Modern History of the Arab Countries. Vladimir Borisovich Lutsky 1969



The tremendous expenditures connected with the construction of the Suez Canal and other projects forced the Egyptian Government to have recourse to foreign loans. These loans were granted to Egypt on the most outrageous terms.

The public debt was begun by Said Pasha. Since he had no right to contract foreign loans without the approval of the Porte, Said Pasha overcame the ban by issuing Treasury bonds, which were realised on the European exchange. Thus there came into being Egypt’s so-called floating debt, which at the time of Said’s death exceeded £6,000,000.

But Said went on to contract even larger loans. A fatal role here was played by the notorious financial manipulator Herman Oppenheim, who “fixed” the majority of Said’s and Ismail’s loans. Oppenheim, originally from Prussia, was considered a British subject and owned banks in Paris and Alexandria. He had close connection with the banking company of Frühling and Göschen in London and served the interests of the British.

In 1862, Oppenheim helped Said conclude the first Egyptian state loan which was needed to meet commitments connected with the construction of the Suez Canal. Because of what they termed the “difference in exchange value,” the creditors actually paid out far less than the nominal sum of the loan, but insisted on repayment terms based on the whole amount.

In 1864, Oppenheim arranged a loan from Messrs. Frühling and Göschen for £5,700,000 of which the Egyptian Treasury actually received only £4,860,000, the remainder being once again withheld by the banks as a “difference in exchange value.” Most of what Egypt did receive went to discharge the floating debt. As a guarantee for the loan, Ismail gave up the state revenues from the three richest provinces of the Delta.

In 1865, Ismail contracted a “private” loan from the Anglo-Egyptian Bank. Of the nominal sum of £3,387,000 he received in cash only £2,750,000. Half of this was used to purchase estates and half to build sugar refineries.

In 1866, Ismail contracted several new loans. He borrowed money from Messrs. Frühling and Göschen to build railways To obtain the loan, however, Egypt’s existing railways had to be mortgaged. Out of the nominal sum of £3,000,000, the Egyptian Treasury received only £2,640,000.

In 1867, the Khedive concluded a “private” loan with fir( Imperial Ottoman Bank (Anglo- French) with a view to buying lands for the organisation of sugar-cane plantations Out of £2,080,000 of the nominal sum, the Khedive received only £1,700,000.

In 1868, the Khedive contracted a loan with Oppenheim for £11,890,000, of which Egypt received only £7,195,000 in cash.

In 1870, the Khedive contracted a new “private” loan for £7,143,000 with the bankers of Bishofsgeim and Goldschmidt, but actually received only £5,000,000.

On June 11, 1873, the Khedive signed, an agreement with Oppenheim for a huge loan of £32,000,000 to pay off the floating debt. Egypt received only £20,000,000 in cash and for this she undertook to pay Oppenheim £3,500,000 interest per annum, i.e., approximately 20 per cent of the actual sum received.

In a matter of eleven years, the British banks had contrived to saddle Egypt with a debt amounting to about £68,000,000, having paid out in cash only £46,000,000 and expropriated over £20,000,000 for “differences in exchange value” and commission. Meanwhile Egypt’s floating debt had reached £26,000,000, on which she had to pay up to 15 per cent and even 25 per cent annual interest.

