Syrian regime and dollar crisis: Ineffective economic policies in face of shortages
Enab Baladi – Yamen Moghrabi
The trading rate of the Syrian pound against the US dollar has gradually deteriorated since the outbreak of peaceful demonstrations demanding the overthrow of Bashar al-Assad in March 2011.
It is normal for the value of local currencies to decline and for the economy to witness a decline during a period of political turmoil or stages of instability. But there are major factors that led to the historic decline in the value of the Syrian pound and the sharp decline in foreign exchange reserves at the Central Bank of Syria (CBS), like the regime’s adoption of the security solution, the army’s taking to the streets, and then its loss of large swathes of Syrian territory to the benefit of the opposition, in addition to the paralysis in economic sectors and halt of exports, internal and external tourism, and hundreds of thousands of people seeking refuge outside Syria.
Over the past years, the regime has followed several steps in an attempt to obtain foreign exchange resources and has repeatedly tried to adjust the exchange rate of the US dollar against the Syrian pound.
The regime also obligated those wishing to visit Syria through the border crossings under its control to exchange $100 according to the Central Bank’s rate, raised consular fees for Syrians abroad, set different exchange rates for remittances, imports, and the exchange rate, and withdrew government support for basic goods and services.
How does the regime deal with economic collapse?
Despite the Assad regime issuing dozens of decrees and decisions through which it attempted to control exchange rates and attempt to preserve the value of the Syrian pound from declining, the laws remained useless in light of the harsh conditions the country is experiencing.
This is due to the regime’s repeated efforts to replace the business class with others who work as a front for it and to produce a featureless economy, with a massive migration of the Syrian labor force.
The increasing migration directly affects the Syrian economy, which has been exhausted by the continuation of military operations for more than ten years.
The Arab Center for Research and Policy Studies said in a study published in 2022 that the behavior of the Syrian regime’s government over the past years shows confusion in decisions, and it is difficult to find a clear policy.
One of the most prominent problems facing the Syrian economy and the regime is the US dollar and the trading rate.
The regime periodically issues new exchange rate bulletins, which reflects attempts to control the price of the Syrian pound.
Economic expert Murshed al-Nayef linked the regime’s problem with the US dollar to two points. The first is the regime’s failure to rationalize the spending of reserve funds in the Central Bank and direct them in the interest of military operations.
The second point relates to the absence of external sources to secure the US dollar through exports, foreign investments, the tourism sector, and the rate of expatriate remittances, with hundreds of thousands of people seeking refuge outside Syria, according to al-Nayef.
He added that the Syrian regime does not have the ability to compensate for these sources, so it tried, through its various decisions, to find new sources of compensation.
Al-Assad issued Investment Law No. 18 of 2021 with the aim of preserving local capital and protecting it from immigration.
The Arab Center paper indicated that reality completely contradicts the purpose of the law due to the practices of the regime’s government and security services.
With the failure of the regime to implement the laws it issued for investment purposes and the factors mentioned by al-Nayef and the think-tank study, the regime sought to compensate for the sources of foreign exchange in other ways.
Economic analyst Younis Karim told Enab Baladi that the Syrian regime has three reasons for collecting fees in US dollars.
The first is an attempt to compensate for the dwindling of its external financial resources with internal ones by imposing taxes and fees in US dollars.
Karim explained that the second reason is related to changing the economic pattern of society and the attempt to create “neo-economic capitalism” (also known as Milton’s capitalism), while the third reason is the regime’s belief that the next solution in Syria is an economic, not a political solution, and whoever has the money is the one who controls fate.
This decline, along with other factors, led to a decline in the purchasing power of Syrians and an increase in unemployment rates, with 15.3 million people in urgent need of humanitarian assistance in Syria and 90% of Syrians below the poverty line, according to United Nations figures.
Also, there are 5.3 million Syrian refugees in the countries neighboring Syria, while there are no accurate numbers of Syrians who left and were not registered as refugees, specifically in the countries to which Syrians move to search for job opportunities, such as Iraq, Egypt, and the UAE.
The regime’s steps to control the exchange rate, including mandating payment of government service fees in US dollars, do not appear to be of much help in securing Syria’s foreign exchange or controlling the trading rate.
A study published by the Middle East Direction Center in 2020 stated that the Central Bank of Syria failed in its various policies to limit the decline in the value of the Syrian pound, and this decline caused serious consequences for the Syrian economy.
The study also indicated that the contraction of the economy led to a decrease in direct and indirect tax revenues from 325 billion Syrian pounds ($7 billion in 2011 at an exchange rate of 50 pounds per dollar) to 409 billion Syrian pounds in 2018 (about only $942 million at an exchange rate 434 pounds to the US dollar according to the official exchange rate).
The Direction Center study believes that the decline in the value of the pound encouraged dealing in the dollar with a loss of confidence in the Syrian pound, and this contributed to financing the Syrian regime’s treasury by exploiting the exchange rate.
Through the study, it is possible to understand the method followed by the Syrian regime to benefit as much as possible from exchange rate differences and obtain the largest possible amount of foreign exchange, including issuing special laws for remittance exchange rates and tightening its grip on the latter.
Al-Nayef does not believe that the Syrian regime is achieving a real benefit from its attempts to obtain foreign currencies by imposing the payment of some fees in US dollars, considering that this step does not generate sufficient revenues for the local market.
According to the economist, the monetary policies used by the regime do not achieve differences in achieving parity between supply and demand locally, especially with the cessation of foreign exchange sources.
Meanwhile, economic analyst Younis Karim believes that the benefit of the regime comes from its “management of state affairs,” an administration with which he identifies and is careful not to collapse, lest he collapse as well.
Karim pointed out that the regime’s repeated attempts to raise the official exchange rate against the black market exchange rate are a way to remain steadfast and attract remittances in a legal manner.
The US dollar is trading at 14,000 SYP according to the S-P Today website, which covers the trading rate of the Syrian pound to the dollar. At the start of the conflict in 2011, the dollar was trading at 47 pounds.
According to the official market bulletin issued by the Central Bank of Syria, it amounts to 11,500 Syrian pounds per dollar.
There are several bulletins in Syria for foreign exchange rates against the pound, three of which are announced on a daily basis: the official rate, the bank bulletin, and the remittance bulletin, in addition to an additional unofficial rate, which is the black market rate.
The bulletin of the official market is used in public sector operations (calculating the value of the general budget), evaluating bank data, and paying compulsory service allowance for residents inside Syria and expatriates.
The remittances and exchange bulletin specializes in cash exchange, the purchase of foreign commercial remittances, and a portion of incoming remittances to natural or legal persons, including incoming remittances through global remittance networks and any company that has accounts in foreign currencies, in addition to benefiting from persons obligated to exchange $100 when they enter Syria through official border crossings.
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