empire began with the failed Siege of Vienna in 1683.
With this failure, the Ottoman Empire became a state that lost wars and lands, and consequently had to pay war reparations. In parallel to this, as the Industrial Revolution began in the 18th century to increase the wealth of European countries like England and France, the economy of the Ottoman Empire was breaking down and the empire’s income was decreasing significantly. Industrialising Europeans were not only selling goods to the Ottomans, but also searching for ways to give out loans using securities provided by large banks.
They wanted to establish financial control over the Ottomans.
To create a war budget for the Crimean War in 1853, the Ottoman Empire evaluated the offers made by France and England and took on its first foreign debt in 1854. When this loan was not enough to cover its war spending, a second debt agreement was signed with taxes collected in Egypt and customs duties collected in Syria and Izmir serving as collateral. After this, the convenient option of taking on foreign debt became a tradition for Ottoman administrators. From 1854 to 1874, although the empire took on a total of 238,773,272 liras (gold) in debt, due to commission fees and low-priced bond sales, the state was only able to receive 127,120,220 liras.
By 1875, the deficit had surpassed 5 million liras, and the empire was unable to pay the 14 million-lira interest payment due that year. When the European creditors were notified of this situation, they pressured their own governments into securing the transferal of the Ottoman treasury to an international commission. Meanwhile, Abdülhamit II. had just ascended to the throne and found a treasury with its finances in shambles. Furthermore, the 1877 Russo-Ottoman War, which would cause extensive destruction, had just begun, and the Russian army had invaded territory up to Istanbul.
With the Berlin Agreement signed at the end of this war, Ottoman debts became the subject of an international agreement for the first time.
Following extensive debates and pressures, a Public Debt Administration was created comprising one representative each from British, French, German, Austrian, Italian, Dutch, and Ottoman creditors, and one representative from the Ottoman state.
The Public Debt Administration created a new taxation system to replace the collapsed Ottoman system. Run by around 5,000 employees, this administration began to collect 32% of Ottoman revenues. After obtaining successful results, this system of organisation became foundational for the treasury of both the Ottoman Empire and the Turkish republic. The Europeans had taught finance to the Turks in order to collect on their debts. As a result, although the Ottoman Empire made gains economically, it suffered politically. It was forced to share the sovereignty of its own lands.
The Ottoman Empire was forced to accept the establishment of the Public Debt Administration in order to take on new debt. Having become dependent on debt, the state was unable to meet its military, infrastructure, or personnel costs on its own. Europeans would no longer give loans without assurances from the Public Debt Administration. The establishment of this administration allowed for the creation of a state within the state and tarnished the independence of the government. Foreigners began to collect taxes on Ottoman soil.
The Public Debt Administration continued its operations throughout World War I. It also renewed its agreement with the Turks in 1928, shortly after the establishment of the Turkish Republic. While nations that separated from the Ottoman Empire were responsible for paying off around 30% of the debt, Turkey continued paying off the rest. In 1940, Turkey informed its creditors that it would no longer recognize the Public Debt Administration, and that it would take on the remaining debt. Turkey paid off the last installment of the debt in 1954, thereby ending the 100-year adventure of foreign debt.
Victor Hugo wrote that “debt [is] the beginning of slavery.” The loans that the Ottoman Empire began taking in 1854 truly did result in a century-long servitude. It is sad to see history repeat itself. Now, the governing Justice and Development Party (AKP) government had brought to life a new structure that closely resembles the Public Debt Administration.
The AKP has put into action multiple projects designed to fit Build-Operate-Transfer (BOT) and Public-Private Partnership (PPP) models, and has promised 16-18 years of revenue to the companies that build these projects. It has also made guarantees of treasury-backed revenue, meaning the treasury will cover any deficits in revenue and bailout companies that fail to repay the money they borrowed to build the projects. Karar newspaper has reported that $123.5 million in treasury guarantees have been made for $53.7 billion of BOT and PPP projects for bridges, tunnels, airports, highways, and hospitals across the country. Those guarantees, or obligations to cover a shortfall in revenue payments and debt repayments if needed, compare with the government’s $232 billion of foreign debt as of the end of last year.
The transfer of operational rights to these companies resembles the way in which the Public Debt Administration granted the right to gather all tobacco taxes in the Ottoman Empire to the Régie Company.
Between 1883 and 1928, the Régie Company had the right to produce, buy, sell, and operate tobacco and tobacco-related enterprises. The company would buy low from farmers and sell high. Farmers, in turn, could covertly sell to foreign companies for three to four times more. Clashes between farmers and company-employed guards that resulted from these tensions resulted in 20,000 deaths between 1883 and 1902.
The AKP has also clearly stated its goal of continuing foreign borrowing through the establishment of the Turkish Wealth Fund (TWF) in the law establishing the entity:
“ARTICLE 1- (1) The purpose of this law, in order to contribute to the diversity and depth of instruments in capital markets, to incorporate the domestic public wealth into the economy, to procure external resources, and to participate in wide scale investments, is to designate the principal terms of the establishment, management and operations of the Turkish Wealth Fund Joint Stock Company that is to establish and manage the Turkish Wealth Fund and its subsidiaries.”
The structure of the TWF, which is independent from the Treasury and unsupervised by parliament and other bodies, inherently makes it similar to the mission of the Public Debt Administration. There is also talk of foreign countries becoming partners in this fund in exchange for providing loans to Turkey. The TWF now owns major enterprises previously under the control of the treasury, including Ziraat and Halkbank, Turkish Airlines, the National Lottery, post office, energy companies and the Istanbul Stock Exchange.
As of today, many tools have been instituted that take the place of the Public Debt Administration in fulfilling its original mission. Every BOT, PPP, and TWF investment has become a mini-Public Debt Administration of its own. It is highly likely that in the near future, all creditors will be gathered under one roof in order to collect on the returns that the government has promised.