Ali Coşkun Tunçer

Microcredit in the Ottoman Empire: A Review of Cash Waqfs in Transition to Modern Banking

The chapter by Gurer Karagedikli and Ali Coskun Tuncer explores the credit activities of cash waqfs (religious foundations) in the Ottoman Empire in the nineteenth century by relying on original waqf registers. It conceptualises cash waqfs as microcredit organisations and questions the established view that they went into decline in the nineteenth century at the face of competition with the formal credit institutions. The chapter shows that the cash waqfs and the bank branches proliferated in number across the Ottoman Empire during this period, and they showed a similar geographical distribution. This finding implies that cash waqfs complemented the activities of the modern banks by mitigating the social costs of nineteenth-century globalisation.

Eurobonds Past and Present: A Comparative Review on Debt Mutualization in Europe

Abstract This paper reviews the economic and historical literature on debt mutualization in Europe with reference to pre-1914 guaranteed bonds and the current Eurobonds debate. We argue that, notwithstanding the differences in scale and nature, debt mutualization solutions similar to Eurobonds were tried before, and the closest historical examples to the present debate are the pre-1914 guaranteed bonds. We highlight three key characteristics of debt mutualization, which are apparent both in the current debate and in history: moral hazard, debt dilution and conditionality. We show that the fears about short-run dilution and moral hazard were not unknown to pre-1914 market participants. These problems were partly addressed by mechanisms of conditionality such as international financial control. The historical evidence suggests that the dilution of outstanding obligations may be overplayed in the current debate. On the contrary, creditors’ moral hazard (ignored in current debt mutualization proposals) was as problematic as the usual debtor’s moral hazard –especially when the groups of countries guaranteeing the bonds and the creditor nations did not overlap entirely.

Fiscal Control and Political Cooperation: The Ottoman Empire, 1854–1914

This chapter provides a brief history of international financial control as experienced in the Ottoman Empire from 1881 to 1914. In the first section, I provide the longer-term context and give a historical outline of the process of accumulation of sovereign debt, which started in 1854 and ended with a catastrophic default in 1876 stirring international financial markets. The second part of the chapter will deal with the activities of the IFC by mostly relying on reports of the Council of the Ottoman Public Debt Administration. Unlike the Egyptian case, the Ottoman government never lost its political sovereignty against foreign powers. However, the broader impact of the IFC over fiscal and monetary affairs was still far from being negligible, as the Ottoman government chose the amenable path of cooperating with its foreign creditors.

Financial Supervision and Political Resistance: Greece, 1879–1914

This chapter focuses on the final historical case of IFC, which was established in Greece in 1898 following the default of 1893. The Greek case perhaps represents another extreme where the role of IFC remained limited to entirely supervisory matters, it operated through an independent company, and its impact on overall creditworthiness of the country was, as a result, relatively minor. The IFC worked efficiently in managing the revenues under its control, however, there was significant discontent at the sides of both foreign bondholder representatives and Greek government. As a result, the IFC operated in a politically challenging environment and either could not achieve most of the intended reforms or reforms were implemented only partially and late. In the first half of the chapter, I start by outlining the history of sovereign borrowing in Greece, from the independence loans in 1820s to the establishment of IFC in 1898. The second half of the chapter will discuss the activities and organisation of the IFC from 1898 until 1914.

Political Control and Military Conquest: Egypt, 1862–1914

This chapter documents the functioning of the IFC in Egypt from its early years until 1914. Egypt can be considered as an exception among the cases of this book, because the IFC eventually served as a prelude to de facto colonisation of the country after the British military intervention in 1882. Therefore, unlike other cases, Egypt lost its political sovereignty and the Egyptian government had no choice but to comply with the foreign creditors. Consequently, the IFC functioned in a more complex political and institutional environment, where imperialist rivalry over controlling Egypt gave direction to the formation of a wider range of instruments of political and financial control. Our discussion, therefore, heavily draws on these unique historical characteristics in order to untangle the impact of the IFC from the broader colonial history of Egypt. In the first half of the chapter, I aim to picture the historical context and discuss the milestones in history of sovereign debt in Egypt from the initial sovereign borrowing in 1862 to 1914. In the second half, I examine the characteristics of the IFC in Egypt and try to determine the scope of its activities. A brief summary and conclusion follows to highlight the major characteristics of the IFC in Egypt during the period under study.

Resistance vs Cooperation: Political Economy of International Financial Control

The discussion so far suggests that IFC represented an era of recovery and restoration of the credibility for the economies of the Ottoman Empire, Egypt, Serbia and Greece as evidenced by recovery of cost of borrowing, bond spreads and access to international markets. Moreover, I examined the turning points in the history of sovereign risk of each country and highlighted the role of political, monetary, institutional and other factors in explaining the historical trends. However, so far I have not dealt with the mechanisms through which IFC led to a decline in the sovereign risk nor have I attempted to explain the differences in the degree of recovery and success among the cases. This chapter provides a comparative picture of the political and fiscal institutions of the Ottoman Empire, Egypt, Greece and Serbia before 1914 and puts forward a framework to interpret the different ways that IFC functioned in each case.

International Financial Control and Sovereign Risk

The aim of this chapter is to explore the impact of IFC over sovereign risk of each country in a comparative and analytical framework and to provide a long-term picture of the evolution of sovereign risk in the Ottoman Empire, Egypt, Serbia and Greece. As presented in previous chapters in detail, the administration of each IFC and their policies in host countries showed significant variation. The changing degrees of infringement on sovereignty implied disparities in introducing monetary reforms, establishing international trade links and supervising public finances among other things. Although there seems to be a consensus in the recent historiography that IFC had a positive impact on the sovereign risk of debtor countries, the differences amongst the cases has never been addressed and discussed systematically.

Control, Reform and Political Competition: Serbia, 1878–1914

The IFC experiences of Egypt and the Ottoman Empire emerged in late 1870s as a result of a wave of defaults, which newly independent states of the Balkans managed to avoid as they were still at the early stages of borrowing in international financial markets. However, the 1890s witnessed another surge of sovereign debt crises, which resulted in the defaults of Greece and Serbia. Following the chronological order of IFC appearances in the region, in this chapter I first explore Serbia’s experience of foreign control, which was established in 1895 — just three years earlier than the Greek case. The first section provides a brief review of Serbia’s history of sovereign borrowing from the Berlin Treaty to the foundation of IFC in 1895. In the second half of the chapter, I discuss the functioning of the Autonomous Monopoly Administration of Serbia, which represented a transition from direct fiscal control of creditors to a less intrusive method of financial supervision.

Governing Sovereign Debt: Defaults and Enforcement, 1870–1914

Both sovereign debt and defaults have a long history and they have drawn the attention of economists, historians and legal scholars. This chapter reviews the literature on the governance of the sovereign debt market before 1914 with particular reference to the response of creditors to defaults. It outlines the broader international institutional context within which the borrower countries of the Middle East and the Balkans contracted loans, defaulted on their obligations and finally were faced with IFC. After reviewing the relevant literature, it offers an interpretative framework to explain the functioning of the sovereign debt market during the period in question.