No. 777.
Mr. Goodenow to Mr. Fish.

No. 17.]

Sir: Herewith I have the honor to transmit a copy of a report or an advising commission, authorized by imperial iradé to examine and report upon the financial condition of Turkey.

The author of the report is Mr. Thomas C. Bruce, chairman of the London board of directors of the Imperial Ottoman Bank, recently chosen a member of Parliament, and brother of the late Sir Frederic Bruce.

It will be observed that the commission estimated the annual revenue of Turkey at 24,800,000 Turkish liras, (a lira is 18 English shillings.) Of this sum, Mr. Bruce informed me the Sultan receives about one-fourteenth, or not far from 1,800,000 pounds Turkish, for his “civil-list” or annual allowance. The actual expenditure of the imperial court is not officially reported, but it is stated on good authority to have been £4,500,000 annually in recent years, with a tendency to considerable increase. The income of a great number of crown domains belonging to the reigning family, as well as the customary presents of tributary princes and high state functionaries, contribute to the private revenue of the Sultan. The whole income, public and private, is said to be insufficient to cover the expenditure of the imperial court.

Meanwhile, Mr. Bruce informed me, the government has been borrowing money at 24 per cent, interest. Sadyk Pasha has recently concluded arrangements for an advance to the imperial treasury of £1,600,000, at an annual interest of 12 per cent., and he found it extremely difficult to obtain the money on any terms.

An article appeared in the Levant Herald (the leading paper in the Levant) of yesterday, advocating a suspension of payment by the Turkish government. The writer says:

The moral effect of such a suspension would be useful. The great Turkish Empire would stand before the national creditor as a defaulter, and would be constrained to look its obligations steadily in the face and lay aside the combination of indolence and prejudice which has sunk it into debt, and to apply its resources, which are ample, to its extrication. Turkey is capable not only of paying her debts, but of rectifying her vicious financial system, and would promptly prove her capability under such pressure as would offer her the alternative of doing so, or of sinking to the financial level of Spain.

Mr. Bruce told me that he was satisfied, from his examination of the subject, that the finances of Turkey might be placed on a more solid [Page 1159] basis than those of any other European country except England and Germany. It is quite evident where he thinks retrenchment should begin, viz, at the head of the government.

I have, &c,



report of the commission.

The following is the report addressed to the grand vizier by the special advising commission authorized by the Sultan’s iradé to examine the Ottoman budget for the Turkish year 1290, (March, 1874, to March, 1875.)

The confidence which the government has shown in confiding to us so important a task, would induce us under any circumstances to do our utmost to accomplish it. But at this moment, when a succession of adverse circumstances has hampered the action of the Turkish treasury, and thrown a discredit upon the finances of the Ottoman Empire which is not justified by their real condition, we have deemed it our duty to make the most minute inquiries, in order to ascertain the facts, and to set forth in our report, with complete frankness, the results of those inquiries, the conclusions to be derived from them, and the means which are alone capable, in our opinion, of re-establishing the credit of the empire. We fully agree with the opinion expressed by your excellency that a complete and truthful statement of the financial situation, even in its most unfavorable details, is the only means of inspiring well-founded confidence. In the prosecution of our task, we have had to ask for a number of explanations, revenue tables, and other documents. Everything was communicated to us by the finance department with the utmost alacrity, and we are happy to state that the order and clearness of these books and documents do honor to the treasury accountants.

In examining in detail the budget of revenue we found two classes of items, requiring different kinds of examination, the old taxes and the new taxes, of which the collection begins with the financial year 1290, (March, 1874, to March, 1875.)

With regard to the old taxes, we checked the estimates of the budget by a comparison with amounts actually received under each head in previous years, and had before us for this purpose a comparative table of receipts for each year, from 1278 (Turkish) to 1287 inclusive. We formed our estimates upon these data, with the explanations we sought, as to the manner of calculating the presumed increase or diminution of revenue, according to the receipts of preceding years. Not having the experience of the past to guide us with regard to the new taxes, we had to confine ourselves to an examination of the grounds upon which the calculations had been based for the estimated returns from these sources presented to us. In general, and subject to subsequent remarks which follow, we found the estimates are grounded on moderate calculations, and that there is reason for larger returns than the amounts set forth. With those remarks, we submit some observations on the leading items of the estimates of revenue, some of which call for no comment, after the explanations furnished to us.