By 1876, Egypt’s total foreign debt came to £94,000,000. What had the money been used for? Some apologists of imperialism have suggested that it was squandered on the extravagant whims of Ismail Pasha-on his palaces, harems, on luxury and ostentation. Others have asserted that Ismail began a country-wide campaign for the construction of railways, bridges, ports, telegraphs, factories and canals, without taking into consideration the real state of Egypt’s natural resources, and that it was this “speculative company promoting” that drowned Egypt in debt. It can indeed be stated that the Khedive overpaid huge sums to the European building firms. Thanks to the contractors, Egypt had to pay 325 million francs for railways that had actually cost only 75 million francs to build. The Egyptian Treasury had paid a European building firm over £2,500,000 for the Port of Alexandria, while the real cost was only £1,500,000. Other construction works had also cost Egypt two or three times their actual worth. The European building firms robbed the country shamelessly. The greater part of the funds expended on building, however, had been acquired without the help of the European banks. In the final analysis, the cost was borne by the Egyptian people. The British finance expert, Cave, asserted that the state revenue of Egypt for 1864-75 comprised £94,000,000, while expenditure, including construction, the expenses of the Khedive’s court, bribes for the Turkish Sultan and his attendants, the cost of the Sudanese and Ethiopian wars, amounted to an overall sum of £97,000,000. The entire real deficit for twelve years thus comprised only £3,000,000.

How was it that Egypt came to owe the European hankers nearly £100,000,000? The debt was made up of the following items: (1) £16,000,000 spent on the Suez Canal; (2) £22,000,000, which Egypt never actually received, went to the bankers as “differences in exchange value,” commission, and so on, but was included in the nominal sum of the debt; (3) no less than £50,000,000 had been paid by Egypt up to 1876 as interest on the basic loans and promissory debts; (4) £5,000,000-6,000,000 spent on public works. Thus it can be seen what a small portion of the loan actually benefited Egypt.

The criminal intrigues of de Lesseps, Oppenheim, Frühling and others were responsible for the greater part of Egypt’s debt. The Egyptian people, who had to bear the burden of the debt, received no return on the loans they were forced to pay back threefold.


The policy of the European bankers had a fatal effect on Egypt’s financial position. The state railways, tax revenues and the estates of the Khedive were mortgaged up to the hilt. The amount of interest Egypt had to pay her creditors increased every year. B. 1875, it came to approximately £8,000,000 annually.

This meant annual tax increases. Within a short period of time the land tax had increased fourfold – from 40 to 160 piastres per feddan. Egypt’s budget income grew from £2,000,000 in 1861 to £10,500,000 in 1875. Nevertheless Egypt was forced to spend about 80 per cent of these fund to discharge interest and other commitments on the loans There was not enough left to meet the current needs of the state and the Khedive was compelled to find new sources of income.

Ismail decided to resort to internal loans. In 1871, the first internal loan, mukabala (reimbursement), was contracted. By the law of mukabala, all landowners who for period of 12 years from 1873 paid six times the amount o land tax to which they were liable, in regular instalments thereby obtained remission of half the tax for ever after. This law was supported by the landlords and the riche farmers, who had just begun to emerge as a class and who in exchange for future riches, immediately gave the Treasury approximately £7,000,000 and later over £8,000,001 bringing the total to £15,700,000 in the period between 187 and 1878.

There was still not enough money, however, and in 1874 the Treasury was compelled to issue the second internal loan, called ruznameh, for £5,000,000. In spite of the fact that contribution to this loan was made compulsory, it did not justify the government’s expectations and yielded the Treasury less than £2,000,000.


At the end of 1875, in order to meet the payments due on the foreign loan, Ismail decided to sell Egypt’s shares in the Suez” Canal. Proposals were made to England and France. While France hesitated, the British Government acted quickly and decisively. Without notifying Parliament or even the members of his cabinet, Disraeli (Lord Beaconsfield), the British Prime Minister, borrowed £4,000,000 from his friend, Rothschild, and bought on behalf of his government 176,000 shares in the Suez Canal. The transaction was made on November 25, 1875. The shares passed into the hands of the British Government and on December 8, 1875, de Lesseps invited British representatives to take their seats on the Administrative Council of the General Company of the Suez Maritime Canal.

Egypt’s interest in the canal, which had cost her £16,000,000 to build and had led to her being saddled with a debt of £100,000,000, that cost the Egyptian people £300,000,000 in principal and interest paid off to foreign bankers, was sold for only £4,000,000. Subsequently, the Suez Canal yielded its owners unusually high profits; the shares that had been purchased in 1875 for £4,000,000 were worth £35,000,000 by 1910.

