This entry could also be titled “What happens when a country borrows too much money, can’t raise more, and lacks a particularly powerful military.” The gentleman pictured above is Ismail the Magnificent, ruler of Egypt from 1863 to 1879, was a 19th century progressive dream ruler – he strove to take Egypt from its traditionally dominated government and society and rapidly thrust his nation into the modern age. As he took the throne of Egypt the nation was undergoing an economic boom, the price of cotton was elevated globally due to the United States Civil War and the coffers of the Egyptian state were swollen with increased tax revenue. Ismail however pursued his aggressive modernization schemes far too rapidly for his state to absorb the costs – during his reign he funded a major railway expansion in Egypt, a heavily reformed post office and customs system, commercial stimulation, a government sponsored sugar industry, major urban renewal and expansion programs, a state supported theater and opera house, and a series of expensive and nasty wars in Ethiopia. He also oversaw the completion of the Egyptian portion of the Suez Canal and engaged in a nasty legal battle with the Suez Canal Company, a case he lost when Napoleon III arbitrated a concessions dispute and awarded damages to the Suez Canal Company. Ismail needed huge influxes of capital to fund all of these ambitious goals so he borrowed and expanded Egypt’s sovereign debt. He expanded it a great deal. When he came to the throne Egypt owed three million pounds sterling in debt, at the end of his independent reign Egypt owed one hundred million pounds sterling in debt.
At that point Egypt was funding its debt with more borrowing, Ismail had hocked the valuable government held shares in a the Suez Canal Company for a pittance, and Egypt had reached a point that by 1876 it was no longer able to “service its debt” – i.e. pay the interest owed on the borrowed money. A commission was sent, headed by two British government officials, to investigate the problem and seek a solution.
Above is one of them, Stephen Cave, the finding of the British Commission was that the only way Egypt could hope to resume service on its massive debt was to accept foreign intervention into its financial affairs. In a move many today would recognize Egypt was put on an austerity budget and revenue from the Suez Canal, customs and import duties, and other government income sources passed through a foreign holding company which ensured that the debt holders got payments first and the Egyptian state got a fixed remainder of the budget. (The holding company was known as Caisse de la Dette – the Public Debt Commission.) These reforms lead to a sizable reduction in the available budget for Egypt’s other government projects, which in turn provoked a major uprising by the Egyptian people against their government’s acceptance of these actions and the power of the Public Debt Commission.
This story doesn’t have a happy ending for popular sovereignty, by 1881 popular unrest, discontent in the Egyptian military, and other factors lead to a rebellion, this concerned the British who in 1882 began military operations against Egypt. The ensuing Anglo-Egyptian war lasted for about a year and ended with Britain crushing the locally raised armies and imposing British control over Egypt. Britain, along with France, also continued to control the revenues of the Egyptian government and enforced the servicing of Egypt’s debt until the end of the British occupation in 1954.