Decision on Interest Reduction

The 1875 Interest Reduction Decree was a declaration by the government of Mahmud Nedim Pasha that the Ottoman State could not meet its debts as originally agreed. In the 19th century, the Ottoman Empire was dragged into a severe financial crisis due to the fiscal burdens imposed by modernization efforts, high levels of foreign borrowing, and continuously rising war expenditures. As one of the measures to alleviate these economic difficulties, the government of Grand Vizier Mahmud Nedim Pasha issued the “Interest Reduction Decree” in 1875. However, this decision provoked strong reactions both domestically and internationally, weakening the Ottoman State’s financial independence and ultimately leading to a greater transfer of control over its foreign debt to creditor nations.

Reasons for the Adoption of the Interest Reduction Decree

Mahmud Nedim Pasha had held various offices during the complex political climate of the period and sought solutions to manage the financial crises within the Ottoman Empire. He was dismissed from the post of Grand Vizier in June 1873 and exiled to Kastamonu and later to Trabzon. He returned to Istanbul on 31 March 1875 and was reinstated as Grand Vizier on the grounds that he could suppress the Herzegovina Uprising. However, his failure to quell the rebellion further worsened the Empire’s financial situation.

By 1875, the Ottoman State’s debt burden had become extremely heavy. Imposing new taxes was not feasible due to social and economic reasons. Mahmud Nedim Pasha and the Minister of Finance, Ahmet Hamdi Pasha, took steps to address the crisis by proposing interest reductions and debt postponements. The Interest Reduction Decree, adopted on 6 October 1875, planned for the state to pay only half of its annual debt obligations of 14 million liras. However, this decision undermined Ottoman financial credibility and generated widespread distrust among European financial circles.

Economic Consequences

The Interest Reduction Decree triggered a major loss of confidence in the Ottoman Empire across Europe. Bond values plummeted rapidly, and the perception took hold that the Ottoman State could no longer meet its debt obligations. Creditor nations began demanding greater control over Ottoman finances, and these demands laid the groundwork for the establishment of the Düyûn-u Umumiye İdaresi in the years that followed.

The insecurity created by the Interest Reduction Decree and the pressure from creditor countries accelerated the process of transferring Ottoman financial administration to an international authority. In 1881, the Muharrem Decree formally obliged the Ottoman State to hand over the management of its debts to the Düyûn-u Umumiye İdaresi. This institution began managing specific Ottoman revenue sources in a manner designed to protect the interests of creditors. As a structure that significantly curtailed the Ottoman State’s financial independence, the Düyûn-u Umumiye İdaresi became a pivotal turning point in Ottoman fiscal history.

Although the 1875 Interest Reduction Decree was intended as a measure to respond to the growing debt burden, it failed to provide fiscal relief and instead damaged the Ottoman Empire’s reputation and financial autonomy. The decree triggered a loss of confidence in both European financial circles and the Ottoman domestic market, paving the way for the eventual international control of Ottoman financial administration. The establishment of the Düyûn-u Umumiye İdaresi in 1881 demonstrated that Ottoman finances were now being managed by foreign powers. This situation was a clear indication that the Ottoman Empire had lost its economic independence and underscored the urgent need for financial reform.