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An Overlooked Problem in Turkish–Russian Relations: The 1878 War Indemnity

Published online by Cambridge University Press:  29 January 2009

Michael R. Milgrim
Michael R. Milgrim
Affiliation:
Pahlavi University, Shiraz, Iran
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Extract

The 1877–1878 Russo-Turkish War left the Ottoman Empire burdened with a new debt that was to play a crucial role in the relations between Russia and Turkey in subsequent years. Diplomatic and financial histories, however, have largely overlooked this indemnity for a number of reasons. Foremost among them is the timing of the ratification of the indemnity treaty. The actual agreement governing the procedure for the payment of the indemnity was drawn up four years after the San Stefano negotiations and the Congress of Berlin. While monographs concerned with these events mention the indemnity, they fail to follow it up. Second, in the post-Berlin period the European bondholders of the Ottoman Public Debt were primarily interested in securing control over the administration of the revenues servicing their debt. The indemnity, however, remained apart from those revenues ceded to the Ottoman Public Debt Administration. The standard financial histories naturally concentrate on the projects of the bondholders and refer to the indemnity only in passing.

Type
Articles
Information
International Journal of Middle East Studies , Volume 9 , Issue 4 , November 1978 , pp. 519 - 537
Copyright
Copyright © Cambridge University Press 1978

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References

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19 The agreement drawn up on May 14 in Istanbul and ratified on June 29 in St. Petersburg set down the payment of interest-free annuities of 350,000 Ottoman liras (Articles I and II). The sums assigned to its service were fixed at 75 percent of the total yield of the ašar (tithe) and ağnam (a tax on sheep) in the designated vilayets and mutasarrifliks (Article IV). The net yield of the specified revenues in these provinces (i.e., less the cost of collection) was to be deposited directly by the local authorities in a branch of the Ottoman Bank. If there were a surplus of more than 25 percent, the Ottoman Bank would turn it over to the Ministry of Finance. In case the 75 percent was not realized, the Ministry of Finance would assign the aşar and ağnam taxes of additional kazas to make up the difference. The 25 percent surplus would be delivered to the provincial administration only after the amount of the payment slated for the indemnity had been reached (Article VII). The Ottoman government would forbid its own Ministry of Finance and the provincial administrations to draw upon the amounts set aside through havalat (orders for money) (Article VIII). A special arrangement would be worked out between the Ottoman Bank and the Bank of Russia on the payments (Article VI). The sources, amounts (in Ottoman liras), and vilayets were: Ağnam Aşar Total Aleppo 40,000 40,000 Konya 138,000 138,000 Kastamonu 110,000 110,000 Adana 70,000 70,000 Sivas Sancak of Sivas 55,000 Sancak of Tokat 20,000 Sancak of Kara Hisar-1 şarki 79,500 Kaza of Kara Hisar 4,500 Kaza of Saşehri 40,000 397,500 437,500 A text of the treaty appears in Başbakanlιk Arşivi (Archives of the Prime Minister), Yildιz Evrak Koleksiyonu, Kisim 25, Evrak 52/26 (Başbakanlik Arşivi is hereafter referred to as BBA).

20 The Turks initially wanted to hand over the administration of the assigned revenues for the indemnity to the Public Debt Administration so as to evade the burden of handling an additional debt. The French and British creditors of the Porte, not wishing to have the character of the Debt Council changed by the political imbroglio that the inclusion of a representative of the Russian government would involve, felt obliged to decline this proposal. The creditors insisted that the Debt Council remain an intermediary between the Porte and the private bondholders of the Ottoman Public Debt. The Russians, however, demanded the supervision of some financial institution – be it the Ottoman Bank or Debt Council, if not inspectors from the Bank of St. Petersburg. The Turks feared that sooner or later this right would lead to a further encroachment upon their financial sovereignty. The outcome was a compromise between Russian insistence on some form of control and Ottoman intransigence. The Russian demand for the right of inspection by auditors was formally granted by a beyanname (declaration) between the Ottoman Bank and the Ministry of Finance (Roumani, , Essai, p. 115;Google ScholarBlaisdell, , European Financial Control in the Ottoman Empire, p. 91; BBA, İrade Koleksiyonu, Meclis-i Mahsus, 3291; Auswärtiges Amt Archiv, Türkische Finanzen, Vol. 7, Hirschfeld to Foreign Office, 13 January, 1882 [Auswärtiges Amt Archiv, Türkische Finanzen is hereafter referred to as AAA/TF]).Google Scholar

