Posted by Joshua on Friday, June 24th, 2011
Ehsani tries to answer these two questions:
- Is bringing down the economy and bankrupting the country a realistic danger?
- And as for the Lira. Is there a way to manipulate the currency from outside the country? Is it technically possible to put pressure on the Lira from governments outside?
First, it is important to note that everything we read and write about Syria’s economy is speculative and unsupported by credible data. The government officials in charge of the collecting the data and publishing it may not even disagree with this statement.
There is little doubt that the economy today faces a number of challenges. Tourism has stopped. Expatriate remittances or summer visits have slowed down rather dramatically. The foreign exchange that came from such sources has largely disappeared. Fearful of the political situation, households both took money out of the banks and opted to swap their SYP savings into foreign currency.
By drawing down deposits the balance sheet of banking system was suddenly mismatched. The lost deposits had to be funded from elsewhere. By shifting out of SYP into foreign currency, the exchange value was put under pressure as the SYP was quoted as high as 56 to the Dollar over a critical 48 hour period. The Central Bank had to respond. It not only intervened in the currency market by selling Dollars and buying SYP but it also decided to raise deposit rates on SYP by up to 3%. With deposit rates nearing double digits now, the opportunity cost of keeping your money at the bank was not made higher.
A lot has been said about Mr. Makhlouf personally intervening in the currency market in order to stabilize the SYP rate. No one can verify this and this is not surprising. Since then, all foreign currency transactions have been subjected to excessive supervision and control from the Central Bank.
Over the past 72 hours, both Aleppo and Damascus have reported acute difficulties in finding foreign currency even at the black market. The pressures on the exchange rate seem intense and unlikely to go away anytime soon.
The SYP is not a convertible currency. This makes it very hard to speculate against. You cannot short the currency. The only way to do so would be to borrow in SYP (if you find anyone to lend you), exchange it to Dollars and hope that the SYP devalues before your loan needs to be repaid. This is an expensive strategy as you are borrowing in SYP at a much higher rate than you are earning on your Dollars. The Central Bank is likely to support the exchange rate vigorously. Time will tell if they will succeed.
Rather than foreign governments, it will be Syrians who will ultimately decide the fate of the currency. If enough of them shift their SYP holdings (80% of bank deposits are in SYP) into Dollars, the Central Bank may give up the defense of the rate if its reserves go too low. Possible economic sanctions will speed up such fears by the public and cause more to shift their savings into foreign currency.
Syria’s economic challenge is twofold:
- Excessive government spending on subsidies and the constantly bleeding public sector with little tax revenues to match. This budget deficit is a major challenge.
- Sub-par economic growth and hence job creation. The domestic purchasing power is too weak to support economic growth of 7-8%, which is the rate needed simply to produce enough jobs for all those presently coming of working age.
- The government is too broke to spend and invest. This leaves investments and exports. Syria is so far behind when it comes to infrastructure and human and capital resources that it is nearly impossible to catch up and compete in the global economy when it comes to exporting its products and services. This leaves investments. The political background has made slowed foreign investments to a trickle. It will be a while for this to change. Domestic investors need to see significant reforms before they decide to take risk with long term investments. The government has done very poorly on the legislative side when it comes to offering incentives and cutting red tape for potential investors.
From a reader:
We should keep an eye on the gold market in Syria and the property market. People will search for dollars, euro, and other currencies, yes. They will also look to purchase gold and real estate. If too many people, including dealers, hold on to gold in the country, prices will naturally rise in SYP regardless of the world market prices in dollars for gold. It’s a safe haven. Watch the gold and property markets. If local prices in SYP increase and significantly differ from what the official exchange rate indicates as normal, it will be evidence of an impending collapse of the Syrian Pound.
Syria’s ailing economy poses a threat to the Assad regime.
by Shadid for NYTimes
“We as businessmen want a solution, and we can’t wait forever,” said Muhammad Zaion, a garment dealer in Aleppo. “The president should find a way out of this crisis, or he should leave it to others. We need a solution, whatever that solution might be.” ….
“This is a huge drain on the resources of the government,” said Nabil Samman, an economist and director of the Center of Research and Documentation in Damascus.
“The Syrian economy can’t stand more than three or four months like this,” he said, predicting the currency’s collapse. “There is no look to the future. They are concerned about pleasing the public and giving them enough to stop the protests.”
In Syria, which remains shielded somewhat from the world economy, market reforms were never as far-reaching as those in Egypt and Tunisia. Syria’s stock market was set up only in 2009, and the government still has an estimated $17 billion in reserves — enough, one economist said, to cover seven months of imports.
But as Mr. Assad himself put it, the problem might prove more psychological, as his leadership seeks to hold on to its still-substantial support among minority groups, the middle class and the business elite in Damascus and Aleppo.
Since the beginning of the uprising, those groups — not the opposition — have been the audience for government arguments that only Mr. Assad can bring reform and stability. American officials say they believe his support is weakening among the business elite, and suggest that anxieties over the strife are growing among Christians and even Alawites, the heterodox Muslim sect from which Mr. Assad’s family hails.
“Rainfall starts with just a drop,” said Mr. Zaion, the garment merchant.
In Damascus, a 28-year-old travel agent who gave his name as Anwar said his $600-a-month salary had already been cut by a fourth. Every single tourist group has canceled. He and his wife are spending only for food, though he still offers his parents money.
