Syria’s Economic Challanges: How Long Can the Government Pay the Growing Costs of the Uprising?

Demonstrators in the mainly Kurdish city of Qamishli in Syria's northwest hold a banner saying "army and people are one" in a protest on Friday.

It’s the economy stupid.

Most analysts are coming to the conclusion that the Syrian economy must collapse before the military will turn on the government or split. There are growing signs that economic pressure is mounting on the regime.

About 20 top businessmen met with the President last week. They all beseeched President Bashar al-Assad to rescind the requirement that private banks boost their capital requirement to 300 million dollars from 30 million by the end of the year. When the president heard the demand of the businessmen, most of whom are shareholders in the banks, he seemed to agree and promised that something would be done to push back the onerous new requirement.

Unfortunately for the bankers, this directive has found no echo at the Central Bank, which must happen for it to become official. As of this writing, the Central Bank has not complied with any of the decisions which were allegedly made at the palace. Indeed, reports suggest that the Central Bank director was nonplussed by the president’s desire to please Syria’s business leaders, when they are being asked to meet the runaway costs of government.

When banks were first permitted to open their doors in Syria, they were required to put up only 30 million dollars in capital requirements. Twelve banks started operating, due to these modest costs. It was not long, however, before the government instructed the banks that a significant capital increase would be required. The Central Bank wanted capital holdings boosted to 300 million.  The banks agreed to fulfill this by 2015. Not long ago, a directive was issued from the Central Bank requiring the augmented capital be met by November 2011. This was a significant challenge for the banks. The bankers have told Syria’s financial leaders that they will raise the new capital requirements with their boards, but have no assurance that permission will be granted to increase capital within Syria due the the new political uncertainties.

Large banks in Syria earn about 20 million dollars in profits a year. Recently the government raised interest rates by 3%. This means that if they do not raise their lending rates, their current yearly profits will be wiped out. They are faced with the dilemma of having to increase their capital requirements by 10 times while their profits have been wiped out. The banking system faces a double whammy of having to increase capital requirements while interest margins are being squeezed dramatically.

Considerable confusion reigns at the top of Syria’s financial community. The government needs money urgently to pay for the military costs of the continuing uprising and most importantly to pay for the salary hikes instituted at the beginning of the uprising. The most glaring development over the last week has been the restoration of the fuel subsidies which can only be funded through significant borrowing. Numbers close to 1.5 billion dollars have been cited as the cost this year.

How long the government can hold out before the country’s finances begin to give out is anyone’s guess. If the stalemate between the protestors and the government continues as it is today, senior businessmen suggest that bankruptcies will begin to cascade in about six months. This figure may be over-dramatized in order to win relief from the government demands, but business leaders are worried and feeling the pressure.

READER OPINIONS

Murat writes:

Peeling away the Sunni military, while possible, is an improbably road to success. A better one is to bankrupt the country through on-going economic paralysis. This will hit the elite classes where they will feel it – their pocketbook. Once their financial security is threatened, they will quickly get rid of Bashar. This course will be protracted and therefore very bloody, but, if implemented relentlessly, will succeed. As in all matters, follow the money…

From a Christian Businessman:

Dear professor Landis, Through the years I really enjoyed your analysis and the comments you had on Syria. I am a Christian Syrian who lived abroad for the last 20 years. Three years ago I moved to Damascus, Syria with some extended investments and money borrowing, started my own company and I can say today very proudly I might have a reliable business with 27 people working for the compnay.

Till last month, I really appreciated what Syria had to offer in terms of stability and possible business opportunities. Unfortunately, with the latest problems in Syria, I was disappointed to read your continuous lopsided analysis. Yes I agree the early demonstrations were genuine, innocent and spontaneous – however it rapidly deteriorated to become very violent and devastating. Some of the people who work for me come from Doma and Suwaida; who are my reliable source of information – they were telling about so many violent incidents and how militant the demonstrators were.

