Fiscal Crisis and Structural Change in the Late Ottoman Economy

Abstract

This chapter examines institutional change in the Ottoman economy with a focus on its financial crises and subsequent reform attempts. Traditional fiscal institutions functioned well until the late sixteenth century when the state introduced tax reforms and dismantled the traditional tımar system. In the nineteenth century, the administration sought solutions such as the debasement of the coinage and domestic borrowing to finance its deficits. In 1854, the government resorted to foreign borrowing and initiated reforms to improve its financial accounting to gain credibility in foreign markets. After twenty years of borrowing, the Porte defaulted in 1875, and in 1881 signed the Decree of Muharrem, which led to the establishment of the Ottoman Public Debt Administration (OPDA). The OPDA era saw unprecedented levels of foreign direct investment and played a pivotal role in the integration of the Ottoman Empire into the world economy.