Financial embarrassments forced him to consent to a foreign control over the Debt, and the decree of December 1881, whereby many of the revenues of the empire were handed over to the Public Debt Administration for the benefit of the bondholders, was a sacrifice of principle to which he could only have consented with the greatest reluctance.
In 1891 he was obliged to suspend the service of the public debt and make arrangements by which the bondholders accepted a reduced rate of interest.
The smaller company exchanges its stock for stock of the larger system on an agreed basis, or sells it outright, and the bondholders of the absorbed line often have a similar opportunity to exchange their securities for obligations cf the parent company, which are on a stronger basis or have a broader market.
The management of the road under his control, and especially the sale of $5,000,000 of fraudulent stock in 1868-1870, led to litigation begun by English bondholders, and Gould was forced out of the company in March 1872 and compelled to restore securities valued at about $7,500, 0 00.
This of course impaired the obligation of a contract, but under the Eleventh Amendment to the Constitution of the United States the bondholders could not bring suit against the state in the Federal courts.
Since then the import duties have been collected at the rate of 11% ad valorem under the supervision of the Public Debt Administration, the bondholders having certain rights, under the decree of Muharem, described below, over any increase of revenue arising from modification of the commercial treaties.
These " committees" were the " Council of Foreign Bondholders " for Great Britain, the Imperial Ottoman Bank and its " group " for France, Herr S.
The Dutch bondholders placed their interests in the hands of the British council.
As security for the service of the new reduced debt it was provided that an international council should be formed, composed of one delegate each from the bondholders of the United Kingdom, France, Germany, Austria-Hungary, Italy and Turkey, and one representing the " priority bondholders," a term which will be explained later.
To this council, with these extended powers, was handed over the absolute administration, collection and control of the " six indirect contributions " above enumerated, for the benefit of the bondholders, and in addition, it was to encash for the same purpose bills on the customs, to be drawn half-yearly in its favour by the minister of finance, amounting annually to £T180,000, representing the tax on Tumbeki (£TSo,000) and the surplus revenue of Cyprus (£T130,000); and the Eastern Rumelian annuity, originally fixed at £T245,000, but gradually reduced by force of circumstances, until after frequent suspensions of payment it reached in 1897 the level of £T114,000, and has, since the declaration of Bulgarian independence, been definitely stopped.
As pointed out by Sir Adam Block, the representative of the British and Dutch bondholders, in his report for 1908-1909, the above arrangement would have been prejudicial to the bondholders had the public debt not been " unified " (as described below) since, however, as a result of that unification, the ceded revenues now produced a sum more than sufficient for the service of the debt, it was only the surplus of revenue reverting to the government which was affected.
The ceded revenues, exclusive of the " contributive parts " and the excess from commercial treaties, were estimated by Bourke, in his report to the bondholders on the decree of Muharrem, at £I,812,562 (£T1,993,818).
A substantial reduction however, had to be made in favour of the 5% " priority bonds, " which were bonds issued to the local banks before mentioned in satisfaction of their claims, and formed an annual first charge of T590,000 on the whole of the revenues ceded to the bondholders; the capital amount of the " priority bonds " was £T8,169,986, which was to be extinguished by 1906.
Gradually, however, it became apparent that it would be desirable to give Turkish state securities, of which those governed by the decree of Muharrem formed the principal part, a better standing in European financial markets than was possible for bonds bearing so low a rate of interest; to obliterate thus, as far as possible, the effects of the past bankruptcy; and, further, to give the Turkish government a joint interest with the bondholders in the progress of the ceded revenues.
The French bondholders, who hold by far the largest proportion of Turkish securities, took the principal initiative in this matter, and, after protracted negotiations with the Turkish government and the other " syndicates " of bondholders, they succeeded, in 1903, in obtaining the following modifications of the original decree of Muharrem.
For its privileges the regie has to pay a rent of £T750,000 per annum to the government (assigned to bondholders), " even if it has no revenues at all," and after the payment of a dividend of 8% to its shareholders, and certain other deductions, it has to share profits with the government and the bondholders according to a sliding scale agreed upon between the three parties.
Bourke, Report to the British and Dutch Bondholders (London, 1882); O.
Caillard, Babington-Smith and Block, Reports on the Ottoman Public Debt (London, 1884-1898, 1899-1902, 1903 -1910); Annuaire oriental du commerce (Constantinople); Journal de la chambre de commerce (Constantinople, weekly); Annual Report of the Regie Co-interessee des Tabacs (Constantinople); Annual Report of the Council of Foreign Bondholders (London); C. Morawitz, Les Finances de la Turquie (Paris, 1902); G.
In 1889 the total foreign debt, including arrears of interest, was £54,000,000, and in the following year a contract was signed with the Peruvian Corporation, a company in which the bondholders became shareholders, for the transfer to it for 66 years of the state railways,, the free use of certain ports, the right of navigation on Lake Titicaca, the exploitation of the remaining guano deposits up to 3,000,000 tons, and thirty-three annual subsidies of £80,000 each, in consideration of the cancellation of the debt.