The lastest mantra the demonstrators are shouting got nothing to do with democracy, freedom or reforms. It is about regime change and bringing chaos. Yes I agree, there is serious corruption in the country that the president needs to tackle – however he was and still not given a fair chance to execute. I am extremely worried about the fate of the Syrian minorities, if the country goes into turmoil. I cannot help but become think about this since most of the rhetoric is about martyrdom and going to heaven after Friday prayers. The anxiety that I have, and which is shared by so many Syrians, is exacerbated further with some isolated attacks that occurred on churches during the Good Friday (before Easter). Now, before anybody jumps and accuses that these attacks were organized by some rogue government elements, I wanted to say living in Syria and being a Syrian – it is so easy to spot an undercover agent in Syria – they are not that clever in disguising themselves.

As for many small business owners like me, we are faced with tough choices in letting some of our employees go with seriously devastating outcome to our businesses, where bankruptcy is looming on the horizon for me due to accumulated unpaid debts. I really do not want the freedom that the US brought to Iraq nor to hear Obama’s pre-election campaign rehearsals.

Furthermore, US has no moral grounds to stand as Chomsky called it “state that defies international laws and conventions, does not consider itself bound by the major treaties and conventions, World Court decisions.”

One last request, please can you pause for a moment and consider the other angle of what is happening today in Syria?

Observer writes:

I do believe that the country has entered into a low level civil war. The regime continues to point to armed elements killing security personnel. The regime is talking about a concerted effort to make it subservient to Israeli dictates. The best way for the regime to lend credence to the above is to open the country to outside observers and journalists and to allow for the UN to come in and to conduct an investigation. Meantime, the Egyptians have moved entirely away from the previous subservience to Israel by promoting a unity among the Palestinians and opening the Rafah crossing. In Jordan there are calls to rescind the Wadi Araba accord with Israel. The Arab revolts are going to bring genuine re orientation from the people towards Israel an entity that has never been and will never be accepted by the majority of the people of the ME as an exclusive home to a particular group at the expense of other groups.

I also believe that the current borders will not be permanent. It is impossible on the long run to continue to have entities like Syria and Lebanon and Iraq based on a false and weak national identity. Like Italy, there will be regions that will demand a separation first in administrative and then in financial and economic areas and eventually in political arenas.

Belgium and Northern and Southern Italy are very good examples of what will happen.

This regime is finished. When it announces that an Islamic emirate has been proclaimed in Homs and that the emir raised the Israeli flag, it clearly is sending a message to its own constituents that want to believe its propaganda and nothing else. ….

There is no such thing as a Syrian National Identity.

The struggle against Israel has been in many respects effective. The strategy of subjugating the region to the will of Zionism has failed with the final death of the project occurring in Iraq and in Lebanon with the help of Syria. Yet the regime has maintained a fine balance between defiance to Israel and helping regional stability that includes Israel to maintain its grip on power. The state of emergency was justified repeatedly as a necessary tool to fight Israel and yet it was used mainly to have a family with the support of some in the country based on sect and interests to control the entire country.

The deal between the people and the regime is broken and it was based on a desire for stability and hope for a better future in return for allowing the current regime to stay. This deal has been repeatedly broken by the graft and corruption and mismanagement and hateful policies enshrined by the regime through the late President. After 10 years of stalling on reforms the current President is either a willing partner in the repression or a figure head. I do not know the answer to this dilemma.

The timid reforms with the introduction of banking and some free trade that happened after 2005 were forced on the regime after the Lebanon debacle and were designed to allow for the few to enrich themselves further and to advance their own agenda at the expense of the huge number of disenfranchised Syrians. The permission given to have satellite dishes was also forced on the regime as the world opened up to new realities and a globalized world. Likewise the introduction of the internet was an absolute necessity for the regime to remain in contact with the world. Yet all of those openings have permitted ever more increase in hope for a better future and the example of Tunisia showed that these regimes have accumulated power for one reason: power over the people. Bernard Lewis noted that many of the regimes in the ME after Sykes Picot were a threat to their own populations only. Syria has been a punching bag for Israel for some time now. It is only after HA showed how to deal!