Some taxes, especially the verghis (poll-tax) and the tithes, cannot be entirely collected within the year. We calculate, following the result of previous years, that the arrears which will necessarily accrue during the ensuing year, will be counterbalanced by the sums still coming in from those taxes unpaid during the past year, as has hitherto been invariably the case, and we therefore confirm the estimate in the present budget. The produce of the tithes is essentially variable, depending upon the quantity and prices of the harvests. The sheep-tax has shown remarkable elasticity with partial variations. Its produce, from 900,000 pounds Turkish in 1278, amounted to 2,000,000 pounds Turkish in 1287. The past year of 1289 having been unfavorable to sheep, we hope that the diminution of 15,000 pounds Turkish, set down in the present budget to make the return the same as that actually reached last year, will not in the end “be found to have been necessary. The tithe on agricultural produce has similarly in previous years resulted in an average increase of 5 per cent, annually, and the estimate on this head in the present budget has been calculated on such an increase. This increase appears to arise in part from the real growth of the wealth of the country, which will be still more rapidly developed with the extension of roads and communications, and in part from an improved system of collection. We deeply regret that the government, under the pressure of fiscal necessities which we recognize, finds itself forced to augment the rate of this tax, which weighs almost entirely upon the labor-ng population, and that, too, at the moment when, by the wise measure of abolishing the internal customs duties, it had decided upon a course which is destined to greatly develop the commerce and wealth of the provinces. We believe, however, that the improvement in the means of collecting this tithe, which has already partially taken place, and which is still being followed up, will, while increasing the revenue, result [Page 1160] in lightening the burden upon the cultivator of a tax of which the difficulties lie principally in its mode of collection.

The estimated customs returns are arrived at by abstracting from the total returns of last year the amount yielded by the now abolished internal customs. The revenue gathered from this source, however, appears to us very inferior to what the customs should yield under a wisely contrived system, so as to obtain from the various articles the taxation they could fairly support, without checking the industry of the country. We are glad to learn that the imperial government has taken the first step in this course, by giving notice of its renunciation, of its commercial treaties existing with foreign powers. Nor does this remark bear only upon the matter of customs duties, but upon sources of revenue under other heads, such as the duty on spirituous liquors for instance, which might give a far larger return, and in all countries this item of taxation supplies the treasury with an important resource. In many other items of revenue, also, the government finds itself hampered in the employment of its financial resources by international engagements, and especially by the action of the capitulations. There are several taxes yielding considerable revenue and easy of collection, which, bearing as they do upon the wealthier classes, would permit of a diminution of the burdens now weighing upon the laboring classes, but which cannot be resorted to under existing circumstances, because they could only be levied upon Ottoman subjects, and would thus serve to aggravate in their case differences already too marked and unjust. We hope that the negotiations in question, meeting with intelligent sympathy from foreign powers, will restore to the Turkish government its fiscal liberty, enabling it to establish its financial system upon a solid and regular basis—a liberty, moreover, which is denied to no other government in the world.

The estimate of the yield of the tax on tobacco presents great difficulties. The increase contemplated in the budget depends upon measures in course of being carried into execution, and the complete application of which will involve in the beginning various and considerable delays. We believe that prudence demands the suppression of 500,000 pounds Turkish of the increased revenue estimated to be yielded for this year. We do not doubt that the measures which the government is adopting to establish the tobacco-tax on systematic bases will in future years produce much more considerable results than those now computed, and that the diminution which we recommend will only be temporary. Tobacco is in such universal use in the Turkish Empire that a slight tax ought to produce a considerable sum if the collection of it be properly organized. We must also remark that the consumption of Turkish tobacco abroad is constantly increasing.

This tobacco, of a superior quality and almost unique of its kind, is sold abroad at high prices, and we call the attention of the government to the opportunity offered, in approaching negotiations, of reserving to itself the right of taxing, within wise limits, exported tobacco, as foreign governments themselves raise a considerable revenue upon this product of Turkey.

The forests and mines show estimated receipts calculated, as regards mines, upon the produce of previous years, and with regard to forests upon the results of measures already ordered and in course of execution. These estimates appear moderate; but in the application of a new service, reliance cannot be placed with certainty upon an immediate return. It is clear, however, that these branches of the public service only require enlightened direction to become a very important source of wealth for the population, and, through it, for the government. We do not doubt that the imperial government, in extending the organization already commenced, will do everything necessary to augment and regularize the national production under these heads, and attract the capital essential for the development of these great sources of industry.

The postal and telegraphic service calls for particular consideration, its revenue, which is stationary, being far from equal to its expenditure. The new stamp-duties, if the measure be energetically carried out, promise, we think, to yield much more than is estimated in the budget.

The imperial revenue of previous years down to 1287 (1871) shows a very considerable elasticity, having, without the imposition of fresh taxes, increased from about 13,000,000 pounds Turkish in 1278 to 18,000,000 pounds Turkish in 1287, or nearly 40 per cent, in ten years. This elasticity does not appear to diminish, and must still increase with the extension of commerce and the development of the resources of the empire.

budget of expenditure.