This contract relieved Peru of its crushing burden of foreign indebtedness, and turned an apparently heavy loss to the bondholders into a possible profit.
In 1890 the Spanish bondholders' claims were satisfactorily arranged also.
In 1885, after interest had been unpaid for i i years on bonds amounting to £1,505,400, an agreement was made for the issue of new scrip to the value of £850,000 in quittance of all claims for capital and arrears of interest, certain public lands being also ceded to the bondholders as compensation.
Commerce and Finance: British consular reports (London, annual); Report of the Council of the Corporation of Foreign Bondholders (London, annual); statistical publications of the Paraguay government and presidential messages, in Spanish (Asuncion, annual); Revue du Paraguay (Asuncion, monthly); Paraguay (Washington, Bureau of Amer.
The assembly of notables claimed the right of voting the budget, and thus came into conflict with the foreign controllers who had been appointed to guard the interests of the bondholders in the management of the Egyptian finances.
They accepted the great burden of debt which the action of Hungary imposed upon the country, and rejected the proposals for repudiation, but notwithstanding the protest of foreign bondholders they imposed a tax of 16% on all interest on the debt.
Joubert, who represented the British and French bondholders respectively.
The general revenue of Egypt was divided between the bondholders and the government, any surplus on the bondholders share being devoted to the redemption of the capital.
The principle of dividing the revenue of the country between the Caisse, as representing the bondholders, and the government was maintained by the London Convention.
Besides the Caisse there was the Railway Board, which administered the railways, telegraphs and port of Alexandria for the benefit of the bondholders, and the DaIra and Domains commissions, which administered the estates mortgaged to the holders of those loans.
This fund, primarily intended as a security for the bondholders, might be drawn upon for extraordinary expenditure with the consent of the commissioners of the Caisse.
As regards the Daira loan, there was no apparent reduction in the rate of interest, which remained at 4%, but the bondholders received 85 of the new stock for every 100 of the old.
The Conversion Economies Fund was also placed at the free disposal of the Egyptian government- The General Reserve Fund ceased to exist, but for the better security of the bondholders a reserve fund of Li,8oo,ooo was constituted and left in the hands of the Caisse to be used in the highly improbable event of the land tax being insufficient to meet the debt charges.
The bondholders gained a further material advantage by the consent of the Egyptian government to delay the conversion of the loans, which under previous arrangements they would have been free to do in 1905.
Joubert on behalf of the British and French bondholders, one result being the establishment of Dual Control, i.e.
Worst of all, the government was drifting rapidly towards insolvency, being quite unable to fulfil its obligations to the bondholders and meet the expenses of administration.
On the advice of Lord Northbrook, who was sent out to Cairo in September 1884 to examine the financial situation, certain revenues which should have been paid into the Caisse for the benefit of the bondholders were paid into the treasury for the ordinary needs of the administration.
Bureau of American Republics for July 1900, p. 26, and for August 1908, pp. 280-282; Thirty-fifth Annual Report of the Council of Foreign Bondholders, pp. 115, 117.
For commerce, finance and administration, see the annual Reports of the Committee of the Corporation of Foreign Bondholders (London); D.
In May the Portuguese government committed a formal act of bankruptcy by issuing a decree reducing the amount then due to foreign bondholders by two-thirds.
The bondholders' committees, supported by some of the powers concerned, protested against this illegal action.
His cabinet promised only slightly better terms to the foreign bondholders, but it relieved the financial tension in some degree; and by coming to an agreement with Germany in East Africa and with Great Britain in South Africa as to the delimitation of frontiers, he minimized the risks of conflict with either country.
But a considerable increase in the total debt was involved, because a bonus of 102% in new 4% stock, issued at par, was offered to induce bondholders to convert, while, to cover the bonus, an additional 4% loan was riased at 90.70, amounting to £4,000,000, redeemable in 1945.
During the first year of this period the actual receipts, according to the council of the corporation of foreign bondholders, were $9,149,591 gold (£1,829,918) and the payments $7, 0 33,3 1 7 gold (£1,406,663).
The foreign debt, according to the 1896 arrangement with the bondholders which was renewed in 1905, is £2,700,000, together with unpaid interest since 1896 amounting to £351,000 more.
It is worthy of note that this debt, principal and accumulated interest, exceeded six and a half millions sterling in 1873, and that the bondholders surrendered about 60% of the claim in the hope of securing the payment of the balance.
Egyptian finance, in the interests of the bondholders, had been placed under the dual control of England and France.
When in 1884 the new law of taxation was adopted, the situation became so serious that in 1895 a new scheme was adopted by which the government gave to the bondholders additional securities, the bondholders at the same time accepting the new 4% unified bonds in exchange for their old .5% bonds.