with Israel that the Syrian armed forces changed tactics and organization. Israel also has lost a great deal and will continue to do so as the myth of invincibility is shattered and the myth of carrying the battle to the opponent’s land is also shattered.

when I offer partition of the country I do so as a challenge to the status quo. If the people cannot live together under a unified national identity then either partition or autonomy is the answer. Forcing them to stay together when there is now so much hatred and violence will not work. I fear for the Alawite sect for they have been taken hostage by the Assad and Makhloof families who bound their fate to that of this community. After all, 10% of the population cannot hope to control the rest of the country without consent from the people. It is only a matter of time before this aberration is destroyed. It will happen either as internal rotting of the system or another much more violent explosion or both.

As I said reform IN the system is no longer possible as the people have moved to reform OF the system including its departure or a profound change of its nature.

In any case, Egypt is reaffirming itself at the center of Arab politics with Sudan and Palestine and shortly with Libya and Tunisia. This if it continues spells the doom of Iranian influence as an Arab identity appeals to Arabs before a Persian one and if the MB and Islamists have a place in the next elections, even the Islam card will not be exclusive to Iran.

Syria is bound to have the Egyptian influence affect its outcome.

On a global scale this is just a harbinger of things to come as we face a food and energy shortage. Wheat production peaked and is in decline, consumption of oil is outpacing new discoveries and many oil rich countries have to use a significant amount for their domestic use.

On Syria, an initial statement of support by King Abdullah for President Bashar al-Assad has been followed by silence, along with occasional calls at Friday Prayer for God to support the protesters. That silence reflects a deep ambivalence, analysts said. The ruling Saudi family personally dislikes Mr. Assad — resenting his close ties with Iran and seeing Syria’s hand in the assassination of a former Lebanese prime minister, Rafik Hariri, a Saudi ally. But they fear his overthrow will unleash sectarian violence without guaranteeing that Iranian influence will be diminished……

There are also suspicions that the kingdom is secretly providing money to extremist groups to hold back changes. Saudi officials deny that, although they concede private money may flow…..

“We are back to the 1950s and early 1960s, when the Saudis led the opposition to the revolutions at that time, the revolutions of Arabism,” said Mohammad F. al-Qahtani, a political activist in Riyadh.

NEWS ROUND UP follows

This Friday saw a number of demonstrations and at least 8 killed. Most talk is of the Turkey opposition meeting. One organizer, Ausama Monajed, puts the best face on the opposition’s lack of leaders. He argues that leaderslessness is a good thing because it reverses the Middle Eastern penchant to place the man above the party and to focus on the leader and not the platform. He writes, “This is the dawn of a new age in Syrian politics, it’s not only the regime that’s being rejected, but traditional politics based on personalities and ideologies rather than issues and platforms.” One can only pray that we are witnessing a new dawn and not more Arab divisiveness and backbiting.

Eight reported killed on ‘Homeland Protector Friday’, LATimes, May 27, 2011

Picture 4 Syrian security forces opened fire on anti- government protesters in several cities and arrested demonstrators on “Homeland Protector Friday,” a day on which activists had called on the Syrian army to stand with the people, according to activist accounts…..

The human rights lawyer said security forces had used live ammunition at demonstrations on Friday in the Sunni stronghold city of Homs in central Syria, in the area of Marqeb in the coastal city of Baniyas, and in Zabadani.

An eyewitness in Homs told The Times there was a heavy security presence there and that security forces in civilian clothes had fired at demonstrators. More than 2,000 people were protesting, he said.

On the Antalya meeting, Ausama Mounajed writes:

This will be a major test for the Syrian opposition groups and their ability to remain relevant to the current goings-on in the country. Success will be premised on their ability to court the support of protest leaders and committees acting inside the country. This is the dawn of a new age in Syrian politics, it’s not only the regime that’s being rejected, but traditional politics based on personalities and ideologies rather than issues and platforms. The Regime that the protesters want to topple is not only made of the Assads, the army and security generals and the Baath Party, there is an entire style, mentality and approach that is being rejected here. Opposition groups and figures have a chance now to reinvent themselves, while the Assads and their establishment do not. The activists understand that, but let’s see if the traditional opposition figures have managed to do so as well.

