J. C. (James Carlile) McCoan.

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ernment. No particulars have been published of the rate
at which this first operation of 1862 — a 7 per cent, stock,
with a sinking fund of 1 per cent. — was taken by the
contractors, Messrs. Pruhling and Goschen ; but as it was
placed in two separate issues of 82J and 84J per 100, it
may be assumed that commission and other charges re-
duced the actual sum realised by the Treasury to a mean
of not more than 80, or a net total of, roundly, 2,500,000Z.,
instead of 2,744,000?., the amount paid by the public.

Be this as it ma.y, the proceeds of the operation met
less than half the wants of the Government ; and, on the
death of Said Pasha, in January, 1863, his successor
found clamouring for liquidation a balance which there
was no hope of discharging out of revenue. A second
loan was thus necessitated, and this — for 5,704,200?., with
7 per cent, interest and 3 "87 per cent, sinking fund — was
successfully issued by the same contractors towards the
close of 1864, at 93 per 100, but, with commission and
other deductions, only realised net 4,864,063Z. to the
Government. It was hoped that the proceeds of this
operation would clear off the balance of debt bequeathed
by Said Pasha, and leave a considerable surplus for the
public works which the new Viceroy had undertaken
soon after his accession. But the expectation was falsi-
fied by the cattle murrain that broke out shortly after-
wards and for nearly two years ravaged the whole coun-
try from the Delta to Nubia. This epidemic cost the
country nearly 5,000,000?. — in loss of revenue, in im-

THE LOAN OF 1868. 131

porting cattle to replace those swept away, in supply-
ing agricultural macMnery, and in distributing com and
other relief to the fellaheen who had suffered most from
its effects. The Alexandria and Suez railway — the only
one then existing in the country — had been left by the
late Viceroy in a state of complete dilapidation, and
to repair it, and renew the rolling stock, a special de-
benture loan for 3,000,000?. was effected ia 1866— again
through Messrs. Fruhling and Goschen — on the security
of the railway itself. This, which was also a 7 per cent,
stock, redeemable iu eight years,* was issued to the pub-
lic at 92 per 100, but realised to the Government only
2,640,000?., on which the actual charges, therefore, be-
came 8 per cent, for interest and 18-9 per cent, for sink-
iiig fund, or an annuity ia all of 26 "9 per cent. In the
meantime, the abolition of forced labour on the Suez
Canal, and the modification, in other important respects,
of the Said Pasha's contract with the Company, had
raised a crop of differences between the latter and the
Government. The Viceroy having been induced to refer
these to the arbitration of the Emperor Napoleon, his
Majesty awarded to the Company the enormous indem-
nity of 3,360,000?., ia 12 per cent. Treasury bonds, to
which was subsequently added, ia 1866, a further cash
payment of 400,000?. for the re-purchase of the Wady
domain, which the Company had bought some years be-
fore from Said Pasha for 74,000?. To meet the mass of
floatiag debt thus created, and at the same time to pro-
vide ia part for the public works already begun or con-
templated, the large 11,890,000?. loan of 1868 was next
contracted, through Messrs. Oppenheiai and Co., in con-

* This loan was actually repaid in six annual instalments of 500,000?.
each, beginning on the 1st January, 1869, a rate equivalent, as above stated,
to a sinking fund of 18*9 per cent.



cerl, witli the Imperial Ottoman Bank and the Society
Generale of Paris. TMs, althongli like Said Pasha's loan
of 1862, a 7 per cent, stock, redeemable in thirty years,
was issued at the low price of 75 per 100, and contractors'
commission and charges — which grew heavier with each
new operation — being again deducted, produced to the
Treasury only 7,193,334?., at a total annual cost of 13^
per cent. Nevertheless, with the amount realised, nearly
the whole of the floating debt was paid off, and for a con-
siderable time discount in Egypt feU to the unprecedent-
edly low average of from 6 to 8 per cent. But the con-
tinuing heavy outlay on harbours, railways, telegraphs,
canals, and other great works, which were being carried
out in a scale far beyond — not indeed the wants, but the
concurrent means of the country, soon again compelled
recourse to the issue of new Treasury bonds, to nearly
the full extent of the expenditure thus incurred. The
revenue had increased largely since the death of Said
Pasha, ovsdng to the steady expansion which had taken
place in nearly every branch of Egyptian industry and
trade ; but the re-organisation and re-armament of the
army, the construction of new coast defences, the doubling
of the tribute to the Porte, and other large though officially
unacknowledged payments to Stamboul, had swelled the
expenditure in equal ratio, and, after payment of the
charges on the foreign debt, left little or nothing for
public works. The creation of a new floating debt at a
greatly increased rate was the necessary result ; till in the
spring of 1873, the total of these unfunded liabilities had
risen to nearly 26,000,000?., on which the average interest
charge was not less than 14 per cent. It was, therefore,
resolved to fund the whole of this large amount ; and,
with this view, a 7 per cent, loan for 32,000,000?. (nomi-
nal\ designed to consolidate the whole, was negotiated


