The Lebanese model for Syrian reconstruction: The ESCWA bid to hold Syria hostage to debt

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Rescure workers walk past a damaged building following an alleged Syrian government barrel bomb attack in the northern Syrian city of Aleppo on September 5, 2014. (Photo: AFP-Zein al-Rifai)

By: Firas Abou-Mosleh

Published Thursday, September 11, 2014

Debt and conditional grants, or continued devastation: These are the only options that the United Nations Economic and Social Commission for Western Asia (ESCWA) seems to be giving to the Syrians, as if to say that they have no choice but to go through the practical application of the so-called Shock Doctrine, where disasters are exploited by a handful of banks, corporations, and speculators to reap huge profits at the expense of the living standards of all Syrians. But isn’t this exactly what happened in Lebanon in the 1990s?

“It is no longer possible to finance deficits using internal savings. There is no alternative to grants, foreign direct investment, or foreign debt in order to be able to continue financing the budget deficit.” This was more or less the gist of what chief economist at ESCWA and Syria’s former Deputy Prime Minister for Economic Affairs Abdullah al-Dardari wanted to say. Dardari was giving the bottom line of the “technical” report released by ESCWA on Wednesday, titled “The Cost of conflict in Syria: The impact on the economy and Millennium Development Goals (MDGs).”

A Syrian economist’s view

The dean of the Faculty of Economics at the University of Damascus, Ruslan Khaddour, called on ESCWA member states to lift the embargo and economic sanctions imposed on Syria, stressing that this would improve the socio-economic indicators that ESCWA is using as a pretext to suggest the country faces a de facto reality that imposes on it having to borrow from abroad and accept conditional grants.

Khaddour believes that there is an “exaggeration” in the figures contained in ESCWA’s report, which indicate that around 50 percent of homes have been damaged in the conflict, and that 90 percent of the population has fallen below the poverty line. The economist also expressed concern over the so-called roadmap in the report, which he said had a “political-security” dimension.

Khaddour argues that Syria has enough local sources of revenue to fund reconstruction. He also said that Syria is relying on the BRICS (Brazil, Russia, India, China, and South Africa) and other non-NATO nations to provide credit facilities to finance the works, adding that the countries that participated in arming the Islamic State (IS/ISIS) and al-Nusra Front must pay reparations, rather than grants, for the crimes committed by the groups that they have been sponsoring.

Dardari explains

Dardari began his address by saying, “The question is what is left of Syria now.” He claimed that the country was “indeed” on a path that would have led to the achievement of the MDGs for 2015, and that Syria had “exceeded expectations” in the fulfillment of the MDGs in 2010 before the conflict started. According to Dardari, the country – which was “on the verge of reaching an important stage of development” – has now “squandered” the opportunity.

Dardari said that unemployment in Syria amounted to about 54 percent by the end of 2013, compared to no more than 9 percent before the war. Dardari pointed out that the country would have experienced large-scale starvation were it not for the solidarity shown by the Syrian people, saying that this is something positive that must be built upon.

“The figures of the report raise more questions,” explained Dardari, before he provided his ready-made answer: The solution is “either grants or debts, or a combination of the two.”

In response to questions from reporters, Dardari said that Syria’s internal revenues are almost at a maximum, re-proposing the same two options: either finance the deficit by borrowing, or accept grants. Dardari justified this by saying that the extent of devastation suffered by homes in Syria exceeds the country’s ability to finance their reconstruction, adding that the “disaster is too great to be covered by oil and production revenues [alone].”

The ESCWA official also insisted that the report was “technical and not political,” warning that the continuation of the crisis will shrink the available window of opportunity. However, he said at the same time that figures show Syria has the financial and institutional wherewithal that makes reconstruction possible, “if they were harnessed effectively,” stressing that “Syria has risen from every setback over the past years.”

The ESCWA report

Hadi Bashir, head of Economic Modeling and Forecasting at ESCWA, explains that the report estimates the total losses incurred by the Syrian economy during three years of conflict at about $139.77 billion, broken down to $95.97 billion incurred by the private sector (68.7 percent) and $43.8 billion incurred by the public sector. According to the report, the real GDP (at 2010 fixed prices) fell from $60 billion in 2010 to about $33 billion in 2013. Real GDP losses (in 2010 prices) over the past three years amounted to $70.67 billion.

The data contained in the report indicates that the Syrian economy is in inflationary recession, with consumer price inflation rising significantly during the war to 89.62 percent, peaking in the period between 2012 and 2013. For instance, the prices of food and beverages in particular had ballooned, rising by 107.87 percent in the same period. The report attributes the acceleration of inflation to the declining value of the Syrian pound against other currencies on the black market, with prices rising as a result by 173 percent between 2010 and 2013.

According to Bashir, tax collection decreased by 65 percent, while public current expenditure increased against falling investment spending as a result of GDP. Domestic debt increased, and so did foreign debt, albeit slightly given the difficulty of access to financing. Bashir also pointed out that the increased local financing of the deficit has deprived the economic sectors of funding, in what is known as the crowding-out effect.

For his part, Khaled Abu Ismail, head of Economic Policy in ESCWA, said, “What Syria achieved in decades of development, it exhausted in three years.” Abu Ismail said that the Syrian society and economy is now far from being able to fulfill the MDGs, stressing that the choices Syria has as a beleaguered country are limited to those Dardari had spoken about.

According to the report, Syria had made significant progress in implementing the MDGs. In the 2010 report, Syria was ranked third in terms of the Arab countries working on the MDGs, but then declined to the second last rank in the Arab world, ahead of Somalia. Syria had also succeeded in reducing the ratio of people who earned less than $1.25 a day to the total population from 7.9 percent to 0.2 percent between 1997 and 2010.

Now, however, poverty indicators have all risen, including the upper poverty line, the bottom poverty line, and extreme poverty as a result of the war, the economic embargo, rising unemployment, and the soaring cost of nearly all goods – the consequence of low domestic production and scarcity of goods and services, and the declining purchasing power of the national currency.

According to the report, the number of people below the poverty line has soared as a result of the war to 4 million (18 percent of the population). The primary education enrollment ratio dropped from 98.4 percent in 2011 to 70 percent. At the level of healthcare, child vaccination rates dropped from nearly 100 percent in all governorates prior to the war to 50-70 percent across the governorates, and even to 0 percent in some regions. It is also estimated that the maternal mortality rate reached 62.7 cases per 100,000 births in 2013, as a result of the damage to healthcare infrastructure, and the near total collapse of local drug production under the embargo, which has led to the return of diseases that the Syrians had long forgotten, and the aggravation of diseases that had not been widespread.

Collapse of growth between 2010 and 2013

Unit 2010 2011 2012 2013
GDP (At fixed 2010 rates $ Billion 60.19 55.92 40.15 33.45
Change in GDP % 3.2% -6.8 -28.2 -16.7
Inflation % 4.4 4.8 37.4 89.62
Net exports $ billion -6.208 -9.369 -5.374 -0.649
Unemployment % 8.61 22.33 40.43 54.19
GDP declined by half,
inflation rose to 90%, exports fell by 95%, imports fell by 93%, and
unemployment rose 54%

This article is an edited translation from the Arabic Edition.

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