As such, the conference comes as referendum on the opposition’s ability to rejuvenate itself and rise to the challenges at hand, it’s not an indicator of where the revolution is going. The revolution has only one way to go: forward until the Regime is toppled. Its ability to do so might be hampered somewhat by the inability of the opposition to play a positive role, but the overall progress made and the course itself will not be reversed.

2011-05-27 ITAR-TASS (EN): URGENT – Syrian president must hold reforms – Medvedev.

27/5 Tass 532 DEAUVILLE, May 27 (Itar-Tass) —— Russia does not favor sanctions against Syria but Syrian President Bashar al-Assad must ensure democratic transformations, President Dmitry Medvedev said on Friday. “I had a telephone …

A draft statement by G8 leaders on Friday said “we will consider action in the United Nations Security Council” if Syria does not stop using force against protesters.

WSJ [Reg]: Shell Faces NGO Pressure To Withdraw From Syria, 2011-05-27

LONDON (Dow Jones)–Royal Dutch Shell PLC (RDSB.LN) is coming under pressure in the Netherlands to withdraw from Syria because of the Syrian government’s violent reprisals against pro-democracy demonstrators. Dutch non-governmental organization IKV …

SYRIANS PROTESTING AT NIGHT TO EVADE SECURITY FORCES. The New York Times (5/27, Bakr)  reports,

“In a shift in strategy,” Syrian protesters have “moved their daily demonstrations…to the evening, in the expectation that security forces will be more reluctant to shoot at them and have a more difficult time identifying them for arrest, activists and organizers said.” Activists say that demonstrations “occur every evening in cities and towns across the country,” but they are attracting “far fewer participants than those held after Friday Prayer.” The new tactics, says the Times, “underline the evolution of the nine-week uprising, which has shown growing signs of resilience as it has weathered a ferocious crackdown.”

Action Urged To Thwart Iran’s Support For Assad Regime. Michael Singh of the Washington Institute for Near East Policy writes in the Wall Street Journal (5/27)

that Iran is backing Syria in its crackdown against protestors because it is a key ally in the region. If the Assad regime were to fall, he argues Iran would have to find other ways to support Hezbollah and it could inspire Iranian dissidents to resume their own protests. Therefore, Singh urges the international community to take tough actions against Tehran to thwart its influence in the region.

Bush Not Surprised By Middle East Uprisings, Says It Takes a While for Freedom to ‘take Root’
2011-05-26 23:47:25.186 GMT

DALLAS – Former President George W. Bush said Thursday that he wasn’t surprised by the recent uprisings in the Middle East, but warned that patience will be needed as it takes time for freedom to “take root.”

“I think we live in exciting times and I’m not surprised that freedom continues to march forward,” Bush said. “And the reason I’m not surprised, is because I believe and many in this room believe, deep in the soul of every man, woman and child on the face of the earth is the desire to be free.”

Bush made brief remarks while introducing former Secretary of State Condoleezza Rice at a one-day conference hosted by the George W. Bush Institute.

“It is clear that it takes time for freedom to take root,” Bush said. “So while these are exiting times, these times also require a degree of patience.”…

Rice told the audience of about 300 — including professors, activists and officials from pro-democracy organizations — that fledging reforms in the Mideast need to be nurtured, adding, “This is no time for the United States of America to lose its nerve.”

“The message should be freedom is always worth it. It’s hard. You’ve begun your journey. We will be with you,” Rice said.

…..She said that fledgling democracies in the Mideast — Iraq, Lebanon and the West Bank of Palestine — need to be strengthened, as do healthy political forces in places like Egypt and Tunisia. Monarchies like Jordan and Morocco, should be pushed toward constitutional power, she said.

She said that “even in troubled Bahrain and conservative Saudi Arabia, there are seeds of reform.”