with Messrs. Oppenheim and substantially tlie same
group who had co-operated with them ia the loan of
1868. Partly owing, however, to the monetary disturb-
ance occasioned by the American panic in the spring of
1873, and partly no doubt to the largeness of the opera-
tion, the issue of the first half of this loan at 84J was not
a success, and, although this amount had been taken
"firm" by the contractors, the Khedive was induced to
accept a much lower price, and the large remainder of
the stock was obtained on terms which permitted its
being gradually placed on the market at an average rate
of about 70. This costly operation realised to the Grov-
emment only 20,740,077?., of which, too, 9,000,000?. was
paid, not in cash but itt long dated bonds of the floating
debt, bought up by the contractors at various rates of
discount (much it was said as low as 65), and delivered to
the Treasury at 93 — an operation which, as Mr. Cave
pointedly remarks, "materially enhanced the profit ac-
cruing to the negotiators of the loan."

Thus, out of five loans of a total nominal amount of
55,887,000?., the Egyptian Treasury received only about
35,000,000?. in cash or its equivalents at the current
market rate ; and on this—according to a return fur-
nished by the Minister of Finance — it had already repaid
no less than 29,570,994?.* in interest and sinking funds up
to the end of 1875, when 46,734,500?. nominal stUl re-
mained to be redeemed.

[Besides the national debt proper of Egypt, incurred

* It seems doabtfnl from the wording of Mr. Cave's Report, from wMch
tMs sum is quoted, -vyhetlier it includes ^■<i amiuities of the two Dalra loans
of 1866 and 1867, which were taken over by the State ; but as the total
amount of these was only 5,467,000?., of which about 3,500,000?. was then
still unredeemed, the Bum would not much weaken the moral of these
figures. According to the contracts, the service of the loans should only
have cost 37,933,716?. to the end of 1875 ; but (as Mr. Cave remarks) thia
sum was probably "swollen by_extra chargeSf^


on these ruinous terms, tlie Khedive himself had con-
tracted three other foreign loans on the security of his
own private domains, the charges on at least two of which
became so mixed up with those of the State debt as to
contribute materially to the thickening difficulties of the
Treasury. It will, however, be more convenient to notice
these private borrowings in connection with the subject of
the Daira, on the credit of which they were raised, and
the revenues of which have recently been hypothecated
for their redemption. To return, therefore, to the State

As the cash proceeds of the 1873 loan amounted to only
about 11,000,000?.,* it barely relieved the embarrassment
it was meant to extinguish, and a mass of floating debt
therefore still remained, which the cost of renewals (many
at as much as 30 per cent.), continued heavy outlay
on pub^ ic works, and the cost of the Abyssinian war (set
down in Mr. Cave's Report at only 1,000,000?., but in
reality believed to be much more), rapidly swelled again
to a figure against which the Treasury became increas-
ingly powerless to struggle. Towards the end of 1875 its
difficulties had culminated to a point that would have
then compelled a suspension of payment but for the sale
of the Khedive's shares in the Suez Canal to the British
Government, the 3,976,583?. received for which tempo-
rarily staved off the crisis. With a view to avert this
altogether by a radical re-organisation of his financial
administration, his Highness requested Her Majesty's
Government to send him a couple of experienced Treas-
ury officers to carry out the proposed reform ; but, instead
of these, the Right Hon. S. Cave, M.P., was commis-
sioned — not to do what the Khedive wanted, but to ia-

* Inaccurately printed in Mr. Cave's Report as 8,000,000?., with 9 pel
cent, interest.


