AMMAN — Less than two weeks after ushering in the new decade, Syria broke a record. On January 12, the value of the Syrian pound plunged past the symbolic 1,000 mark, trading at SYP 1,020 to the dollar on the black market.
A few days later, however, Bouthaina Shaaban, political and media adviser to Syrian President Bashar al-Assad, said that “I have met with officials in charge of the economy and they told me that the economy today is 50 times better than 2011.” Her comments soon became the butt of numerous jokes online and were even met by harsh criticism from several members of parliament and pro-government supporters.
The recent plummet of the Syrian pound comes as the result of a number of factors: the continuing crisis in Lebanon’s financial sector, the expansion of the Turkish lira in northern Syria, increased Iran-US tensions, and the deepening of US sanctions through the Caesar Act.
However, for Syrians and close observers of the Syrian economy, the collapse of the Syrian pound has much deeper, systemic roots. In early 2011, the value of the national currency stood at SYP 47 to the dollar; today, this figure stands at SYP 1045.
In the face of this mounting economic crisis, government institutions and spokespersons have responded in various ways. Shaaban’s comments may have been a source of humor for many, but her outright denial of the crisis is one indication of how the government is handling the economic situation.
How has the government been responding?
Earlier this month, Bashar al-Assad issued two decrees in response to the deteriorating economic situation. Continuing to ignore the root causes of economic decline and unwilling to alter its macroeconomic policy, the government has instead relied on further punitive measures.
On January 18, al-Assad issued Legislative Decree No. 3 of 2020, which further criminalized the use of foreign currencies while conducting financial transactions inside Syria, increasing the existing punishment to seven years of penal labor. The same day, he issued Legislative Decree No. 4, which imposed temporary detention and raised fines on anyone “broadcasting, publishing, or republishing false facts or fake allegations” about the value of the Syrian pound.
“The issuing of decrees that criminalize and punish foreign currency transactions are not new. They were present in the 1980s under Hafez al-Assad, but the punishments are much more important this time,” Joseph Daher, a scholar of political economy at Lausanne University, told Syria Direct. Previously, these punishments had not been applied in any systematic manner, but now it seems that the government is taking action “to show that it is doing something,” noted Daher.
For example, in December, the Syrian Central Bank closed various branches of domestic money transfer companies for allegedly dealing in international transactions. Most recently, on January 21, the Central Bank issued a decision to close down 14 monetary transfer companies, accusing them of not playing “the role required of them in supporting the stability of the Syrian pound.” On the same day, the Ministry of Interior announced that it had detained three people in Tartus for allegedly using foreign currencies.
Zaki Mehchy, co-founder of the Syrian Center for Policy Research (SCPR), told Syria Direct that these crackdowns and security-driven reactions “may lead to a short-term appreciation in the SYP.” However, he remained pessimistic in the medium to long-term because “the government lacks control over all Syrian territories and widespread corruption persists in the security agencies, with many high-ranking security officers having an [financial] interest in SYP devaluation,” because they hold dollars.
Manaf Quman, a Syrian economic researcher, agreed with this assessment, adding that “the intimidation of traders and individuals may limit the circulation [of dollars] so that there is a slight improvement in the [value of the] pound, but this will be short-lived as individuals will find ways to circumvent the penalties and procedures that have been imposed.”
Big stick, little carrot
These repressive measures, however, may be the "stick" in a broader "carrot and stick" approach to solving some of Syria’s economic woes. Some of the recent decisions taken by the Central Bank suggest that its policies may be the "carrot" in this wider dual-strategy.
Although the Central Bank has pursued a policy of relative non-interventionism in the country’s money markets since 2016, in recent weeks, it has enacted several measures aimed at incentivizing citizens and businesspeople to deposit money in Syrian pounds and sell their foreign currency in order to shore up the bank’s foreign exchange reserves and strengthen general confidence in the economy.
On 12 January — the same day the Syrian pound surpassed the 1,000 mark — the Central Bank recommended issuing certificates of deposits (CD) in Syrian pounds to attract deposits from banks. A CD is a financial product offered by banks, which provides the customer a premium exchange rate in return for a fixed deposit that cannot be withdrawn for a certain period of time. Although commercial banks generally offer CDs rather than Central Banks, by doing so, the Central Bank aims to increase deposits in Syrian pounds and restrict the money supply to stave off inflation.
This was not the first time that the Central Bank issued CDs; between February 19 and August 2019, CDs were issued for similar reasons. Citing “positive results” and “a great turnout by eligible banks,” the Central Bank decided to repeat the measure less than a year later. However, data from the black market in 2019 suggests that the issuance of CDs did not strengthen the value of the Syrian pound. On February 19, 2019, the exchange rate of the Syrian pound stood at SYP 528, but by the end of August 2019, it increased to SYP 640.
Mehchy also expressed skepticism toward these measures. He told Syria Direct that the Central Bank’s policy, “will not work for very simple reasons: the lack of trust in government financial institutions and economic uncertainty accompanied by the absence of any political solutions.”