Some governments, she said, like Syria and Iran, won’t make the transition to democracy on their own. “The world will be better off without Bashar Assad and the mullahs in Iran,” she said to applause.

Bitter Lemons: Edition 15 Volume 9 – May 26, 2011

Turkey and the Arab revolutionary wave
• Young Turks and the Syrian spring – Rime Allaf
The high-level diplomatic hand that Turkey extended to Syria had no effect.

• Syria and the zero conflict policy – Murhaf Jouejati
Turkey stands to lose a lot should Syria falter.

…The popular unrest in Syria and the Assad regime’s bloody clampdown on pro-democracy protestors could lead to the unraveling of Turkey’s “zero conflict” policy with its neighbors, as Syria is the linchpin of that policy.

After decades of animosity, Turkish-Syrian ties thawed in 1998, when Turkish threats of military action forced Syria to expel PKK leader Abdullah Ocalan from his safe haven in Damascus. Since then, Turkey has transformed the relationship from one of military confrontation to its closest economic partnership today. Bilateral trade has more than tripled, reaching $2.5 billion in 2010, and the two countries have introduced a visa-free travel regime for their citizens. In February, they began the construction of a joint dam at their frontier and announced projects to set up a joint bank, inaugurate a cross-border express rail route and link their natural gas networks. In northern Syria, Aleppo–Syria’s second largest city–has been connected to Turkey’s southeastern Gaziantep province through new border, rail, and road connections, leading to an economic boom, with Turkish tourists and trade pouring in.

Turkey stands to lose a lot should Syria falter. Syria represents a strategic land route to the rest of the Middle East and its markets. Should anything obstruct that route, Turkey’s trade with Jordan and with Lebanon and access to oil in the Gulf would be compromised. Turkey also fears the potential influx of Syrian refugees, to say nothing of the challenge that Syria’s PKK-friendly Kurds may pose. Over and above that, the greatest challenge Turkey faces is the damage to its international reputation and growing influence in the region…..

What this says about Turkey’s “zero conflict” policy is that, although lofty in its goals, it has limited utility with authoritarian regimes when under fire. In light of this, the Turkish leadership is said to be optimistic about a new, open, democratic Syria, however messy that transition might be….

*SARKOZY SAYS G8 WILL DISCUSS ISSUE OF SYRIAN SANCTIONS

Comments (60)


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51. Weekly Roundup 5/28 | Mideast Reports said:

[…] This Atlantic article, as well as a post on Syria comment, explores the economic implications of the uprising, and how long the country can continue in the […]

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May 28th, 2011, 10:46 am

 

52. Usama said:

SYAU, #30
Thank you, I appreciate that. :)

SNK, #43

I think you’re looking at this the wrong way. Society is bound to have friction between people of different ethnicities and sects. What you see as proving weakness in our society, I see as proving the strength of our society. The fact the people on the ground causing the problems have such small numbers. Syria, I think, is the most diverse Arab country, even more than Lebanon. If our society is as weak as you think it is, we would have been in all out civil war right now instead of a limited armed revolt. I know directly from my family in Lattakia that they tried to provoke two large neighbourhoods against each other, and they called each other (because of friendships) and found out it was a game to provoke them to fight. Then when the saboteurs saw they failed, they started doing drive-by shootings and using gunmen on rooftops. Then they (media, “activits”, “lawyers”, “eyewitnesses”) blamed the killings on security and “shabbiha”, and they still failed to make people fight. The army went in right away to kill and arrest the terrorists and, as you can see today, things are quite calm in Lattakia. Ya7ya al-jaish!

I wasn’t born during the late 70s/early 80s events with the MB, but my parents tell me sectarianism was a lot worse back then! This is why I said before, and I still say it today, MB has no place in Syrian society. If Erdogan wants to keep harbouring MB terrorists, then the relationship with Turkey is just not worth it, in my opinion.

About 7amza

I hope they do release the photos of 7amza, but I think they need parents’ permission for that first? And unless the corpse of the child was kidnapped, then I’m sorry to say there might be a chance the parents were a part of this crime….!?