vestigate and report upon tlie whole details of Egyptian
finance. Accompanied by Colonel Stokes, K.E., and three
Foreign Office clerks, Mr. Cave proceeded to Cairo in
December, 1875, and during the following couple of
months siftingly examined the Treasury and Daira ac-
counts, so as to ascertain as nearly as might be the debta
and resources of both. The result was embodied in an
elaborate Report which, corroborated as its chief conclu-
sions have since been by other official English and French
investigations, may be accepted as an authoritative state-
ment of the main facts of Egyptian finance eighteen
months ago.*

But, although this Report demonstrated that both the
State Treasury and the Daiira were essentially solvent,
and needed only better administration to readily meet aU.
their liabilities, its publication at the time — coupled with
the refusal of Her Majesty's Government to lend the
Khedive a commissioner to assist in framing and carrying
out the suggested ref onus — rather damaged than benefited
Egyptian credit ; with the result that his Highness, un-
able to renew his maturing Treasury bonds except at

* The sum of Mr. Cave's suggestions was — XkaX for all purposes of an
arrangement, the State and Da'ira debts, amounting together to 76,746,812?.,
should be amalgamated, but that the short loans of 1864, 1865, and 1867,
should be excluded from this amount, and be paid ofE by the operation o
the Moukabala ; the remainder, increased to 75,000,000?. by the addition of
8,000,000?. for the expense of the Abyssinian wax, and the cost of this opera-
tion to be consolidated into a new 7 per cent, stock, redeemable in 1926.
The Eeport itself, and the more interesting of the tabular statements an-
nexed to it will be found in the Appendix.

Concurrently with this mission of Mr. Cave, Sir George Elliot, M.P., and
Mr. Horatio Lloyd framed a project for dealing with the whole. subject of
both the State and Daira debts, which competent critics regarded as being on
many points preferable to that of Messrs. Goschen and Joubert ; but,
although the scheme was very favourably received by the Khedive, a
difficulty in connection with a proposed small loan which formed one of ita
conditions led to delay, and precipitated the crisis that so much favoured ths
subsequent diplomacy of Mr. Goshen and hisj'rench colleague.



absolutely ruinous rates,* wisely decided on temporarily
suspending payment of the whole till some equitable re-
adjustment of the burden could be arranged. The total
amount of the floating debt — chiefly in the form of Treas-
ury bonds— had then roundly reached 22,500,000?. (re-
duced by the proceeds of the Suez Canal shares to
18,250,000?.), the greater part of which was held by a
French group represented by the Anglo-Egyptian Bank,
the Credit Foncier, and Comptoir d'Escompte of Paris.
As above mentioned, a scheme was accordingly framed
by the agents of this combination, without reference to
the funded bondholders ; and under pressure of the
strongest official French influence exerted in its support,
this was accepted by the Khedive and embodied in a
decree, dated May 7, which announced the consolidation
of all the debts of the State and the Daira — with a bonus
of 25 per cent, to the holders of the Treasury bonds — ^into
one unified 7 per cent, stock of 91,000,000?., redeemable
in sixty-five years. This extraordinary measure — ^which
was as inequitable to holders of the old loans as its
charges were beyond the means of the Egyptian ex-
chequer — was not, it need hardly be said, received with
favour in England, where most of the funded debt was
held, and the Committee of the Stock Exchange gave ex-
X)ression to the general feeling by announcing its intention
;o refuse quotation to the proposed new "unified" stock.
After vainly struggling against the effects of this an-
nouncement, the French scheme virtually collapsed, and
its promoters recognised the necessity of conciliating Eng-
lish co-operation in some sounder and fairer project. The
Rt. Hon. G. J. Goschen, M.P., whose connection with the

* In April 1876, shortly before the temporary Biispension, as much as
8 per cent, a month was paid by the Treasury for the renewal of bonds thea
f alling due.


