Syrian Currency on Downward Spiral, People Pay the Price
By: Muhammad Shalabi
Published Thursday, March 15, 2012
Economic and financial sanctions have sent the economy and the Syrian pound into a free fall, and caused increasing inflation. But the regime and its entourage aren’t the ones hurting.
Damascus – It is no secret that the Syrian economy is in crisis. The value of the local currency against the US dollar has decreased by half in the last few months and it has lost between 35 to 50 percent of its purchasing power. Syrians fear economic calamity is approaching.
Before the unrest began in March last year, the Syrian economy was supposedly experiencing a golden age. The Syrian pound’s exchange rate against the US dollar and other hard currencies was stable, privately-owned banks increased in number, and the Damascus stock exchange was opened.
Although Syria is a comparatively small country in terms of area, population, and resources, its banks accumulated the third-largest reserve of foreign currency in the Arab world, estimated at between US$12 billion to US$17 billion. That was the equivalent of Syria’s entire imports bill for eight months – around the time it took from the start of the unrest for the Syrian pound’s exchange rate to start collapsing.
Economists say that one of the most important factors behind Syria’s economic stability over the past ten years was the regime's ability to settle a large proportion of its debts with countries of the former Socialist bloc countries.
So was what one analyst describes as the "backdoor foreign policy" long pursued by the regime, which helped it maintain relative economic and political stability at home.
Historically, the regime has been skilled at protecting the country from the economic fallout of regional political crises, or even turning them to its economic advantage. For example, it was inundated with Arab aid after the 1967 and 1973 wars with Israel, and again in 1976 when Syrian forces entered Lebanon with the blessing of Arab countries and the international community.
In 1982, the late President Hafez Assad secured full debt forgiveness from the former Soviet Union after his forces confronted the Israeli invasion of Lebanon – and also for having publicly supported the Soviet intervention in Afghanistan.
The regime also received massive financial support in 1991 from the Gulf states, especially Kuwait, in exchange for joining the US-led coalition in its war on Iraq after its invasion of the emirate. Iraqi money also began flooding into Syria after 1997 while Iraq was subject to draconian international sanctions.
Such infusions of money appear partially to explain why Syrian decision-makers neglected the issue of political and social reforms and internal democracy. Their attitude appeared to be that so long as the economy could be kept afloat, there was no need to risk introducing changes that could harm their interests and influence.
Yet many in the Syrian opposition are convinced that the main reason for the eruption of the current uprising was economic. Huge disparities in the distribution of wealth and a fast-growing population caused increased levels of poverty. The lower and middle classes rose up because of these social injustices, in addition to other factors such as the lack of democracy or freedom of expression. Syrians had hoped for change when the young Bashar Assad assumed the presidency. But draft laws and proposed reforms remained in desk drawers for years, and were replaced by a piecemeal approach.
Meanwhile, the currency has lost about 40 percent of its purchasing power in the past two months, while the price of food and consumer goods has risen to insane levels.
Syrians expect that the worst is yet to come, as the prospect looms of yet further economic and financial sanctions. The country faces the prospect of an "economic siege that will be much more difficult than our parents endured in the 1980s," remarks Issa, a student of economics at Damascus University. “Whatever form economic sanctions, the Syrian people will be the ones most affected by them," he says.
His friend Ahmad, an English language student, agrees. "Is starving the Syrian people what the international community and Arab League want?” He asks angrily, adding, “Will economic sanctions affect those who loot the Syrian peoples' pockets every day? All these economic measures and sanctions will not affect the Syrian regime and its entourage. It is us, alone, who will pay the price."
This article is an edited translation from the Arabic Edition.