Syria’s civil war is costing the country dearly in more ways than one, and causing a disintegration of the tentative economic reforms previously in place
It’s not only people, buildings and, sooner rather than later, the al-Assad dictatorship, that are falling in Syria’s civil war. Its currency and economy are also in a headlong state of decline. And it’s Dr Adib Mayaleh, the economist governor of the Syrian Central Bank, who is in the firing line.
Take the value of the currency. When the civil war started in March 2011, the Syrian pound stood at SYP 47.50 to the greenback, the currency to which it’s pegged. Or, at least, was pegged. A pariah currency, the Syrian pound can no longer be traded under international sanctions. Even at SYP 47.5, it wasn’t a great rate, to be sure. But at least the relationship was reasonably stable, underpinned by healthy cross-border trade with Iraq, Turkey, Lebanon and other neighbouring countries, as well as by Syria’s oil reserves.
Contradicting all the principles he must have learned in Economics 101, he did insist recently that the war wouldn’t destroy the Syrian market
But now? The rate to the greenback has more than doubled to SYP 100, and is still rising. It’s hard to know the exact value because Syrians can only lay their hands on a dollar in the black market. Officially, there’s a freeze on all currency deals, informal or otherwise, and the black market is the only source of hard currencies such as dollars, sterling and euros for businessmen, students and anybody else needing to travel abroad.
In fact it’s hard to find out anything reliable about the state of this literally embattled economy because the al-Assad regime has enforced a blackout on any hard information. The Syrian central bank hasn’t issued a statement, not even a quarterly bulletin, for two years.
However, we do know that the civil war is slowly destroying years of albeit grudging economic reform. As Ibrahim Saif, Carnegie scholar and authority on the Middle East, points out, it’s all been downhill, especially as sanctions continue to bite. Vital trade links with Iraq and Turkey have stopped almost dead. Lebanon, the major owner of Syria’s once-booming banking sector, has frozen its government accounts and, like most other countries except Russia, ended dealings with the country’s central bank.
Big Oil is backing the sanctions and the central bank has lost at least SYP 4bn in petrodollars that it urgently needs. The institution’s coffers are emptying at an alarming rate. In late May, monetary reserves had fallen by half and were still in rapid decline. Also disappearing fast are the country’s of foreign currency, mainly because the government is subsidising the price of basic commodities. In the meantime Russia, Syria’s only ally, has reportedly taken over the printing of Syrian bank notes.
The collective result is a collapse in liquidity, both for the central bank and ordinary Syrians. Many of them can’t even get a loan. The Syrian people are the biggest losers in all this. Not only have thousands lost their lives, they’ve also been deprived of nearly half of the value of their assets.
The devaluation of the currency was another blow. In January, French-trained Dr Mayaleh responded to the collapse of the pound by resorting to a ‘managed float’, essentially devaluation by another name. His hand was forced because of his own institution’s liquidity crisis. Local banks were refusing to hand over their stores of foreign currency against a wildly overvalued Syrian pound. Predictably, the stock exchange is practically moribund. Trading has collapsed by about half and total capitalisation by roughly the same amount.
In the years leading up to the civil war, Dr Mayaleh travelled widely to talk up investment in Syria, which was, he enthused, a “transformed market”. He’s kept his head down since the bullets started flying and said next to nothing. But contradicting all the principles he must have learned in Economics 101, he did insist recently that the war wouldn’t destroy the Syrian market. The evidence is very much to the contrary.