IMPERIAL GUARANTEES—TURKISH LOAN.—MOTION FOR A RETURN. (Hansard, 7 August 1866)

§ MR. HUBBARD,

in rising to move for a Return of Imperial Guarantees, showing the date and extent of each, the amount paid, and the amount for which the country is still liable (in continuation of Parliamentary Paper, No. 599, of Session 1860) and to ask the Chancellor of the Exchequer whether it is true, as reported, that the Turkish Government had failed to provide the interest and redemption fund due on the 1st of August upon the £5,000,000 loan contracted in 1855 under the conjoint guarantee of England and France; and, in the event of such default, in what manner Her Majesty's Government proposed to fulfil their guarantee, whether by the liquidation of the drawn bonds, or by reviving them as titles to the interest guaranteed by the two Powers, said: The House would recollect that in 1855, in the midst of the Crimean War, the Government of Lord Palmerston asked the consent of the House to a Resolution, and afterwards to an Act of Parliament, for guaranteeing a loan of £5,000,000 to the Turkish Government, with interest at the rate of 4 per cent, payable half yearly. In addition a sinking fund of 1 per cent per annum, together with interest on so much of the loan as should from time to time be redeemed, was to be applied in the redemption of the capital, and the loan 2141 was to be under the joint guarantee of the Governments of England and France. The subject was debated at considerable length. The Bill was passed, and the contract was taken, on the 20th August 1855, by the house of Rothschild and Sons. The terms were £102 12s. 6d. for every £100 of the loan. The price was considered very high at the time, but, compared with the price of Government Securities and Consols, the bargain could not be supposed a very bad one for the contractors. From time to time capital and interest of the loan had been paid as stipulated, but the public had been informed by the ordinary channels of information, that on the 1st of August last, though the interest on the bonds was paid, the bonds which were drawn for redemption were not paid. Feeling a great interest in this loan as a Commissioner of the Royal Patriotic Fund, which was nearly the largest holder, he inquired particularly into the reason of this defalcation, and he found that the Turkish Government had provided neither for the payment of interest nor of capital, but that Her Majesty's Government had provided for the interest. Of course, this hesitation in the entire fulfilment of the engagements entered into was a source of considerable disquiet to those interested in the loan. According to the popular understanding of the terms of the loan it was believed, and such was the impression of the very eminent house who made the contract, and of those who had taken a portion of the loan when it was tendered for, that the Governments of England and France would, in the case of default, put themselves in the position of the borrower, and fulfil all the engagements made; but on referring to the documents issued on the occasion of the contract, he found passages therein which raised a doubt as to the way in which the guarantee of England and France was to be carried out. The 9th clause of the statement respecting the conditions of the loan ran thus— The sinking fund will be applied from year to year, commencing on the 1st of August, 1859, either in the purchase of certificates of the loan in the public market, or, at the option of the Ottoman Government, in paying off at par such certificates as shall be drawn by lot in the presence of the chief cashier and chief accountant of the Bank of England, on some one day in the month of May next immediately preceding the 1st of August in each year. The interest on the certificates so drawn, together with the capital, will be payable on the 1st of August next following such drawing, after which day all interest on the certificates so drawn will cease altogether. 2142 The House would observe that the proposals issued by the Turkish Government, with perfect publicity, through the instrumentality of the Bank of England, must be considered decisive, and established the contract between that Government and the bondholders; and nothing was more distinct than the engagement with reference to the sinking fund. But the House would observe that the engagement of our own Government did not appear to refer to anything but the interest, and that view was certainly confirmed by the clauses of the Act itself, which was passed in August, 1855, notwithstanding the more comprehensive language of the Preamble. After reciting the Articles of the Convention, the Preamble ran thus— Their Majesties the Queen of the United Kingdom of Great Britain and Ireland and the Emperor of the French, being desirous to save the Sublime Porte the expenses of remittance, consent to undertake to transmit to the Ottoman Government the proceeds of the above-mentioned loan of five millions sterling, to be raised under the conjoint guarantee of their Majesties. These words, reciting that the loan was to be raised under the conjoint guarantee, if taken alone would leave no doubt that the whole scope and compass of the loan was to be matter of conjoint guarantee. But in the clauses of the Act the guarantee seemed strictly limited to the interest. The first clause ran thus— It shall be lawful for Her Majesty and she is hereby authorized to guarantee, jointly with His Majesty the Emperor of the French, and severally, the interest on the loan to be raised by His Imperial Majesty the Sultan, not exceeding interest at the rate of four pounds per centum per annum on a sum of five millions of pounds sterling, upon the terms and conditions set forth in the said convention. Therefore, while on the one hand nothing was more clear than that the guarantee was meant to apply to the whole obligation, on the other, when they came to the question of legislation, there was nothing to authorize the Government to issue money except as payment of the interest. This contrariety might be explained by reference to the discussions which preceded the Act. In introducing the loan to the House of Commons, Lord Palmerston said— Her Majesty's Government engages to recommend to Parliament to guarantee one-half of that loan (£5,000,000), the other half to be guaranteed by France."