earlier Egyptian loans and influential personal position
suggested Mm as an acceptable representative of the Eng-
lish bondholders, was accordingly invited, early in July,
to undertake a joint mission, with M. Joubert as agent of
the French group, to negotiate with the Khedive some
settlement of the difficulty that should be at once practi-
cable and just to all concerned. The suggestion having
been approved by the bondholders, Messrs. Groschen and
Joubert proceeded to Cairo in the beginning of October,
and, after receiving from the Khedive the amplest facili-
ties to repeat the investigations which had been already
exhaustively prosecuted by Messrs. Cave, Elvers WUson,
and Villet, they devised a substitute for the French
scheme which, if not all that could be desired from the
point of view of English interests, was a considerable
improvement on that measure. Accepting both the assim-
ilation of secured and unsecured creditors, and the gross
debt of 91,000,000?. fixed by the decree of May 7, they
reduced this nominally to 59,000,000?. — (1) by cutting
down from 25 to 10 per cent, the totally iaequitable bonus
given to the holders of Treasury bonds ; (2) by eliminat-
ing the whole debts of the Daiira ; (3) by detaching the
short 1864, 1865, and 1867 loans (as Mr. Cave had pro-
posed) for redemption by the Moukabala ; and (4) by con-
verting 17,000,000?. into a Preference Stock, secured on
the railway revenue and the harbour dues of Alexandria,
and of which all State creditors, except holders of the
short loans, should receive d^pro rata aUotmen"' of about
38 per cent. The 17,000,000?. of Preference Stock thus
created included 2,000,000?. of an advance to the Treasury
against the extra hypothecation of the port dues ; and,
with the balance of 343,977?. further left to the Treasury,
the net total of 59,000,000?. remained for conversion into a
nnified general debt. To the first of the three categoriea



into whicli the aggregate of 80,393,000?, was thus divided,
Messrs. Goschen and Joubert proposed to leave its old 7
per cent, iaterest, but reduced its rate of redemption from
].00 to 80 ; to the second, in view of the special value of
its security, they gave 5 per cent, iaterest ; and for the
large third they also retained the old 7 per cent, interest,
reduced only by 1 per cent.— to be applied as a special
sinking-fund — tUl the expiration of the Moukabala at the
end of 1885, The obvious objection iu equity to this
manipulation of the various classes of debt was — that
while it docked 20 per cent, off the redemption rate of the
three short loans, it not merely placed the totally unse-
cured Treasury bondholders on a level with the funded
creditors, but gave the former a premium of 10 per cent,
over the latter for no equitable reason whatever. It was
subsequently urged, indeed, that it was necessary to btiy
off French opposition with this sop ; but this can hardly
have been so, as the holders of the Treasury bonds were
in much worse plight than the secured creditors — with
whom, besides, the Khedive desired to make a preferen-
tial arrangement — and had everything to lose with noth-
ing to gain, by impeding the only settlement that could
give market value to their paper. The best-informed
opinion, both in London and Cairo, also doubted the
ability of the Egyptian exchequer to pay 7 per cent, on
59,000,000?. out of a reduced revenue of about 7,750,000?.
— even assuming that with the Moukabala and railways
a gross t.tal of 10,500,000?. can be maintained — and was,
therefore, in favoux of a reduction of interest to a uniform
5 per cent, on aU but the short loans. The Khedive him-
self shared this estimate of his own resources, but finally
yielded to the arguments of Messrs. Goschen and Joubert
and the diplomatic pressure behind them, and by a decree
dated November 18, 1876 — ^which now forms the "organic


law" of Egyptian finance — substituted their scheme loi
the abortive measure of May 7.

But, although the settlement thus effected may be open
to objection on the ground of too favourable treatment of
the Treasury bondholders at the expense of the funded
creditors, and divides opinion as to the rate of interest on
the unified debt, the merits of the scheme on the whole
outweigh its defects. Thus, in view of the loss of income
m 1886 by the expiration of the Moukabala and the Vil-
lage Annuities, and the diminution in the land-tax which
will then result, it was necessary to provide for such a
gradual reduction of the charge on the unified debt as will
balance it with the available revenue of that year ; and
this has been done m a manner which is at once ingenious
and, on the whole, ecLuitable. Simply a proportionate
measure of sacrifice is imposed on all concerned. In re-
turn for the retention of their old interest and sinking
funds, the holders of the short loans are made to surren-
der 20 per cent, of their redemption rate, equivalent to
800,OOOZ. of capital; the Treasury bondholders give up
3,400,0(X)Z. of their indefensible premium of 25 per cent,
under the decree of May 7 ; the holders of the Preference
Stock, by accepting 5 instead of 7 per cent, on 15,000,000?.,
forego 300,000Z. a year ; while the deduction for eight
years of 1 off 7 per cent, on the unified debt docks 590,000Z.
a year from the interest on that stock — the whole repre-
senting an annual sacrifice of 1,128,000?., which the Gfov-
emment, in its turn, renders possible by taxing its re-
sources to the uttermost to pay the high rate of interest
imposed on the chief mass of its debt. The calculated
effect of these various contributions, plus the yearly in-
creasing balances of the Moukabala after payment of the
short loans, will be that by the end of 1885, when this
terminable revenue expires, the unified debt will have bsen