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23 In addition to the indemnity for the costs of the war, the San Stefano Treaty and the Definitive Treaty of Peace both stipulated indemnities to cover the damages incurred by Russian subjects in the Empire (mostly members of Orthodox minorities who held patents or berats conferring Russian citizenšhip upon them). The ceiling set on these claims was 1,076,000 liras. The claims filed only came to a quarter of this amount and were paid off in six irregular installments between 1884 and 1902.

24 AAA/TF, Vol. II, clipping from Le Soleil, 7 06 1888.Google Scholar

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31 ibid., Copie d'une note adressée par S. E. le Ministre des Affaires étrangères à S. E. M. de Nelidow le 27 Novembre 1888; Copie d'une note adressée par S. E. l'Ambassadeur de Russie à Said Pacha le 15/27 Novembre 1888.

32 ibid., Copie d'une note adressée par S. E. le Ministre des Affaires étrangères à S. E. M. de Nelidow le 27 Decembre 1888.

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34 When Hirsch decided to sell Out his shares in the Oriental Railroad Company in 1887, the Russians approached him with an offer for his holdings which they wanted to have as a means of pressure against Bulgaria. Hirsch did not accept their offer but the allegation of collusion between Hirsch and the Russians lingered (Kurt, Grunwald, Türkenhirsch: A Study of Baron Maurice de Hirsch, Entrepreneur and Philanthropist [Jerusalem: Israel Program for Scientific Translation, 1966], p. 61).Google Scholar

35 AAA/TF, Vol. 12, Radowitz, to Foreign Office, 14 and 27 02 1889.Google Scholar

36 ibid., Vol. 13, Copie d'une note adressée par S. E. l'Ambassadeur de Russie à Said Pacha le 7/19 Mars 1890.

37 ibid., Copie d'une note adressée par S. E. Said Pacha à l'Ambassadeur de Russie le 5 Juin 1890.

38 BBA, İrade Koleksiyonu, Meclis-i Mahsus, 4895, 25 ve 26 Muharrem 1308.

39 In 1890 when the shah awarded a British subject a monopoly on the buying, selling, and transporting of tobacco throughout Iran, Russian merchants complained to their government which lodged two formal protests with the Persian Foreign Ministry. The Persian government disregarded these. The Russian legation in Tabriz set about mobilizing Persian merchants who also opposed the monopoly. As a result the Shah was forced to remand the concession (Kazemzadeh, , ‘Russia and the Middle East,’ p. 515).Google Scholar

40 AAA/TF, Vol. 13, Radowitz, to Foreign Office, II 04 1892.Google Scholar The Porte had been attempting since 1882 to convert the commercial treaties of 1860/61 regulating import and export duties from a uniform ad valorem rate to a differentiated basis. Such an arrangement was reached with the Germans in 1891 but putting it into force was dependent upon the acceptance of the same principle by other states (Blaisdell, , European Financial Control in the Ottoman Empire, p. 158).Google Scholar

41 AAA/TF, Vol. 13, Radowitz, to Foreign Office, 22 06 1892.Google Scholar

42 ibid., clipping from The Standard, 8 11 1892.Google Scholar

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49 Calculated into this sum was a 550,000 Ottoman lira maintenance cost for the prisoners of war of 1877–1878. This sum was to have been paid after 1879 in twenty- one installments over seven years.