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May 28th, 2011, 12:25 pm

 

53. Tara said:

Usama,

You said “I hope they do release the photos of Hamza, but I think they need parents’ permission for that first?”

This is the most retarded comment I’ve ever heard in my enyire life.
The thugs did not need parent’s permission to kill him

Get a grip!

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May 28th, 2011, 4:31 pm

 

54. MURHAF JOUEJATI said:

Josh, is there any particular reason why “Syriacomment” reproduced my recent article “Syria and the zero conflict policy” (it appears in the latest issue of “Bitterlemons.org”) but chose to censor half of it — without my permission?

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May 28th, 2011, 4:51 pm

 

55. syau said:

Tara #51,

I’ve read many of you hate filled comments, and in almost all of them you label people as retarded. Is that the extent of you vocabulary?

You seem too look at the world as if its black and white. Open your eyes and look around. If you believe the Syrian forces are the ones who are responsible for all the killings, then your vocabulary fits you.

The Security forces did not kill the child and that will be proven as were many other fabrications by the Syrian revolution. I think there is definately more behind the state this child was in once filmed.

I believe it was the work of the psycho’s of this revolution, They have done this before and can do it again to one of their own in order to further their cause.

There are also reports that his genitals were cut off, as we saw in the past few weeks (I’m not sure if it was widely reported, I know because 3 of them were aquaintences) the victims of the horrific murders and mutilations had their genitials cut off.

This is the work of the Islamists of the revolution, the same ones who are listening to the calls for jihad against the government and are willing to do anything until their agenda is met.

I find myself remembering the situation with the bodies in the fridge that went missing. I think those bodies are are being held by the ‘revolutionists’ for the use of mass graves and such acts as to mutilate corpses and blame it on the Syrian security forces. This is not the work of the Syrian security forces.

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May 28th, 2011, 6:58 pm

 

56. Tara said:

Syau,

Next time I will use “inferior intelligence”. Do you like this term better?

I posted a comment to Jad in reply to the forensic interview. Please feel free to answer.

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May 28th, 2011, 8:40 pm

 

57. Joshua said:

Dear Murhaf, Would you like me not to copy your articles or copy it in its entirety? I will be happy to oblige. I am sorry to have ofended you and to have harmed your intellectual production. Syria Comment reproduces parts of as many articles on Syria as I think are interesting or believe add content and value. I try to do this as quickly as possible so often miss important sentences. I encourage all readers to go to the complete article and read the entire thing. I hope that by publishing part of your article and advertising it, I am drawing more people to read your entire article.

Let me know how you would like me to deal with your articles in the future. I can not reproduce or only reproduce in the entirety. Just let me know.

Sorry to have offended you or done harm to your argument. I know how sensitive everything is now and by only copying part I may be doing you harm or doing injustice to the complexity of your thoughts during this most difficult time for Syria. Best, Joshua

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May 28th, 2011, 10:09 pm

 

58. Murhaf Jouejati said:

Dear Josh,

I am not offended. I just thought it odd that my article would be cut in its juiciest part: the behavior of the Assad regime (which I believe, rightly or wrongly, is absolutely and totally outrageous).

Having read your explanation, I am fully satisfied that your intentions are good.

Best wishes,
Murhaf

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May 28th, 2011, 10:52 pm

 

59. aboali said:

#58 You wouldn’t be too surprised if you’d been following this blog for any length of time. It’s a sort of half-attempt at a “discussion” forum, but the actual aim is for assorted trolls and moral-trash to attempt to dress up the turd that is the Syrian regime, before force feeding it down people’s throats, all under the pretense of a “rational debate”. You can gauge the caliber of the Bashar groupies by the sort of language they use, and the threats they make. The ones with an I.Q above 2 digits and an education past secondary school will attempt to use “grown up” language while basically spouting the same apologist verbal diarrhea at every given opportunity, summed up as follows “Bashar is good, no really he’s good, so what if he’s killed some people? he’s better than those bearded Moslems”.

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May 29th, 2011, 6:51 am

 
 

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