—[3 Hansard, cxxxix. 674.] That was the original intention—this Government was to guarantee one-half, and the French Government the other; but, at the instance of the French Government, the guarantee was made common. 2143 Therefore, the noble Lord said afterwards, "it is to be a joint guarantee of the whole." In regard to the extent of the guarantee, Lord Granville said most explicitly and distinctly— Undoubtedly this country will be responsible to the creditor for the whole sum (£5,000,000)." —[3 Hansard, cxxxix. 850.] Sir George Lewis, at that time Chancellor of the Exchequer, had the conduct of the Bill, and always insisted that we guaranteed, not the capital, but the interest. He said— Is it likely that the French Government would have consented, in addition to the loan which they had advertised, to call for an addition of £2,500,000, in order to lend that money to the Turkish Government? Are we ourselves in a position now, after the engagements we made on contracting the loan in the spring, to go into the market to borrow £2,500,000, in order to advance it to Turkey?"—[3 Hansard, cxxxix. 1467.] In that respect Mr. Cardwell made the following reply:— The Chancellor of the Exchequer said in reply, You imagine we have guaranteed the principal, but we have only guaranteed the interest.' I should like to know the difference between guaranteeing principal and interest and guaranteeing interminable annuity." — [3 Hansard, cxxxix. 1255.] And Mr. Gladstone, who took a very active part in the discussion, said—. The financial mischief may be limited within the figure £5,000,000, which, great as it is, can well be borne by the gigantic resources of this country."—[3 Hansard, cxxxix. 1306.] He went on to say— His first feeling was one of satisfaction that there was no guarantee of the sinking fund, which appeared to him an extension of what he regarded as an inexpedient and mischievous principle; but when he looked further, he found that guaranteeing the sinking fund was really a contraction of the mischief. They were going to guarantee interest at 4 per cent on £5,000,000, and that £5,000,000, which would cost them more than the price for which average English credit would obtain money in the market, might be paid off at a given rate through the sinking fund. Taking the average of times, this country could borrow at less than 4 per cent; and therefore it would be advantageous if we could relieve ourselves from an engagement to pay 4 per cent. It appeared to him plainly for the interest of the two Powers that the sinking fund also should be guaranteed."—[3 Hansard, cxxxix. 1493.] He did not find the name of a single Gentleman deserving the name of a statesman in favour of the Bill. Sir George Lewis supported it officially, and the hon. Gentleman the Member for Southwark (Mr. Layard) made an enthusiastic speech in its favour. The late Chancellor of the Exchequer and the present Chancellor of the Exchequer were both opposed to the 2144 scheme, and the words of prophecy uttered by the latter right hon. Gentleman had been fulfilled. The right hon. Gentleman the Member for Buckinghamshire (Mr. Disraeli) said on that occasion— I look upon the proposed guarantee in this case as not merely an engagement to fulfil, but as one which we shall certainly be called upon to fulfil."—[3 Hansard, cxxxix. 1240.] The credit of the country once engaged, there should be no suspense on a matter of such moment, and the Government should, therefore, lose no time in deciding how they were going to fulfil their guarantee. There could be no doubt there had been indefensible carelessness in the official advisers of the Government in the drawing up of this Act of Parliament. This was the state of the case which he had to bring before the notice of the House and of the Government, and he need hardly remark that it added another to the many illustrations we had already had of the extreme inexpediency, he might indeed say the extreme folly, of this country going out of its way for an object which was by no means one of national interest, to involve ourselves in loans for foreign Powers in whose prosperity and stability we had no possible concern. In a previous Session, when he called the attention of the House to a most undesirable proceeding—the issue of a letter by Lord Russell commending the prosperity and good management of the Ottoman Empire as a reason why English capitalists should lend money for a new Turkish loan — Lord Palmerston met him, as was always his custom, with the assertion that it was the duty of this country to support our old and valued ally. He was satisfied, however, that if it were the wish of this country to support the Ottoman Empire, we could not have taken a more mischievous course than that of enabling it to borrow; for, just as a perfect savage was destroyed by being taught to drink, so a half-civilized savage was destroyed by being taught to borrow. This was what had been done in the case of Turkey, and no subsidies or advances that we could make would preserve the vitality of so corrupt an Empire. But, whatever might happen to the Ottoman Porte, the interest of English capitalists and the honour of the English Government had to be considered, and that honour was pledged to the fulfilment of the guarantee. Of course, France would have to be consulted, and he might remark that the 2145 clause in the bond inserted by France explicitly guaranteed the principal of the loan, whereas England guaranteed only the interest upon it. He had no wish to press Her Majesty's Government for a decision which they might yet be hardly in a position to announce, for it was a matter in which they could scarcely, with satisfaction to themselves or our ally, come to a resolution without conferring with France. He would, therefore, merely ask the Government to take an early opportunity of concerting with the Emperor of the French the mode in which the defalcation was to be met, either now or at any future time; and, in the meantime, to give an assurance that they would do all in their power speedily to remove from the bondholders the very disagreeable feeling of doubt and uncertainty which now hung over an investment which they had made under strong pressure by the English Government.