reduced by the process of redemption from 59,000,000?. to
40,000,000?., and the annual charge on it from 4,170,000?.
in 1877, to 2,900,000?. in 186S.* As, however, besides the
Moukabala and the Yillage Annuities about 2,000,000?. of
land-tax will also then be lost to the Treasury, the reduc-
tion thus ingeniously effected will not be sufficient ; and
unless the deficit be met by an increase of revenue (which
is possible, but not certain) there will be nothing for it but
to accept then what had better been accepted now — a uni-
form interest of 5 per cent. aU round.

That this contingency may be ec[uably contemplated,
happily results from the guarantees which — far above the
mere arithmetical details of the measure — constitute its
real value to aU classes of Egyptian creditors. These are
in fact not merely as theoretically perfect, but also, so far
as experience has yet shown, as practically efficient as any
obligations imposed on an absolute Government could well
be ; and it is but fair to record that the credit of them be-
longs quite as much to the spontaneous initiative of the
Khedive himself as to the diplomacy of Messrs. Goschen
and Joubert. Already, before they had formulated their
scheme, his Highness had affirmed its principle as regards
guarantees in the two decrees of May 2nd and 7th, and
announced his readiness to increase the securities there
given to any extent, compatible with his sovereignty,

* The details of the maimer in ■whicli tlie redemption of both the Prefer-
ence and unified debts is to be effected will be found stated in the decree of
November 18, but may be here summarised : — The former is to be paid off in
65 years from Oct. 15, 1876, by the operation of a sLnting-fund of 35,7442. a
year, applied in half-yearly drawings at par, the whole annuity for the ser-
vice of this debt thus amounting to 885,7441. The unified debt is also to ba
extinguished within the same term and in the same way, but in addition,
up to 1886, by public purchase at the market price of the day. If this, how-
ever, shouJd exceed 75, then this subsidiary redemption will be by drawings
to be paid off at this price. In the event of the revenue increasing so as to
afford a higher figure, tbs bonds drawn ".a this latter way wiU be redeemed
at 80.


that the bondholders might themselves propose; and
when the November project was laid before him, he at
once accepted the improved administrative machinery by
which it further safeguarded the interests alike of the
creditors and of the tax-paying population, for ia fact
this part of the scheme is almost equally advantageous
to both. These guarantees now consist :

1. Of two English and French Controllers-General, of
whom one is ControUer-General of Receipts, and the
other of Audit and the Public Debt. The functions and
powers of the first of these comprise the collection of all
the revenues of the State, and their payment into the sev«
eral special chests to which they are allocated ; and for
this double purpose he is invested with fuU authority
over the tax-coUectors, nor can any direct tax be levied
unless sanctioned by his counter-signature of the tax-
paper — a provision that effectually protects the peasants
from the arbitrary exactions of the old regiTne. Simi-
larly, the Controller-General of Audit exercises supreme
check over the account-keeping of the Treasury and all
the public offices into which any revenue is paid ; and as
a security that the Budget estimates of the year shall not
be exceeded, his counter-signature is necessary to all de
partmental cheques or orders for payment. These two
functionaries, whose appointment in the first instance is
for five years, form, along with the Minister of Finance, a
Finance Committee which controls all contracts involving
pecuniary engagements exceeding one-twelfth of the
Budget credits of the year, or which would be applica-
ble to more than one year. Both of them are directly
responsible to the Khedive, and to him alone.

2. Of a Commission of the Public Debt, also composed
of foreigners, recommended, or whose appointments are
acquiesced in, by their respective Governments. Tlie


duly of this body — wMcli is declared permanent until the
whole debt is redeemed — is to receive from the ControUer-
General of Receipts, and remit to the Bank of England
and the Bank of France, the revenue hypothecated for
the payment of the debt annuities, and to carry out the
provisions for its amortisation. And

3. Of a Commission for administering the railways and
the port of Alexandria. This body consists of two native,
one French, and two English members, under the presi-
dency of one of these last. The foreign members are ap-
pointed for five years certain, and the whole Commission
is declared permanent untU the Preference debt secured
by these revenues is redeemed. This railway and port

Online LibraryJ. C. (James Carlile) McCoanEgypt → online text (page 12 of 36)