50 The announcement that the Porte would collect a 4 million Ottoman lira indemnity from the Greeks brought about competition among its creditors from the war. Approximately 2.4 million Ottoman liras were destined for payment on these wartime loans. Between November and April, the Russian ambassador pressed for between 1.2 million and 1.5 million Ottoman liras (AAA/TF, Vol. 28, Marschall, von Bieberstein to Foreign Office, 4 02, 11 03, and 11 05 1898).Google Scholar

51 BBA, Yildiz Esas Evrak Koleksiyonu, Kisim 39İ, Evrak 156/45, meselesi hakkιnda hariciye nazιrι marifetiyle Rus elcisine vāki olan Beyanat-ι Hümayun (An Imperial Declaration concerning the problem of the war indemnity Russian ambassador by the foreign minister) [1315]. No date is given states that it was drawn up at the beginning of the financial year (March 1898).

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54 BBA, BEO, 89143; Morawitz, , Les Finances de la Turquie, p. 109;Google ScholarSchiozer, to Foreign Office, 8, 10, and 22 08 1898;Google ScholarBiliotti, , La Banque imperiale ottonane, p. 79.Google Scholar

55 While the agreement empowered the Ottoman Bank to withhold in advance sums destined for the provincial budgets until the 350,000 Ottoman lira annuity had been met, in practice the bank continued to collect whatever sums the provincial administrations handed over to it. The Turks naturally did not welcome the provision of one more external control over a set of the Empire's revenues. Not only did the provincial authorities fail to uphold the convention but also the Ministry of Finance itself violated the agreement within six months of ratification (BBA, BEO, 105838).

56 BBA, BEO, 96092, 7 Mart 1315; Morawitz, , Les Finances de la Turquie, pp. 109–110;Google ScholarBiliotti, , La Banque impériale ottomane, p. 79;Google Scholar AAA/TF, Vol. 29, Marschall, von Bieberstein to Foreign Office, 9 and 15 04 1899. In a note to the Ottoman government at the time the convention was being concluded, the director of the Ottoman Bank, Hamilton Lang, declined any responsibility for assuring regular payment of the indemnity (AAA/TF, text of Hamilton Lang's note, 13 May 1899).Google Scholar

57 The Russians had grown suspicious of German intentions in the spring of 1899 when the Sultan granted the German-owned Baghdad Railroad Company the right to build the railroad terminus-harbor at Haydar Paşa. The Russian press denounced the proposed line as inimical to Russia's vital interests. The railroad would compete with the Russian Caspian and Caucasus lines. It would open up the markets of Mesopotamia and Persia to German wares and lead to the development of oil fields in the area which would rival those of Baku. Furthermore the press pointed out that the kilometer guarantees for the Baghdad line would interfere with the payment of the indemnity. In November, when Tsar Nicholas and the Russian foreign minister, Count Muraviev, visited Potsdam, the Tsar expressed the hope that the German railroad interests would not conflict with Russian financial or strategic interests. He received the assurance that the railroad had only been necessitated by the growth of German industry and the quest for new markets. The Tsar agreed at the time not to raise any objection to the tentative concession the Deutsche Bank was about to receive (John, Baptist Wolf, The Diplomatic History of the Baghdad Railroad [Columbia: University of Missouri, 1936], pp. 25–27 [hereafter Baghdad Railroad];Google ScholarEarle, , Turkey, p. 148).Google Scholar

58 Novichev, , Ocherki, p. 232.Google Scholar

59 ibid.., p. 233.

