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Paul McLoughlin

Syria Weekly: Banking on Lebanon not paying off for Damascus

The Syrian lira has plummeted from 100 to 800 to the dollar since 2011 [Getty]

Date of publication: 30 November, 2019

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The economic downturn in Lebanon is having a knock-on effect in Syria, sending inflation skyrocketing and depleting key channels of hard currency and food supplies.
Syrians in Damascus have watched the economic downturn in neighbouring Lebanon over the past weeks with some unease, knowing that the turmoil will likely lead to negative knock-on effects for regime-controlled areas - already hit hard by a US embargo on Iran. 

For years, Syria has been largely isolated from the world due to its own US and EU sanctions, making Lebanon one of the few conduits for supplies and hard currency through the war years.

The situation has allowed for some dollars to find their way across the border - often in wallets, purses and suitcases - from Lebanon to Syria, despite the economic embargo on the latter.

Lebanese banks have provided a haven for Syrian-based businesses and regime officials profits throughout the war, with wealthier Syrians in Damascus able to live off the interest generated from their Beirut-based savings, according to Reuters

Now the economic crisis in Lebanon has seen the dollar supply freeze up, leading to deep repercussions for Syrians in regime areas. 
It's total strangulation - there's no connection with the outside world, combined with this is ineffective leadership and worse management.
- A Syrian businessman
"Syrians who relied on interest on their deposit spent some of these inside Syria. There are thousands who have now stopped bringing in their dollars from Lebanon, reducing the supply of dollars," businessman Khalil Touma told the news agency this week.

Downturn

The economic crisis in Lebanon has led to strict withdrawal limits at ATMs and strict capital controls to avoid a run on the banks, making it all but impossible to access dollars from Lebanese bank accounts, at times.

"Lebanon itself is in an economic collapse but it is having an even more devastating impact on Syria," one Syrian businessman told The New Arab. "It's total strangulation - there's no connection with the outside world, combined with this is ineffective leadership and worse management."

The Syrian lira, also known as the pound, is now at its weakest against the dollar in history, with the exchange rate hitting 800 to the dollar on Thursday. On Saturday, it sunk even lower, with many predicting the currency could depreciate to 1,000 liras to a dollar by the end of the year. In 2011, the exchange rate was 47 lira to the dollar. 

"Put another way: 100 Syrian pounds were worth about $1 in 2011. That same currency would be worth 13 cents now," Nabih Bulos pointed out in The LA Times this week.

War economy

Syria's scant resources are still being thrown at the military while corruption is also eating away at other government money supplies. Oil is still in short supply, while essential food items are increasingly scarce for much of the population due to rampant inflation.

Businesses are ignoring mandated price controls on goods or selling items at a loss. To deal with the rising living costs, government workers have been given a 20,000 lira pay rise, according to SANA. But the "livelihood compensation", as the Syrian state news agency described it, could lead to even higher inflation rates that will hit the poorest and unemployed hardest.

"Following the increase in... salaries and wages of public sector employees, there was a corollary rise in the prices of consumer goods," noted the Syrian Law Journal on Twitter. "As the money supply grows in the markets due to the circulation of more Syrian pound, it inevitably leads to higher inflation."

A few MPs have openly criticised the response to the crisis by Prime Minister Imad Khamis, according to Syria Direct. Bashar Al-Assad has meanwhile reportedly expanded the advisory council, increasing the number of members from 14 to 17, including seven businessmen, according to the journal on Twitter.

The ministry of internal trade has instructed businesses and chambers of commerce to issue a price bulletin every 15 days.

Added to this is the huge death toll from the war, the devastation of urban areas and infrastructure - mostly from regime bombing and shelling - and around a quarter of the population still living outside Syria, then there are few hopes that the situation will improve.

The businessman told The New Arab that the economic impact of the brain drain - particularly of educated and skilled Syrians - is huge.
There are no rules to deter traders from manipulating the market, so they are left free to suck the people's blood in this crisis
- Omar Abu Layla
"There's no Syria left. The middle class have left, so that of course has had an impact on the government, which by its nature is authoritarian."

Most worrying for business is that the government does not appear to have a way out of the turmoil, he said. Sanctions on the regime's main ally and patron, Iran, also make the future even more uncertain.

The economic crisis has also hit towns and cities outside the capital hard.

Omar Abu Layla, director of the DeirEzzor24 monitoring site, said that those who cannot afford to buy dollars - particularly poorer farmers and the unemployed - are the worst affected in eastern Syria.

The price of a sack of flour has increased threefold while many can't afford staples such as sugar or wheat. Even in areas controlled by the Syrian Democratic Forces (SDF), unscrupulous traders are taking advantage of the rapidly rising prices and depreciating Syrian lira to make huge profits.

"There are no rules to deter traders from manipulating the market, so they are left free to suck the people's blood in this crisis," he told The New Arab.
At first, the Assad regime was dependent on Iran... it is trying to blackmail and attract civilians to join its ranks, by providing them with services and things they need
- Omar Abu Layla
In parts of Deir az-Zour under Assad's control, the situation is even more dire. "The Assad regime and Iran are still living off the money and the bounties [from areas] they control, which belongs to the civilians," he added.

"The siege imposed on Iran and Assad is unfortunately a traditional one with no real solutions to save the civilians from these sanctions, while the Assad regime is still clinging to power."

The border town of Al-Bukamal is receiving some imports from Iraq, but not enough supplies are reaching the local population, he added.

Starved of income, the dire economic situation is forcing more civilians into the hands of the Iran-linked regime militias.

"At first, the Assad regime was dependent on Iran... it is trying to blackmail and attract civilians to join its ranks, by providing them with services and things they need."


Syria Weekly is a new, regular feature from The New Arab. To get Syria Weekly in your inbox each week, sign up here

Paul McLoughlin is a news editor at The New Arab. 

Follow him on Twitter: @PaullMcLoughlin

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