Maladministration under Abdul Hamid followed by the dis asters of the Italian war of 1911 and the Balkan war of 1912 and the Great War from 1914 to 1918, has plunged the finances of Turkey into difficulties such as no other country now faces. Nevertheless, the fact that there has been no financial crisis com parable to those in Germany and Austria after the war is re markable and it is noteworthy that the Turkish Lire that before the war was almost the equivalent of the English pound in value, was in 1919 of an exchange value of about 1.50 LT to the pound sterling, while since then it has sunk slowly to about 9.50, at which figure it now remains. The budget presented to the National Assembly in 1925-26 showed a Revenue of LT 978 and an expenditure of LT 162,228,942, with a consequent deficit of LT 16,981,964. But after the budget had passed the Assembly the expenditure was increased by nearly three million Turkish pounds and the revenue was shown as slightly decreased, with a consequent deficit of LT 30,885,873.
The budget for 1926-27 shows an estimated expenditure of LT 188,141,708, but the revenue is not yet known.
National defence is by far the largest item of expense. In 1924-25 it cost LT 26,279,386, in 1925-26 LT 43,058,874 and in 1926-27 LT This progressive increase follows to some extent the progressive prosperity of the country but the expendi ture on armed forces still remains extremely high, being well over twice the expenditure on public works (the next largest item) in the last two years. And while it was about a quarter of the whole expenditure in 1924-25 it is almost a third in 1926-27. Another non-productive expense, which only appears first in 1925-26, is that on military factories, which in that year is some four million Turkish pounds and in the estimates for the next year increased by a million. Gendarmerie also costs an average of ten million Turkish pounds, without much annual variation. On the other hand, the expenditure on public works shows a small but steady increase in three years from 17 to 224 million Turkish pounds. Education, however, which in 1924-25 cost LT 6,877,626, has decreased in 1926-27 to LT 6,000,184.
The financial situation of Turkey is complicated by her heritage from the past. While paying no reparations for the war of 1914 18 she is still saddled by a very large foreign debt.
Constantinople for the further payment of their claims. The "Decree of Muharrem," issued on Dec. 20, 1881, made arrange ments for the reduction of the debt from £252,801,805 to A minimum of 1% was fixed as interest on this sum, to be increased as opportunity offered. But an International body was appointed to supervise the administration of the debt known as the "Council of Administration of the Ottoman Public Debt," and it was composed of one member each from Great Britain, Austria-Hungary, France, Germany, Italy and Turkey and one from the Imperial Ottoman Bank. This council had charge of the duties on spirits, stamps, silk, salt and some other revenues assigned for payment of interest on the debt. In 1914, however, all payments ceased and Turkey entered the war. On the estab lishment of the National Assembly all these revenues assigned to the debt were taken over for purposes of revenue to the Turkish budget, so that between 1914 and 1924 virtually no payments of interest to bondholders were made by the Turkish authorities. But in 1920 the Debt Council, from accumulated funds, were able to make some small payments on coupons that had matured be tween 1915 and 1920 and further payments have been made on coupons up to 1922.
By the Treaty of Lausanne, which came into force in the territories detached from Turkey as a result of the War were called upon to contribute to the Ottoman debt, which at that time was estimated at LT 141,666,299. Of this sum the New Turkey was responsible for LT Albania, the Hejaz, Iraq, Nejd, Maan, Palestine, Trans-Jordan and parts of Asiatic Turkey now incorporated in Greece, Bulgaria and Yugoslavia are responsible for the substantial contributions. But so far the only provinces to whom payments were so assigned which have either made arrangements to pay, or paid, are Palestine (whose payment was partial only), Syria, Lebanon and Greece.
Taxation.—The present Government is deriving most of its revenue from direct taxation, which, on the whole shows a tend ency to increase. Customs tariffs are not high and the bulk of the taxation is internal. Indirect taxes are also very heavy and the prosperity of the country is suffering from the inability of new enterprises to survive the rigours of taxation in their early stages. Bankruptcies have been more frequent in 1928 than in 1927 and there is not so marked a growth of prosperity as was evident between 1922 and 1926.