60 Wolf, , Baghdad Railroad, p. 28;Google ScholarEarle, , Turkey, p. 149.Google Scholar

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62 Although Witte had to resort to foreign loans to finance a program of industrialization, he would not forgo the chance to bind China and Persia closer to Russia through financial inducements. Thus, in 1895 the finance minister helped China pay off a war indemnity to Japan by setting up the Russo-Chinese Bank. The bank, ‘one of the most important first fruits of the Franco-Russian Alliance,’ as Sumner calls it, provided China with funds obtained through French loans. It also assumed control over the construction of a Russian railroad line across Manchuria. In 1897 Witte directed the State Bank of St. Petersburg to buy out Lazar Poliakov, the Russian owner of the Loan and Discount Bank of Persia. The bank henceforth became an outright instrument of Russian policy, facilitating commercial ventures in Persia and financing the heir apparent as well as a host of court luminaries (Kazemzadeh, , ‘Russia and the Middle East,’ p. 509;Google ScholarSumner, , Tsardom and Imperialism in the Far East and Middle East, pp. 9–10;Google ScholarJelavich, , A Century of Russian Foreign Policy, p. 238;Google ScholarEntner, M. L., Russo-Persian Commercial Relations, 1828–1914, University of Florida Monographs, No. 28 [Gainesville; University of Florida Press, 1964], pp. 34–39, 46).Google Scholar

63 AAA/TF, Vol. 29, Marschall, von Bieberstein to Foreign Office, 24 04 1899.Google Scholar

64 ibid., Vol., Bodman, to Foreign Office, 10 08 1904.Google Scholar

65 Bulgaria accepted the ‘loan’ to be amortized over a period of 75 years and at an interest rate of 4.75 percent but was able to meet little more than the interest payments. Even though Bulgaria was not a good credit risk, Russia persisted in her efforts to win Bulgarian favor through financial inducements. After entering World War I (October 1915), Bulgaria suspended payment on the debt to Russia, never to resume it thereafter. Relations between Bulgaria and the Soviet Union were only reestablished as late as July 1934 at which time the debt was renounced. According to the Turkish–Soviet Treaty of March 1921, the Soviet Union had forgone all claim to the remaining thirty-four annuities on which the Turks were to have again assumed payment in 1949 (Kesiakov, B., ed., Prinos kum Diplomaticheskata Istoriia na Bulgariia, 1878–1925 [A Contribution to the Diplomatic History of Bulgaria, 1878–1925]Google Scholar [ Sofia, 1925 ], pp. 35–6; Bulgaria, , Annuaire statistique du Royaume de Bulgarie [Sofia: Imprimerie de l'Etat, 1909–1934];Google Scholar U.S.S.R., Ministerstvo Inostrannikh Del S.S.S.R., Dokumenti Vneshnei Politiki S.S.S.R. [Foreign Policy Documents of the U.S.S.R.], Vol. XVII [Moscow: Izdatel'stvo Politicheskoi Literaturi, 1971], pp. 207, 213, 265;Google ScholarMehmet, Gönlübol and Cem, Sar, ‘Millī Mücadele Devrinde Türk Dιş Politikasι’ [Turkish Foreign Policy in the Period of the National Struggle[ in Olaylarla Türk Dιş Politikasi 1919–1965 [Turkish Foreign Policy, 1919–1965],Google Scholar ed. Bilge, A. Suat, Publications of the Faculty of Social Sciences of Ankara University, No. 279 [Ankara: Sevinç Matbaasi, 1969], p. 30;Google ScholarHurewitz, , Diplomacy, II, 95).Google Scholar

66 BBA, Yildiz Esas Evrak Koleksiyonu, Kisim 9, Evrak 1820, Zarf 72, Karton 4, Muhtira-i Hümayun (An Imperial Memorandum).

67 Charykov, N. V., Glimpses of High Politics through War and Peace (New York: Macmillan, 1931), p. 226.Google Scholar

68 The Russian government began to explore the potential of the Turkish market for Russian trade. In 1910 Russian Trade Committees were established in Istanbul and Izmir to facilitate commercial ventures and in 1913 the Ministry of Commerce sent a special investigatory commission to Turkey. The Ministries of Finance and Foreign Affairs drew up a project for the merger of the Russian Asiatic Bank and the largely French-owned Salonika Bank. Finally in late 1913 an ambitious economic project was worked out with Cavit Bey, the Young Turk minister of finance (this had been preceded by a similar agreement between Turkey and France) (Novichev, , Ocherki, pp. 223, 235–46;Google ScholarAdamov, , Razdel Aziatskoi Turtsii, pp. 15–16).Google Scholar