However, David Butter, a political and economic analyst at the London-based Chatham House institute, said that the Central Bank’s actions “are having some effect,” adding that if the gap between the official rate and the black market rate narrows, “they [the Central Bank] could have some leeway in devaluing the official rate.”
A week later, on January 20, the Central Bank announced that it would purchase US dollars without documentation from citizens at a preferential rate of SYP 700 — in between the official rate of SYP 438 and the black market rate of over SYP 1,000. As trading on the black market is illegal — with the two recent decrees signaling the government’s willingness to further crackdown on such activities — the preferential rate of SYP 700 may appeal to some Syrians who wish to legally convert their dollars into Syrian pounds.
Butter aptly summed up the "carrot and stick" approach: “if you have dollars and you think you can go out into the market and get 1,000, that's a risk. Now, the Central Bank is saying, ‘we’ll offer you something more reasonable instead and you won’t be breaking the law’.”
A tale of two classes
While Damascus has scrambled to fix the spiraling economy, it has leaned most heavily on ordinary citizens and small businesses who continue to bear the brunt of repressive measures, whereas government-connected figures have been operating with relative impunity.
Every so often, the government has embarked on anti-corruption efforts, denouncing high-profile businesspeople to demonstrate that it is responding to popular frustration and economic anguish. For example, in December 2019, the government placed Hussam Qaterji on a corruption list — an important oil trader who infamously facilitated shipments of crude oil between the Islamic State (IS), the Syrian Democratic Forces (SDF), and the Syrian government.
However, less than a month later, the regime helped facilitate the entrance of Qaterji and his brothers into Syria’s state-dominated oil sector. On January 9, 2020, Al-Iqtisadi reported that Bashar al-Assad issued three laws that ratified contracts aimed at establishing two private oil refineries, giving the Arfada Petroleum Company an 80% stake in the venture. Arfada is owned by Hussam Qaterji and his two brothers, Muhammed Baraa and Ahmad Bashir.
In other cases, the government has targeted certain figures but then backtracked on its actions. In October 2019, Tarif al-Akhras — an important businessman and the uncle of Asma al-Assad — was sanctioned by the Central Bank and his assets were frozen. A few days later, the Central Bank reversed its decision. Although this has happened numerous times to al-Akhras, it appears that his position remains relatively untouched.
Similarly, SyriaTel — Syria’s largest private company, owned by the Makhlouf family — has come under pressure from the government in the past year. Yet at the most recent general assembly, no significant changes had been made; the Makhlouf brothers attended with their shares in the company unchanged.
As Butter noted, “you could speculate that it's the carrot and stick [approach] again. The freezing of assets can extract some funds, but at the same time, the government gives them incentives to continue their operations.”
For ordinary citizens, however, there is only the stick. “The approach being taken is business-as-usual and repression. But the repression is not hurting the big players, rather, it’s hurting SMEs [small and medium-sized enterprises] and small shops,” Daher told Syria Direct.
After an increase in consumer prices in December 2019, the Ministry for Internal Trade and Consumer Protection announced its intention to regulate prices and promised to impose the maximum penalties for those “raising the prices of basic materials and food and consumer products.”
The Latakia Directorate for Internal Trade and Consumer Protection stated that it carried out 296 searches and closed 50 stores for commercial violations in the past week. Security services also broke a strike by small merchants and store owners in Latakia who were protesting the collapse of the pound and police brutality.
This is an outcome of the government “directing the socio-economic frustrations of the population away from itself and towards traders considered responsible for the high prices of products,” Daher explained. But the increase in police repression is also a response to general economic stagnation. “With an increase in poverty and a surge in prices, police officers are using this to make additional money,” Daher added.
Pride or protests?
In a bid to prop up the national currency, some government supporters have launched a campaign called, “Our Lira, Our Pride,” to encourage people to use the Syrian pound, rather than other, more stable currencies. Some goods and services were priced at 1 pound for a short period of time in an attempt to demonstrate loyalty to the currency. In Daraa, tens of commercial, medical, and societal groups joined the campaign, offering goods at a special rate of between SYP 1 and 50.
However, it is difficult to judge how far-reaching the campaign really is given that it is economically unsustainable on a larger scale. In fact, the one pound coin has been out of circulation for several years, according to Syria Report.
In contrast to the campaign, on January 16, protests broke out in the government-controlled area of Suwayda in southern Syria. For the first time in several years, residents organized a demonstration in Suwayda in protest of the deteriorating economic situation and the collapse in the value of the Syrian pound. Some even protested outside the local branch of SyriaTel, chanting, “Makhlouf, Shalish: get off our backs. We want to live!”
With popular anger in government-controlled areas generally being directed at regime-cronies and monopolies, and government media frequently attacking "unpatriotic" traders and speculators, it remains to be seen whether the Syrian government will fundamentally change its approach to the economy.
Daher, however, remained pessimistic about the possibility of structural change. “Due to the nature of this particular ruling class, progressive changes in the structure of the Syrian political economy will not happen. To do so would challenge their sources of income and the durability of their political and economic networks.”