For the budget of expenditure, the commission not being qualified to enter upon discussion regarding the requirements of the service, accepts the sums alloted en bloc for each chapter of expenses, and leaves to the ministry and the council the responsibility of fixing the sums that may appear to them necessary. We submit the remarks made as to certain details during the examination of the budget.

The sum allotted for the interest and amortization of the general foreign debt is exposed to certain variations which are dependent on the rate of exchange that rules at the time when the remittances are made in Europe, and which may produce a maximum difference of 200,000 pounds, Turkish, on the sum originally estimated. We believe that it would be useful, if possible, to take separate account of the sums paid for [Page 1161] amortization and of those paid as interest on the debt. Amortization is a reimbursement of capital, and by confounding it with the interest, the claim upon the revenue may appear heavier than it really is.

The sum provided for the payment of the coupon of the loan of 1873 must, according to the remarks which we make on the floating debt, be withdrawn from the budget. Indeed, this sum is detached from the total estimate of expenditure in the rough draught before us. The sum inscribed in the budget for the service of the floating debt would appear to us to be more appropriately designated as being allotted for the “service of the treasury.”

In the administration of mines and forests the expenditure appears to us to be considerable as compared with the receipts of those departments; we readily understand, nevertheless, that this expenditure is destined to meet the exigencies of a utilization (of mines and forests) on a much larger scale than that which now exists and which is in process of being developed; we trust that this prevision will be realized. We trust that the sum set apart for the payment of railway guarantees, and which appears to be accurate, for the year 1290, will progressively decrease in the following years. Intelligently and conscientiously handled, the railways must soon give profits large enough to cover the payment of the sums guaranteed.

Deducting: the interest on the loan of 1873, which, for reasons stated further on, should not figure in the present budget, the total of the budget expenditure amounts to 25,600,000 pounds Turkish. The receipts, according to our evaluation, amounting to 24,800,000 pounds Turkish, show a deficit on the ordinary budget of the year of 800,000 pounds Turkish, but as this evaluation of receipts is partly approximative, we believe that it is indispensable for the credit of the country to establish a surplus, and that for this, it will be necessary to make on the budget of expenditure reductions of 1,000,000 pounds Turkish at the least. It is beyond our province to indicate the heads under which these reductions must be made; we leave it to the government to make under each separate head of the budget of expenditure the necessary retrenchments, and to establish the equilibrium that we believe to be indispensable for the credit of the empire.

floating debt.

We have discussed the various heads of the budget and examined the estimated receipts and the expenditure that has been recognized to be sufficient for the government; and we believe that, with certain Unimportant modifications, means can be found of reestablishing the state finances on the only solid foundation—that of an equilibrium between receipts and expenditures.

All the state departments appear to be sufficiently provided for in this estimate, and although a severe control might effect further economies, we have adhered simply to the figures shown in the budget. But the tables of the floating debt present difficulties of quite a different character. In order to reestablish the credit of the government, this debt must be provided for and its renewal be prevented.

The difficulties encountered by the treasury have their principal source in the existence of this debt.

The payment of the various temporary loans, of which the floating debt is made up, falling due at various periods unknown to the public, demands either the frequent renewal of the term of payments or the contracting of new loans to effect those payments. Such loans being often contracted at times when credit is difficult, are only obtained at high rates of interest, rates which are justified by the uncertainty attaching to the reimbursement at the stated time of the borrowed sums.

This high rate of interest lowers the credit of the country, and, being added to the capital of the debt, swells out that capital in a proportion which cannot but lead to insurmountable difficulties.

The loans of the floating debt are often guaranteed by special sources of revenue which should be devoted to the regular expenses of the state. The encashment of these revenues for the benefit of the floating debt deranges the normal service and unsettles the calculations of the budget. The government has been obliged in consequence to appeal to credit for the requirements of the service, requirements which might be regularly covered by the revenue receipts, if those receipts were applied solely to the yearly expenditure. The result of this has been that actual resources of the empire have become depreciated in the opinion of the public, and this depreciation would not be justified were the treasury to work under normal conditions.