But this was only the commercial side of the case. The political aspect of the deal was far more important. England, as we have seen, had tried to seize Egypt at the beginning of the 19th century and in 1840, made another attempt to place the country under her control. But each time she had encountered the resistance of the Egyptian people and that of her rival, France. French influence prevailed in Egypt. Right up to the eighties of the 19th century, with the exception of the years 1849-54, Mohammed Ali, Ibrahim, Said and Ismail were swayed by French policy. The Egyptians had even participated in the Mexican adventure of Napoleon III. During the time of de Lesseps, the Suez Canal became a key position of French capital. The French bankers held the greater part of the promissory debt. French specialists, professors and advisers predominated in Egyptian institutes, factories and educational establishments. Young Egyptians were sent to France to study. Khedive Ismail himself had graduated from the French military academy school at Saint Cyr.

In the seventies of the 19th century the British decided to effect a radical change in the situation. “The construction of the canal,” wrote the British historian Young, “changed for the worse the relations between the British Empire and Egypt by shifting the main objective of British sea-power, and the main interest of British imperialism in the Near East from Constantinople to Cairo.” [G. Young, Egypt, London, 1930, p. 73. In the past the British had done everything they could to counteract French influence; now they adopted a new policy aimed at completely ousting France from Egypt.

“Until then,” Young writes, “the British had been content to keep the French from dominating Cairo, as they had kepi the Russians from dominating in Constantinople. But thereafter [after the opening of the Suez Canal – V.L.] it became of vital interest to them to control Cairo to the exclusion of other Powers. It was, indeed, some time before this new imperialist point of view penetrated our policy towards Egypt.” [Ibid., p. 68.]

This “new point of view” had its roots in the new economic and political conditions in Europe after 1870, when capitalism had begun to enter into its last stage-the stage of monopoly capital, of imperialism. The transition was connected with the growing struggle for the division of the world, with the unprecedented activisation of the capitalist Powers’ colonial policy.

By that time the British had already taken over the control of Egyptian cotton exports. They were supreme on the Egyptian import market and had seized a number of concessions. The London bankers, Messrs. Fruhling, Göschen, Bishofsgein and Oppenheim, had entangled Egypt in a net of ruinous loans. Nearly all the bonds of the Egyptian public debt were in their hands. In 1875, Disraeli bought Egypt’s Suez Canal shares on behalf of the British Government. This was a fresh blow to French influence. Henceforth, the British Government became the biggest stockholder of the Suez Canal, which up to 1875 had been mainly a French company. True, the French capitalists still retained the greatest number of shares and seats on the Administrative Council of the General Company of the Suez Maritime Canal. The canal was still directed from Paris. But while the French shares had been divided among a large number of shareholders, the British Government alone, without the participation of any other shareholders, owned holdings which comprised approximately 45 per cent of the entire share capital.

Ismail’s hopes that the “canal would be in Egypt, but not Egypt in the canal,” quite obviously had not been realised. The British Government’s acquisition of shares in the Suez Canal paved the way for the British occupation of Egypt. “Henceforth,” wrote Sabri, “the politician and money-lender perform a common duty and their unification accelerates the ominous development of events.”


In the autumn of 1875, the world exchange reacted to the bankruptcy of Turkey with a sharp decline in the exchange rate of all Egyptian securities. The capitalists of Europe predicted that the bankruptcy of the Porte would inevitably entail the bankruptcy of Egypt as well. At the end of 1875, the British Government forced Egypt to accept a special commission to inquire into her finances. This marked the beginning of foreign control over Egypt’s finances. Not to be left behind her rival, France also immediately sent her own financial commission to Egypt.

