It’s hard to imagine how economic conditions in Syria could become even worse than they have been until now. Nine years of civil war have left the economy at one third its pre-war size, a third of its inventory of housing lies in ruins and two thirds of its population are refugees, inside the country or abroad.
Yet, the Syrian economy definitely did deteriorate even more in recent weeks: Over the last 12 months, the Syrian pound has halved in value and the pace seems to have picked up in recent weeks, leaving double-digit inflation in its wake. On the black market, it was trading at 535 to the dollar a year ago, and is now over 1,000.
Syria doesn’t publish a consumer price index, but the Financial Times cites sources saying prices of key goods have risen as much as 30% since October. In the southern city of Suwaida, Syrians have even taken to the streets to protest the high cost of living, a rare and courageous act against a government that doesn’t hesitate to shoot demonstrators.
At first glance, the pound’s present troubles seem counterintuitive. It declined in value over the course of the war (from 47 to the dollar when the fighting broke out).
But the war is mostly over. The Assad regime has recaptured most of the country from the rebels. Theoretically, economic conditions should have stabilized. Yet the currency is sliding quickly and the suffering of ordinary Syrians is taking on a new dimension.
'Particular methods' of a 'covert nature'
Yet, it all makes sense when you consider how the Syrian economy operates. The regime kept it afloat – that is, afloat relative to the Titanic – during the war years by what President Bashar Assad called in a recent interview “particular methods” of a “covert nature,” which in layman’s terms means corruption and sanctions-busting.
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One of those was abusing the humanitarian aid coming its way during the war years. The Western powers had imposed sanctions on Syria but allowed aid totaling more than $30 billion to reach the country, an amount equal to as much as 35% of Syrian gross domestic product.
It was important crutch when much of the Syrian economy had shut down. But even better, from the regime’s point of view, was that it was able to skim off large amounts of the aid money being funneled through the United Nations. Only a fraction of the money actually reached the needy.
Aid still seems to be flowing in, but another crucial source has evaporated – the hundreds of millions of dollars in military aid provided by Qatar and Turkey to rebel fighters. Much of it leached into the government-controlled parts of Syria, as Assad himself admitted in the interview. Now, with the war mostly over, the rebels’ patrons have stopped writing checks.
However, the most important prop of all was Lebanon. Its ports accepted oil and other goods that sanctions prevented Syria from importing directly and, most importantly, its banks provided the dollars the economy needed to pay for the imports. Wealthy and even middle class Syrians kept their money in Lebanon, and in some cases were relying on the high rates of interest Lebanese banks have been paying to support themselves.
Lebanon’s own economic crisis has abruptly put an end to all that. Facing a severe cash crunch due to years of government mismanagement of the economy and corruption, Lebanon’s banks closed for two weeks in October and have since limited withdrawals to tiny amounts. Billions of Syrian dollars are stuck in Lebanon.
The Assad regime has taken measures to stem the currency crisis, among them by limiting issuance of new import licenses and ordering wealthy businesspeople to deposit money in the central bank. More crudely, it has raised fines and threatens jail for those who spread “made-up facts or false speculations” that “lower or destabilize” the pound. Another decree more than doubles prison time to seven years for people caught using foreign currency.
None of this is likely to prevail over the laws of supply and demand for dollars. But more to the point, the plunging pound shows just how Pyrrhic Assad’s victory has been: He has more or less won the war (or at least, he hasn’t lost it), but Syria is in ruins and has no obvious path to recovery. The West could finance and lead a reconstruction effort but won’t do so without a negotiated political transition that Assad will never accept. Assad’s Iranian and Russian allies don’t have the money to finance the rebuilding of Syria; at most, they could undertake some projects and make some money on the side.
Still, Syria is not Lebanon, or even Iraq, where the public can express some of its anger, however ineffectively. After nine years, and half a million deaths, the regime is not going to countenance protests over the cost of living and official incompetence, even if they might enable ordinary Syrians let off a little steam. It was peaceful protests calling for democratic reforms that quickly turned into a bitter and violent war.
In other words, even leaving out more internal strife, it seems that Syria is destined to misery for at least a generation.