The floating debt consists, in so many words, of the accumulated deficits of successive years, augmented by the interest which has necessarily been added. To inspire confidence and settle the national finances on a solid footing, these deficits must cease to recur. A considerable portion of the total debt is composed of the expenses of different ministries which had exceeded the estimates and been added to the floating debt. Various orders, especially for arms and for navy materials, that have not yet been executed, but that are to be delivered in the course of 1290, have also been added to the floating debt, and provision must likewise be made for these in order to establish an equilibrium. Every government, of course, must either have a floating debt or means in its treasury to enable it to meet its wants before its revenues come in, but [Page 1162] this debt ought not to exceed the amount of those revenues, and should be paid off as the latter are encashed. As the interest on the advances is comprised in this debt, and the product of the loan of 1873 is intended to pay it, we consider that the coupons of that loan should not figure in the present budget for 1290, but that, as according to system, the floating debt is to be paid off during that period, the coupons of that loan, as well as those of other stock which may be created for the purposes of such amortization, should be put down in the expenditure for the year 1291, to balance the budget for which period it will, consequently, be necessary to create, by increase of revenues or by retrenchment, a balance in favor of the treasury exceeding that of 1290 by about 2,600,000 pounds Turkish. The new taxes, customs reorganizations, and tobacco-duty will, to a great extent, make up this difference. The total of the temporary liabilities of the government, including those likely to be incurred in 1290, and the interest on the advances already made, amount to 14,725,274 pounds Turkish, which sum comprises all the advances made on the guarantee of the options of the loan of 1873 and the arrears. To meet these engagements, the government has bonds, of the 1873 loan for 7,385,000 pounds Turkish, and for 255,000 pounds Turkish of the “firm “portion of the railway loan, but as the latter loan was to be exclusively applied to payments for railway works, it seems to us difficult to appropriate any of it to payment of the floating debt. Lastly, there is a sum of 7,085,270 pounds Turkish due to the treasury for arrears of taxes, but these arrears, their encashment being difficult and uncertain, cannot be counted upon as an immediate resource for the payment of debts falling due at fixed dates.

To provide for the canceling of the floating debt, we think a fund will have to be formed to meet the liabilities on falling due in anticipation of the receipt of the revenues in respect of which the advances have been contracted, such fund to be guaranteed by the deposit of stock. After all, the effective realization of the stock serving for the amortization of the floating debt depends on the credit of the government. At this moment the bonds could not be issued except at disastrous rates, and the operation will only be practicable by carrying out the whole of the measures proposed. The receipts and expenditures being, as we believe, genuinely estimated, the public should have every possible guarantee that the expenses as inscribed in the budget will not be exceeded, and that there will not be any “extraordinary expenses” beyond the budget to disturb the equilibrium established and create a deficit under the name of floating debt or any other designation. This assurance being given and acted upon, will alone suffice to restore the credit of the government and render the liquidation of the floating debt an easy operation at reasonable rates. Bat without such assurance we do not see the possibility of that result being attained.

In conclusion, it is evident that the measures necessary for this object will call for painful sacrifices for the moment. Not only will the regular service have to be placed on the footing of a severe economy, which can be effected by their reorganization, but many projects of improvement will have to be deferred. The empire offers a vast field for such projects; the opening up of communications by land and sea, the development of the wealth of the mines and forests, the construction of ports, and many similar undertakings, call for the attention of the government, and would indefinitely increase the prosperity of the country. But in the present state of the finances these projects, though of incontestable utility, are impossible, the charges of the Capital necessary for executing them being larger than any profit which it could be hoped to derive from them. If the finances are reestablished on the solid basis of an equilibrium between income and expenditure, this difficulty will disappear in a short time. The capital necessary for undertakings so essential and so pregnant with results will be easily found at rates much below those which have hitherto had to be paid, and the progress of the empire will advance with rapid steps. We have deemed it right to present these observations, they being necessary, in our opinion, to the explanation of the budget which has been referred to us, and on the observance of which depends the credit of the empire.

We believe that the way we have pointed out is the only one capable of restoring the elasticity of the credit of the empire. The reestablishment of the finances will be counted among the glorious events of the reign of His Majesty the Sultan, and, if it cost temporary sacrifices, it will enable him hereafter uninterruptedly to pursue the projects of inprovement which he has conceived for his empire.

This report is dated Constantinople, February 17, and is signed by Yussuf Bey, director-general of the administration of forests and mines, (now minister of finance;) Edib Effendi, president of the cour des comptes or accountant-general’s department; Ohannes Tchamitch Effendi, governor of the general debt; Bedros Couyoumdjian Effendi, formerly directorgeneral of the forests administration; Edwards Effendi, ex-vice-president of the council of indirect taxes, (customs;) Christ aki Zographos Effendi, Agob Keutchoglu Effendi, and Mr. George Zarifi, bankers; Messrs. Thomas C. Bruce, Hugh Forster, and Emile Deveaux, respectively administrator, director-general, and director of the Imperial Ottoman Bank; and Messrs. S. Fernandez, B. Tubini, and George Coronio, representing respectively the Société Générale, the Credit Ottoman, and the Bank of Constantinople.