On April 8,1876, the Khedive suspended payment of his Treasury bills. The government declared itself bankrupt and the creditors immediately took advantage of this to impose real financial control on Egypt. On May 2, 1876, the Powers set up a Commission to Control the Khedival Debt, the staff of which included representatives from France, Austria and Italy. The members of the commission were called debt commissioners and had to ensure the timely payment of debts. England at first declined to appoint a British commissioner because her creditors could not come to an agreement with the French on the conditions for the consolidation of the Egyptian debt. The British bondholders had control of the bonds of the main Egyptian loans, while the French and other creditors’ share consisted mainly of coupons of the floating debt.

On May 7, 1876, the Khedive issued a decree, consolidating the public debt of Egypt. All Egypt’s basic loans and promissory debts were incorporated into a Consolidated Debt to be discharged over a period of 65 years at a rate of 7 per cent interest per annum. In exchange for bonds of the old basic loans the holders received the same number of bonds of the Consolidated Debt, while the holders of promissory notes received in addition a bonus of 25 per cent (100 units of the new bond were given for 80 units of the old). As a security for the Consolidated Debt, the land tax from the four richest provinces of the Delta was surrendered as well at the revenue from the custom houses of Cairo and Alexandria, the tobacco excises and the revenue from the khedival Daira Sanieh estates. All these revenues came under the supervision of the Khedival Debt Commission.

In October 1876, a compromise between the British and French holders of Egyptian shares resulted in the despatch of a new Anglo-French financial commission to Egypt. Goschen, the Egyptian Government’s biggest creditor, represented the interests of the British bankers, and Joubert-the interests of the French. On November 18, 1876, on the basis of the conclusions drawn by the Goschen-Joubert Commission, the Khedive issued a new decree, consolidating the Egyptian debt. The Consolidated Debt was split up into four separate parts: (1) the loans of 1864, 1865 and 1867, in which Göschen had a personal interest, formed the subject of a special arrangement with increased payment; (2) the personal debts of the Khedive also formed the subject of a separate arrangement known as Daira Sanieh and were defrayed by the revenues from the Khedive’s estates on which the loans had been secured; (3) a 5 per cent preference stock, in security for which the revenues from the railways and from the Port of Alexandria were ceded. A special commission of two Englishmen, one Frenchman and two Egyptians was set up to administer the debts; (4) the other loans that remained after the division of the above-mentioned debts. They comprised the basic debt of £59,000,000 with a 7 per cent interest rate per annum. This debt remained under the control of the Debt Commission, which had been formed in May 1867 and was soon joined by Major Baring of Britain (later Lord Cromer). Colonial administrator, finance expert and relative of one of the richest bankers in London, Lord Cromer was the British banks’ natural choice as their leading agent in Cairo. Before his appointment to Egypt, Baring had for four years been the private secretary to the viceroy of India. Six years later he became the absolute ruler of Egypt.

Göschen and Joubert also secured from the Khedive the appointment of a British official as the general controller of Egypt’s revenues and a French official as the general controller of expenditure. This was termed Dual Control (Anglo-French) over Egypt’s finances. A third official, an Englishman, was appointed director of the budget department in the Egyptian Ministry of Finance, a fourth, a British general, was appointed director of Egypt’s railways. This small group of foreign functionaries began to dictate its orders to the Egyptian people as though they owned the country. The Egyptian Minister of Finance, Ismail Sadik, who tried to protest against the decisions of the Göschen-Joubert Commission, drowned mysteriously in the Nile.


The foreign controllers and the debt commissioners made it their chief task to squeeze out of the Egyptian people the funds needed to meet the coupons on the ruinous loans.

In order to redeem the coupon of January 1877, the taxes levied on the population, especially on the fellaheen, were collected nine to twelve months in advance. The government sent punitive detachments to the villages to put these measures into practice. Taxes were extorted by torture, for which the notorious Egyptian kurbash, a whip with five lashes made of rhinoceros hide, was used. With the tax gatherers and punitive detachments came the local money-lenders, Copts and Greeks, who bought up the peasants’ crops for next to nothing, and even that little the peasants immediately gave to the tax gatherers. These extraordinary measures enabled the Egyptian Government to pay the interest on its debts, but it stopped paying salaries to its own Egyptian functionaries and officers.

