Syrian lira in free fall

Bassel Oudat in Damascus, Tuesday 17 Dec 2019

The Syrian regime has been benefitting from the ongoing collapse in the value of the country’s currency

Syrian lira in free fall

It is no surprise that the Syrian lira has collapsed after nine years of war, the destruction of 40 per cent of the country’s infrastructure, and the displacement of half the population to neighbouring and other countries.

This month alone, the value of the lira against the US dollar dropped to 950 lira to the dollar, and the regime did nothing to stop the drop. Syria may now float its currency, leading to a further collapse.

The Syrian lira has lost more than 100 per cent of its value over the past two months, with one US dollar being worth 463 lira at the end of September. It is unlikely that the Syrian government will be able to control the free fall of the currency. In 2011, the year of the beginning of the uprising against the regime led by Syrian President Bashar Al-Assad, one US dollar was worth 50 lira. Today, it is worth 19 times as much.

Adel Qatna, an economist, told the Weekly that “the Syrian lira is no longer linked to the economy, but rather to the whims of the regime. This only supports the currency with words.”

Along with the dramatic fall of the lira, 16 local councils in northeast Syria, areas under the control of the Turkish-backed armed opposition, have decided to ban the circulation of 2,000 lira notes.

Services such as Internet subscriptions and electricity bills must now be paid in US dollars or Turkish lira. The 2,000 lira note has a picture of Al-Assad on it and was first issued by the Central Bank of Syria two years ago.

According to local critics, the government has become addicted to printing fiat money not backed by gold in order to attract foreign currencies to areas under opposition or Turkish control.

Despite requests by the opposition to residents in areas not under regime control to use the Turkish lira or the US dollar instead of the Syrian lira, the majority of transactions are still in the Syrian currency.

 Osama Al-Qadi, head of the Syrian Economic Task Force, a national agency, commented that “the national currency has reached catastrophic lows and dropped to unprecedented levels. The economic crisis does not bode well for the future of the Syrian lira, which now has no real value.”

 “Syria’s GNP no longer includes revenues from oil and tourism, while agriculture, industry and trade are at a standstill. The cosmetic interference by the security agencies in the market, such as forcing exchange bureau to pay $5 million, pressuring merchants to pay $10 million, or jailing exchange-bureau owners, might slow down the collapse of the lira, but they are not real solutions.”

The currency began to unravel when Al-Assad issued a decree last month to increase the salaries of government employees, including civilian, military and temporary staff. This meant a sudden increase in government liabilities, particularly since the country is in a financial crisis resulting from the collapse of the economy and the lack of funding from the regime’s financiers Russia and Iran.

Aref Dalilah, a Syrian researcher, linked the collapse of the lira with “domestic developments, especially on the security front, as well as economic issues such the drop in the production of basic commodities, spending and rampant corruption not backed by any reserves or revenues.”

“Raising salaries at this time makes things worse. People deserve an increase, but it must be of real value and not a nominal increase that diminishes their already sparse resources,” he said.

When the lira was last devalued in 2012, the regime said the cause was a “universal conspiracy.” Later, it said the move had been necessary because of the war and its repercussions, and then it was due to the economic sanctions. The most recent cause for the currency’s collapse has been the “sudden discovery” that billions have been smuggled overseas.

The regime has even accused Syrian businessmen of falsifying their records, but it has been able to do nothing to stop the lira from collapsing.

The regime did not effectively intervene to stop the collapse, some even believing that it is sponsoring it because an increase in the value of the dollar will reduce the salaries owed to more than 1.5 million civilian and military employees.

The annual salary budget is estimated at $2 billion if the lira is at 500 to the dollar. This will drop to $1 billion if the lira devalues to 1,000.

In June 2019, the Governor of Syria’s Central Bank Hazem Qarful, claimed that “the rise in the value of the dollar is an illusion and has no economic justification. Some speculators have been accustomed to certain policies in the past, but we can now control the exchange rate through stimulating the economy.”

This month, the Syrian Minister of the Economy claimed that “the economy is improving, but people do not feel this.”

Syria is afflicted with corruption, smuggling, war and its repercussions, European and US sanctions, a lack of clear economic plans, the impact of sanctions on Iran, which has suspended Syria’s line of credit, and other factors. The collapse of the lira comes in a climate of public anger and frustration at the regime and its association with financial mafias and warlords.

Some in the opposition believe that the collapse of the currency could lead to the collapse of the regime, but the economic reality indicates otherwise. “The impact of the economic collapse on the regime is negligible,” Al-Qadi said. “This is because the economic crisis is strangling the people, and any protests are put down with an iron fist.”

The collapse of the lira has been accompanied by a surge in stockpiling food and other commodities. “Today will be cheaper than tomorrow,” many think, indicating a general sense that the currency will continue to drop.

In order to address the free fall, Dalilah said that “production should be increased, and the causes of its collapse should be addressed, notably corruption. Steps should be taken to aid the return of the displaced and refugees to their homes, as well as the release of detainees. This means halting the military and security practices and launching a political solution to the crisis.”

“What has happened has been a catastrophic approach that ignores the primary job of government, which is economic and social development and raising the living standards of the country and its citizens,” he said.

However, if this is the only way to halt the free fall of the Syrian lira, the people will have to wait a long time as they watch its successive drops. What Dalilah is suggesting is what the people have been demanding for the past nine years, while the regime has refused to budge.

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