“If I lose my job, I’ll go to the mosque, pray and, failing that, join the protests,” he said. “It’s the responsibility of the government to make jobs for all its citizens.”
Damascus Bourse to Allow Shares to Rise as Much as 5% a Day
By Lina Ibrahim
June 23 (Bloomberg) — The Damascus Securities Exchange will allow shares to raise by as much as 5 percent a day and to fall by a maximum of 2 percent a day, the bourse said on its website today. Previously, fluctuation limits were set at 3 percent increase or decrease….
Syria opens bank account in Lebanon
BEIRUT, Lebanon, June 23 (UPI) — Syria’s Central Bank has opened an account at the Lebanese Central Bank, a source familiar with the banks told the Beirut Daily Star. Such a move wouldn’t normally be considered unusual, but Syria’s actions could be construed as an end-run over sanctions imposed by the United States and the European Union, the Star reported Thursday. The newspaper said the source warned Lebanon to be careful about opening the account in light of the sanctions imposed on Syria, where demonstrators have called for the overthrow of President Bashar al-Assad.
When the subsidies on fuel oil were reduced, the plan was to use some of the savings to supplement the incomes of the poorest portion of the Syrian population. The statistics at the time should that 420,000 families needed such income assistance. While the public was busy awaiting the President’s speech, the following article went unnoticed when it appeared on the same day. As it turns out, the initial statistic of 420,000 in need of financial help was off by 82%. Following the initial disbursement of the funds, the government received 120,000 complaints from families who felt that they were left out of the program. A new study was ordered as a result. The new results showed that 1.5 million rather than 420,000 qualified for income assistance. This means that the initial budget earmarked for the program has had to be increased by over 3.5 times the initial amount. Families that reside at the furthest points in the country were thought to have been suffered being excluded the most. Some who received the assistance should have never received it.
There are five million nuclear families in Syria. The fact that 1.5 million need such assistance means 30% of all Syrian families belong to this group. If one assumes an average total family size of only 5, it means that 7.5 million Syrians need government help per this one single program.
EU’s new Sanctions – the EU has expanded sanctions against the Assad government. It added three members of Iran’s Revolutionary Guard and four Syrians to a list of more than 30 people targeted.
EUOBSERVER / BRUSSELS – EU and US intervention in Syria is designed to harm Iran and to protect Israel and Lebanese Christians, not Syrian people, according to Robert Baer, a retired CIA officer with experience of the region.
Speaking in an interview with EUobserver, Baer, a senior CIA field officer in Lebanon and Syria in the 1980s and 1990s and a writer on international security affairs, said EU and US sanctions might weaken the Syrian regime but will not stop it from killing people in the current crisis.
Haaretz: The middle and upper classes still believe that the regime will be able to put down the protests and bring back the calm that is so vital for business.
This AP article argues that Alawis are charged four times less than Sunnis for electricity, which is bogus. Syrians are not charged different rates on electricity according to their religious beliefs. Bad journalism.
Oil Sanctions: What affect will they have?
One commentator on my site writes this about economic sanctions on Syria: (He is referring to my Bloggingheads TV interview with Ausama Monajed.
Question: “You and your fellow activists in the West have been working very hard to try to get more important sanctions placed on Syria. In particular sanctions placed on oil….”
Answer by Ausama Monajed, anti-Assad activist living in London: “The strategy is to dry up the hard currency of the Syrian regime to make them less able to carry on the massacres and atrocities…. The ordinary Syrian people are already not seeing any difference in whether this regime is wealthier or poorer…. This [proposal] is to not allow Western oil companies to buy the heavy crude oil that Syria exports and uses the funds from to fund its military operations.” (Ref)
Comment by reader: It is impossible to influence the Syrian government’s internal security activities by means of an oil export embargo: the security activities are wholly dictated by the internal security circumstances. The effect of the proposed embargo would be to reduce the stimulus that the oil funds give to the Syrian economy as a whole, plus there would be some loss of jobs in the oil sector.
The prosperity of the Syrian economy as a whole today is something to be desired by everyone who has goodwill for the people who live in Syria today. The thinking of that guy in London and the likes of him has gotten distorted by their anti-regime sentiments. It’s so distorted that they advocate corroding the Syrian economy on a longterm indefinite timeframe because it would go towards corroding the strength of the regime.
There is a wise old saying, “never ascribe to malfeasance what can be explained by incompetence”. Notwithstanding the wisdom of that saying, and notwithstanding the incompetence of the anti-regime crowd, I can’t believe they’re sincerely thinking an oil export embargo would hinder the regime’s security work. Rather I believe they’re thinking an embargo would be a stigma, which would help to de-legitimize the regime in Syria and abroad. But within Syria, as I’m sure most people on this board can agree, such a stigma effect would be very mild, while the main effect of the embargo would be to corrode economic prosperity and modernization. What they’re advocating is basically just economic sabotage. How much of an effect could the embargo have in contributing to the stated aim of destroying the Assad regime? I’ll let you answer that yourself, provided you can first acknowledge that economic sabotage is what it would be.
For more on the sanctions arguement by Monajed read his part in this: Envisioning Syria’s Political Future, Transcript – Ausama Monjed, Dr Radwan Ziadeh, Dr Najib Ghadbian
Chatham House, June 2011