In the summer of 1877, there was a low Nile followed by a crop failure. Thousands of fellaheen died of hunger and disease. People ate grass and leaves; women and children went begging from village to village, but no one gave them bread. Even under such circumstances the foreign money-lenders managed to squeeze their spoils from the Egyptian countryside. In a statement of almost unparalleled cynicism the French Government declared: “The distress alleged to exist in Egypt is fictitious and the arguments based on the impoverishment of the country have been fabricated in order to throw dust in the eyes of the public and to excite humanitarian sympathy where no sympathy is deserved.” [L. Cromer, Modern Egypt, Vol. I, London, 1908, p. 36] When the time came to pay for the debt, which fell due in April 1878, punitive detachments were once again sent to the Egyptian countryside, once again the kurbash was put to use once again the army of money-lenders descended on the villages like a swarm of locusts. They bought the growing wheat from the fellaheen for 50 piastres an ardeb when it was actually worth 120 piastres an ardeb. Great were the sufferings of the Egyptian people, but the coupon was paid for in full. The British and French bankers celebrated their victory.

At the beginning of 1878, the bankers demanded that Ismail should form a commission to inquire into the state of Egypt’s finances. Ferdinand de Lesseps, the designer of tit Suez Canal, was appointed President of the Commission, but he was merely a figurehead and took no active part in the proceedings. The real President was the Vice-President Rivers Wilson, a British Treasury official. The other Vice President was Riadh Pasha, a reactionary Egyptian working for the British. The debt commissioners were members of the Commission of Inquiry and among them was Major Baring.

The Commission of Inquiry immediately adopted an arrogant tone and it treated Khedive Ismail and his ministers as though they were on trial. It summoned the Minister of Justice, Sherif Pasha, to give testimony and, when he refused to attend and offered instead to present the evidence in written form, the Commission demanded his resignation. In its reports the Commission denounced the forms and method of Egyptian administration and brought action against the Khedive. It held him personally responsible for the situation prevailing in Egypt and the state of her finances. The Commission of Inquiry decided to force the Khedive to accept a Civil List and to hand over his estates to the London banker, Rothschild, as a security for a new loan.

Finally, the Commission demanded that the Khedive relinquish his control over state affairs in favour of a “reliable” cabinet composed largely of foreigners.


Obliged to agree to the demands of the Commission of Inquiry, the Khedive ceded his estates and, on August 28, 1878, appointed a new cabinet, consisting primarily of European officials. It was headed by the local Armenian compradore, Nubar Pasha, who was well known for his connections with the banks of London and Paris. According to Cromer, the Pasha “carried but little weight with the population, with whom, moreover, owing to his ignorance of Arabic, he was unable to communicate in their own language. He could only rely on persuasion and on the support of two foreign governments.” [L. Cromer, op. cit., p. 72.] In reality, the cabinet was run by Rivers Wilson, the effective President of the Commission of Inquiry, who occupied a key post in the Ministry of Finance. The commissioner of debts, the Frenchman Blignières, was appointed Minister of Public Works. The Austrian and Italian representatives were made controllers-general and assistants to the Minister of Finance. Riaz Pasha’s subservience to Wilson and Baring was not forgotten and he was appointed Minister of the Interior.

This government, appropriately called the “European cabinet” by the Egyptians, was universally hated. The Europeans now controlled the whole of Egypt, as well as her finances. Deprived of any independence she might previously have possessed, Egypt was transformed into a colony ,of the Anglo-French bankers. In reply to the growing aggression of foreign capital there began to mature in Egypt a national liberation movement that was soon to bring about the overthrow of the “European cabinet.”