Frs. 53,822,130

CONSTANTINOPLE, December 1917.

sums spent on the coast lines to Mersina and Alexandretta, which were badly damaged and rendered unworkable by the Allied Fleet. Even allowing a large discount for war losses, and taking no account of the considerable assistance in personnel, locomotives, rolling stock, etc., provided free of charge by the Germans, the deficit at the end of 1916 is shown to have been at least two and a half times the entire amount of the company's capital and reserves. The deficiencies were hidden from the public so far as possible; it is instructive to compare the secret balance sheet submitted to Berlin with that prepared for the benefit of the shareholders. The effect of the war on Turkish credit had been such that, even had the Central Powers been victorious, Turkish 4 per cent. bonds would have been of small value. As the so-called Debentures (Obligations) of the Bagdad Railway were in reality Turkish bonds, the completion of the railway-nay, even the carrying out of the programme guaranteed by the Agreement of June 1908-was out of the question. Construction work was indeed continuing: in fact, the famous Taurus Tunnel System was completed not long before the Armistice, Allied prisoners and Armenians having provided much cheap labour; but the line was run during 1917 and the early part of 1918 to all intents and purposes as a temporary military railway worked by the army for its own purposes, Colonel von Oldershausen, the German Director of Military Railways in Turkey (Deutscher Chef des Feldeisenbahnwesens in der Türkei), being the responsible authority. The constant advance of the British in Mesopotamia rendered the future even more uncertain. The German Government, therefore, took no steps to put matters straight. The Turks on their side knew that German prestige, even apart from the Kaiser's personal intervention, required the completion of the Bagdad Railway. They considered, therefore, that it was the business of the German Government to render its completion possible. Turkey had everything to gain by the projected railway, and, as Abdul Hamid had foreseen long before, she was in the ideal position of being able to rely upon Germany for its completion. The finances of Turkey were already in a state of chaos. Knowing that the military importance of the railway was such that Germany could not neglect

it, the Turks declined to assist the Bagdad Railway in

any way.

Attempts were made to induce the German Government to guarantee a fresh Turkish loan. Should Turkish pride object to the guaranteeing of their State loan by a foreign government, it was suggested that Germany might pledge her credit as surety for an issue of debentures by the railway acting alone. But the Reichstag, whose consent would have been necessary for this, wisely declined to consider any such scheme.

It was then proposed that Germany should advance two hundred million marks for the purpose of extending the line to Samarra and putting it into good order generally. The Turkish Government, to whom the advance was to be made, were to take the financial responsibility and settle accounts with Germany after the War. As for the railway company and the Construction Company they would be prepared to cut their losses in the past, provided they could obtain some interest on their capital. The Turkish Government, however, declined to consider this proposition.

It was clear that any scheme for financial betterment must not count on Turkish assistance. The company, therefore, suggested that Germany should lend them a hundred million marks, at a rate not exceeding 3 per cent. As security for this advance they were prepared to hand over Bagdad Bonds of the Second and Third Loans, reckoning them at 82 per cent., a price which, needless to say, would not have been obtained in the open market. It was reckoned that the sums due for interest and repayment on these Bonds would be sufficient to provide interest at 3 per cent. and to repay 2 per cent. on the loan yearly. A table of yearly payments was prepared to show that this debt could be repaid with interest in thirty-one years.

It was hoped that twelve years would suffice for the completion and organisation of the railway and the partial development of the country traversed, and that there would be some possibility then of paying interest on and attempting the repayment of the various Bagdad Loans. It is true that the company would continue to yield no dividends; but, as the German confidential report pathetically remarks, the shareholders were