Saving the Syrian lira?

Bassel Oudat , Thursday 12 Sep 2019

The value of the Syrian currency has been falling further against the dollar, with inflation in excess of one thousand per cent being recorded since the outbreak of the conflict in the country, writes Bassel Oudat in Damascus

Syrian Lira
Syrian Lira (L) and US Dollars are seen in a currency exchange shop in Syria (Reuters)

The exchange rate of the Syrian lira dropped sharply in early September to its lowest rate since the start of the revolution in 2011 to reach 650 lira to the US dollar.

The Syrian people have been suffering from rising prices for food, fuel and goods since most incomes can no longer keep up with the cost of living, especially those of the country’s civil servants whose average income is less than $100 a month.

The lira has nosedived to 580 to the dollar over the past couple of years, but this month it depreciated by 12 per cent of its average rate.

The drop coincided with the 61st Damascus International Fair, which the government of Syrian President Bashar Al-Assad has been relying on in order to revive the economy and convince others to participate in rebuilding the country.

These hopes were shattered by the US refusal to participate in the reconstruction of Syria before reaching a political solution to the crisis and threats to impose sanctions on any country or company forging economic relations with Syria.

The value of the dollar gradually climbed in 2019, reaching more than 500 lira in February before jumping to 650 this month. The opposition in Syria says that all the indicators show that the lira will continue to depreciate and that it could collapse altogether.

The Central Bank of Syria (CBS) has not been able to intervene to save the national currency, which has seen inflation of 1,300 per cent. In early 2011, one dollar was worth 50 lira.

During the eight years of pummeling the country’s infrastructure and paralysis of its economy that the conflict has led to, the lira has gone into freefall, making Syrians anxious about holding onto the currency and increasing demand for the dollar.

Some studies have found that the war has cost Syria $380 billion so far, or seven times the country’s GDP in 2010. After the national currency nosedived this month, the state-controlled media began talking about a “conspiracy” and asserting that the high exchange rate was fictitious, though without giving any economic basis for this.

It said the exchange rate was part of a systematic campaign to weaken Syria economically by undermining confidence in its transactions and causing people to abandon the national currency, adding that the real reason for the fall in the value of the lira was the economic sanctions by the US against Syria and Iran.

The Syrian regime thus continues to deny economic realities, claiming every year when it issues the government budget that it is in control of the economy and that an economic takeoff is just around the corner.

It claims it can rebuild Syria in partnership with its allies, refusing to discuss the deterioration of the economy. It also refuses to address the corruption gnawing at the government and regime.

The former governor of the CBS was able to raise the value of the lira in 2017 and 2018 by intervening in the foreign-exchange market, pumping in large amounts of dollars and selling directly on the market.

However, this intervention was temporary because of the CBS’s dwindling dollar reserves, and there is now little chance of replenishing them.

The CBS can no longer cover the cost of imports, and there is continuous demand on the dollar in the local market to pay for them, causing the lira to go into free fall.

As the government has continued to print money without this being covered by production, inflation has reached a staggering 1,200 per cent from 2011 until today.

Mohamed Al-Mohamed, a Syrian economic analyst, asked “why are they denying there are economic causes for the depreciation of the lira? Why are they avoiding discussion about the CBS’s inability to intervene on the exchange market? Why can’t Al-Assad admit that the reason the Central Bank cannot intervene is because the foreign currency reserves have dried up?”

“Denying or ignoring these facts does not solve the problem. Once again, the regime is trying to solve its financial crises through security means by arresting bankers, closing currency exchange companies, and imposing an official rate for the dollar that is lower than its value on the black market. It is failing miserably because it is an economic problem and its solution must be economic also.”

Former president Hafez Al-Assad made revenues from Syrian oil sales a private matter and isolated them from the country’s general budget, with the same policy continuing under his son Bashar. Foreign reserves are handled as if they were a matter for the president alone, and they cannot be discussed in parliament.

However, according to the World Bank, before 2011 Syria had $18 billion in foreign reserves, and today estimates vary between $700 and $800 million.

The Syrian government is trying to resolve the problem of rebuilding the reserves at the expense of the business community. “We have given you all you asked for, and now it is your turn to return the favour,” the prime minister told Syrian businessmen recently.

 “If every businessman who has $10 million or $20 million deposited one or two million in the national banks, we would have no less than $6 billion, and the exchange rate you are complaining about would stabilise,” he added.

But most businessmen close to the regime deposit their money overseas in Arab and foreign banks and do not trust the stability of the regime or that it will remain in power. They are also worried the regime could turn on them and confiscate their assets.

The government wants the private sector to help save it and offset the economic siege, but the private sector is cautious and rejects such solutions. Syria’s businessmen want to hold on to their dollar funds to save their assets if economic conditions deteriorate further and the value of the lira collapses.

Meanwhile, the Syrian prime minister wants Syrian business owners to provide hundreds of millions to help the state, while staying away from the country’s economic oligarchs in an exercise known to Syrians as part of the “economic façade” of the regime.

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