Ahmet Zühtü Pasha’s Financial Missions in Europe (1873-1877)

Abstract

When the Ottoman Empire fell into a severe financial crisis during the Crimean War
(1853-1856), it turned to external borrowing. However, as the first loan taken in 1854
failed to cover the war expenses, it borrowed again in 1855. Afterwards, the Ottoman
government started to borrow in order to withdraw the unrequited paper money issued
in the previous years from the market, to cover the budget deficit and, more importantly,
to pay the interest and debt installments of its debts as of 1865. To summarize, 10 years
after it started borrowing, the Ottoman government was unable to pay its debts. Thanks to
the appetite for easy money in European financial markets, the government continued to
borrow at very high interest rates and, beginning from 1865 onwards, the discussion was
not about whether it would declare bankruptcy, but when it would declare bankruptcy.
In 1873, the stock markets of Europe and the United States suffered a major collapse
and the Great Depression of 1873-1896 began, which would later be characterized as
the first great crisis of capitalism. In addition, between 1873-1875, the Ottoman Empire
suffered a catastrophic famine. It was almost impossible to borrow money from abroad,
and therefore to “roll over debt with debt”. Zühtü Efendi, who was the undersecretary of
the Ministry of Finance at the time, was hastily dispatched to London to obtain a new loan in order to alleviate the heavy budgetary costs of the rebellions in the Empire’s European
territories and the financial burden of the newly started Ottoman-Russian War (1877-
1878).Zühtü Efendi had to find a new reliable collateral for a new loan. To this end, he
saw that he could use the collateral that would be freed up by reducing the interest rates on
bonds issued in previous years. After reaching an agreement with the bondholders, Zühtü
Efendi managed to sign a £5 million loan agreement, known as “the Loan For Protection
of the Ottoman Rights”. This article discusses his borrowing adventure. For this purpose,
both the Ottoman and the British archives were consulted for financial correspondence
and reports from the period. The developments not always documented in the archival
records were evaluated with the help of local and foreign newspapers in İstanbul, as well
as newspapers published in London. The article, based on previously unused documents
and information obtained through this research, aims to contribute to the literature on
Ottoman external borrowing.